It is not difficult to appreciate why so many people fall in love with Cyprus and consider making it their home. There are, however, some tax and financial essentials you need to be aware of and plan for if you are to get the best out of living in Cyprus.
Most of us would want to make sure we do not miss out on tax planning, pension and wealth management opportunities that could protect our wealth and improve our retirement years.
The starting point when living abroad is to understand how you become resident for tax purposes. You are tax resident in Cyprus if you cumulatively spend more than 183 days physically present here during a calendar year. Generally, a day of arrival counts as a day of residence and a day of departure as a day of non-residence.
Cyprus takes a split-year approach. If you have not done your six months in the year of arrival, then you will be tax resident from 1st of January of the following year (assuming you stay for more than 183 days).
If you arrive in the first six months, then you are tax resident the day of arrival. From a UK perspective, it may be advantageous to start residency here before 6th April.
British nationals also need to understand how the UK Statutory Residence Test works – it can be harder than you think to lose UK residence. Where you are regarded as tax resident in both Cyprus and the UK under each country’s domestic laws, the UK/Cyprus tax treaty will determine your residence.
Expatriates living in Cyprus need a thorough understanding of the Cyprus tax system and how it applies to you. As a resident of Cyprus, you are taxable on your worldwide income (including all pension income) and gains on Cyprus real estate. Certain income, such as bank interest and dividends, is exempt from income tax, but is taxable in the form of ‘defence contributions’. Rental income is subject to both income tax and defence contributions.
There is no capital gains tax on the sale of shares, but defence contribution on bank interest has increased to 30% in recent years. However with specialist advice you may be able to restructure your savings to avoid paying tax on investment income.
If you are retired or approaching retirement, Cyprus is a very attractive place to live from tax point of view.
Pension income arising from an overseas source (so from UK pension funds) can be taxed in one of two ways at the taxpayer’s option:-