Before examining the tax regimes that apply to individual clients in Cyprus, it is important to draw a distinction between residents and non-residents in Cyprus, as well as between persons who are domiciled in the Republic of Cyprus and those who are not. Each of these categories will be described separately below.

Income Tax

Cyprus tax residents are taxed in Cyprus on their worldwide income. Income tax is payable at the following rates:

• For a taxable income of EUR0–19,500, the tax rate is 0.
• For a taxable income of EUR19,501–28,000, the tax rate is       20%.

• For a taxable income of EUR28,001–36,000, the tax rate is 25%.

• For a taxable income of EUR36,001–60,000, the tax rate is 30%.

• For a taxable income of over EUR60,001, the tax rate is 35%.

Any dividend or interest income and any gains from the disposal of securities or arising from an approved corporate restructuring are fully exempted from taxation at the above rates, although such income remains subject to the Special Defence Contribution, which will be analysed below. There are also various exemptions for income from remuneration of persons who were not residents in Cyprus prior to their employment.

When calculating a person’s taxable income, certain expenses incurred wholly and exclusively for the production of income are deductible, such as the expenses for letting buildings or the interest relating to the acquisition of fixed assets.

Persons who are not tax residents in Cyprus will only be taxed on income accruing or arising from sources within Cyprus. 

Special Defence Contribution

The Special Defence Contribution only applies to individuals who are both tax resident and domiciled in Cyprus. 

This tax is imposed at a rate of 17% on dividends, 30% on interest income (subject to certain exemptions) and 3% on rental income after deduction of 25%, subject to certain exemptions.

Capital Gains Tax

Capital gains tax in Cyprus is closely related to the disposal of immovable property in Cyprus and is therefore applicable on any person, whether resident or domiciled in Cyprus. The capital gains tax rate is 20%, and it is imposed on the gains from the disposal of immovable property or shares in a company owning immovable property situated in Cyprus. Individuals are allowed certain deductions when the above-mentioned gains are calculated.

Cyprus law provides that certain disposals of immovable property are not subject to capital gains tax, including any transfers of property of a deceased person, gifts between spouses, parents and children and relatives up to a third degree of kindred, gifts to a company whose shareholders are members of the donor’s family, gifts by a family company to its shareholders if the company had also acquired the property in question via donation, and gifts to charitable organisations or the government.

Trusts

Trusts are not recognised as separate legal entities under Cyprus law and are therefore not taxable as such, but the beneficiaries are taxable through the trustees. The Cyprus International Trusts Law of 1992 provides that the income and gains from an international trust that are acquired or deemed to be acquired from worldwide sources will only be taxed in Cyprus where the beneficiary is resident in Cyprus. In cases where the beneficiary is not resident in Cyprus, only the income and gains of the trust arising from sources within Cyprus will be subject to any taxation in Cyprus.

No inheritance tax or estate duty is levied in Cyprus. Any acquisitions or transfers by way of gift to family members are also exempted from taxation.

As the Cyprus tax system offers many exemptions and deductions from taxation over a person’s income, income tax planning is considered important for individuals.

Immovable property tax was abolished on 1 January 2017.

The transfer of a property in Cyprus entails the payment of tax in the form of a transfer fee, which is calculated by the competent authorities based on the scale indicated below:

• for the first EUR85,000, the rate of 3% applies; 
• for amounts between EUR85,001 and EUR170,000, the rate of 5% applies; and
• for amounts over EUR170,000, the rate of 8% applies. 

A reduction of 50% is applicable on the above fees.

No transfer fees are imposed if the property was subject to value-added tax (VAT) at the time it was acquired.

While Cyprus saw the introduction of new taxation and increased levies during the financial crisis of 2013, many of these have been balanced back or abolished (eg, immovable property tax was abolished on 1 January 2017) to reflect the island’s steady advance towards economic recovery. Cyprus legislators have adopted a stable approach towards estate duty and transfer taxes, and the policymakers do not seem to have an intention to amend the current status, as described above.

Cyprus tax laws relating to transparency and reporting are in compliance with the EU Regulations and follow the provisions of the US Foreign Account Tax Compliance Act (FATCA) and the OECD Common Reporting Standard (CRS).

Under the FATCA and CRS regimes, financial institutions in Cyprus, including banks, asset managers, custodians and certain types of insurance companies and funds, are required to collect and review information about their clients and investors, which is subsequently reported to the tax authorities of the countries of tax residence of such clients and investors.

On the other hand, the reporting obligation under the EU Directive for Administrative Cooperation, No 6 (DAC 6) regime burdens the taxpayers and intermediaries, such as advocates or tax consultants who have assisted or provided advice in relation to the implementation of a reportable cross-border arrangement. DAC 6 was incorporated into Cyprus law in 2021 through the Mandatory Disclosure Rules (MDR) Law (Law 41(I)/2021, amending Law 205(I)/2012 on Administrative Cooperation in the Field of Taxation of 2012), with the Cyprus Tax Department being the competent authority for receiving such reports on cross-border arrangements from intermediaries.

The increasing number of global cross-border tax reporting regimes has imposed the need for advocates or other tax consultants in Cyprus dealing with cross-border transactions to provide advice and guidance on the implementation of such transparency initiatives applicable in Cyprus, and to support clients in relation to the operational and technical consequences that the CRS, DAC 6, FATCA and other multinational transparency initiatives may have on their corporate structures and multinational business dealings.

Cyprus is considered to be a family-oriented country with strong traditional origins. The older generation feel as if it is their obligation, to some extent, to secure the future wellbeing of their children.

This mindset was previously reflected in the business sector as well. Businesses were transferred from the older generation to the next generation of the same family without any external interference, as this approach helped to establish and boost the family’s name in the specific sector. In addition, the older members of the family had active participation in their business until old age, in order to enhance its profile as an experienced, reputable and well-rooted business.

Nowadays, there is a combination of both old and new approaches regarding succession planning, as new elements characterise the modern approach to the family-oriented model.

Firstly, larger companies are adopting a new succession-planning approach by disposing of a percentage of those companies to the public and thus expanding beyond the close circle of family members. With this approach, the companies hope to meet the requirements for adopting contemporary structures and methods and for producing different and more modern ideas, as set by new investors; these methods provide the companies with better chances of “surviving” in the general competitive environment.

Of course, it must be noted that this approach is most commonly followed by larger companies, as the smaller ones are usually still represented by family members, in order to ensure the traditional and family character of the business. This is commonly attributed to a resistance to, and a fear of, change in general.

Secondly, over recent years there has been more willingness by the older generations to take a step back and transfer the full control of their business to the new generations, prompted undoubtedly by the rapid invasion of technology into the business sector and the globalisation of the commercial sector.

Undoubtedly, international planning and general globalisation – especially of large businesses with a presence in multiple jurisdictions – are significant aspects that must be taken into consideration when approaching the matter of succession planning.

In Cyprus, the majority of businesses benefit from the advantages of Cyprus’s tax system, and the succession and/or transfer of any assets is planned based on Cyprus law and its respective rules.

Hence, since the domicile of a person is a major aspect of the law with regard to the governing law for the distribution of inheritance, Cyprus and its advantageous tax system is often considered to be the best option. On assessing whether Cyprus law is going to govern the succession planning of a person, the person’s domicile (in the case of inheritance laws) and residency (in the case of tax laws) must first be ascertained.

According to the Wills and Succession Law, Cap. 195, if a person dies without a testament, his/her property will be transferred to his/her relatives, based on the respective relation degree.

If a testament is concluded prior to death, the court will follow the testament of the deceased but, in any case, first-degree relatives (spouse, children) cannot be excluded from the inheritance. The deceased can distribute only 25% of the property to any third party if he/she has a spouse and children, or 50% if he/she has a spouse and parents. The law states that it is obligatory for a percentage to be transferred to the first-degree relatives irrespective of the provisions of the deceased’s testament.

Marital status in Cyprus is considered to be a straightforward matter. Under the law, a spouse can transfer anything registered in his/her name and obtained during marriage. Therefore, if an asset is registered in the name of the spouse, it can be freely transferred or disposed to any third party without any restrictions. However, this approach to marital property might change in the near future, as there are proposed bills to be presented before the House of Representatives, which would introduce certain restrictions on spouses disposing of or mortgaging marital property.

Regarding the assets of a spouse that were obtained during the marriage, if there is an evident contribution of the other spouse, the other spouse will need to prove this contribution in the joint assets in case of a dispute. For example, a wife cannot claim any percentage of her husband’s assets unless she shows her contribution to the increase and/or creation of this wealth.

Prenuptial and postnuptial agreements are not prohibited by the law but are not considered to be common practice in Cyprus. These agreements are considered binding by the courts, but they will be treated as void if abusive terms are stipulated therein. Also, in order to be considered as binding, these agreements must not contradict the provisions of the Wills and Succession Law, Cap. 195.

The transfer of a property in Cyprus entails the payment of tax in the form of a transfer fee, which is calculated by the competent authorities based on the scale indicated below:

• for the first EUR85,000, the rate of 3% applies; 
• for amounts between EUR85,001 and EUR170,000, the rate of 5% applies; and
• for amounts over EUR170,000, the rate of 8% applies. 

A reduction of 50% applies on the payment of the transfer fees.

No transfer fees are imposed on the transfer of property from parents to children. In the case of transfer of property between spouses or between third-degree relatives the transfer fees are calculated on the value of the property as per the records of the Land Registry Office at 0.01%.

No transfer fees will be payable for properties that are subject to VAT.

The tax-free transfer of assets to younger generations can be achieved with a transfer by way of gift. It should be noted that there is no inheritance tax applicable in Cyprus, nor any taxes on income received by family members by way of gift.

Additionally, a gift of property made by a company whose shareholders are all members of the same family, to any of its shareholders, where the property was also acquired as a gift, can be transferred without any tax.

There is no specific approach with regard to transfer of digital assets. The transfer of digital assets follows the common procedure for transfers under succession.

As a common law system based largely on the English system, Cyprus law recognises the existence of trusts and the use of such structures for tax planning purposes or for the management and protection of family assets. Cyprus trust law is mainly regulated by the Trustee Law, Cap. 193 and the International Trusts Law of 1992, which deals with trusts created by a non-resident settlor for the benefit of non-resident beneficiaries. Trusts in this last category are referred to under Cyprus law as “international trusts”, and they offer a number of tax benefits to their parties.

Although trust structures have always been recognised in Cyprus, recent anti-money laundering, transparency and compliance regulations have unfairly created an impression that any trust structure should be linked to tax avoidance. Having said that, trusts are still recognised and established under Cyprus law as asset protection and tax planning vehicles.

If a Cypriot tax resident serves as a fiduciary in a trust, the income received from such appointment will be subject to taxation in Cyprus. However, the income of the trust itself will not be assessed on the trustee, as the trustee will only be responsible for the payment of any taxes due on behalf of the beneficiaries.

When the income and profits of a foreign trust are distributed to a beneficiary who is tax resident in Cyprus, such worldwide income will be taxed in Cyprus. However, it is important to note that Cyprus has an extensive network of double tax treaties, which establish reduced or zero withholding tax rates on dividends, interest and royalties, provided these are paid from a treaty country. Such double tax treaties also provide for the avoidance of double taxation on income derived by a resident of one of the treaty countries from a source in the other treaty country.

There are no adverse tax consequences under Cyprus law in circumstances where the settlor or beneficiary of a trust also acts as its trustee.

Cypriot legislators have identified the need to make trusts adaptable to any changes that shall be required in the future, and have followed the examples of Jersey and Guernsey law in introducing the relevant provisions into Cypriot legislation. A 2012 amendment to the Cypriot International Trusts Law of 1992 included an extension to the right of the settlor to reserve powers over the trust. A settlor under a Cypriot International Trust is now able to reserve the following powers, among others:

• to revoke/amend the terms of the trust or any trusts or powers arising wholly or partly from the trust;
• to allocate, distribute, pay or otherwise dispose of income or capital from the trust property, or to issue directions for conducting such a concession, distribution, payment or disposal;
• to appoint or terminate any trustee or inspector for the application of the trust, protector or beneficiary; or
• to change the applicable law governing the trust or place (forum) of management of the trust.

It is explicitly stipulated in the above-mentioned legislation that the retention by the settlor of any powers mentioned above and in the said law shall not in any way affect the validity of the trust. Nevertheless, it has been widely accepted under Cyprus law that an extensive retention of powers by the settlor would not be advisable and would potentially expose the trust to being challenged as a sham.

Asset protection in Cyprus is usually used for protecting one’s assets from potential creditors in case of debt collection or bankruptcy procedures, or even forced heirship or matrimonial rules. In Cyprus, the most effective asset protection plan is the trust.

The term “family business” is not recognised as a legal concept under Cypriot national laws. However, family businesses can take advantage of certain tax incentives, such as the non-imposition of inheritance tax, regardless of the wealth size. 

Inheritance tax in Cyprus was abolished on 1 January 2000, along with the need for any inheritance tax optimisation. Additionally, there is no imposition of any wealth or gift tax on any transfer between relatives up to the third degree of kindred. 

These tax advantages are perhaps the reason that important aspects of the succession process are not planned at all, although the majority of family business owners intend for the business to be transferred to a family member.

Family conflicts are normally created when there is no advanced succession planning or will, and family members are to share the estate in accordance with the forced heirship rules. It is worth noting that Cyprus inheritance law is drafted in such a way so as to accord protection to the family, and so imposes restrictions on the testator’s freedom to dispose of his/her estate by will, allowing him/her to dispose of only up to 25% of the estate (or up to 50% if there are no descendants). The law also provides that the estate of a deceased person is to be distributed equally among the descendants. Therefore, family conflicts can be avoided by specifying how the estate will be distributed in a will. 

Successful strategies followed by family businesses in Cyprus include the progressive transfer of shares from the first generation to the second, applying meritocratic criteria for appointing family members to managerial positions, having independent professionals on the management board, and including potential successors in the business from an early stage.

As described, no tax is applicable on the transfer of a business during the lifetime or on the death of a family member, up to the third degree of kindred. Therefore, a family business owner and the successors enjoy such tax benefits without entering into complications.

Wealth disputes arise mostly in matrimonial matters and particularly regarding the unlawful alienation or concealing of assets in divorce proceedings, as well as the concealing of assets during bankruptcies, debt collections or similar proceedings. Wealth disputes are naturally increasing in number following the increase in the number of divorce filings and bankruptcy proceedings. Cypriot society has become more litigious, so naturally this has carried over to wealth litigation.

Usually, wealth disputes are filed in courts accompanied by an application for an interim order or injunctions. Depending on the facts of a case, on the type of the assets, and on the flexibility, possibility and risks of alienation of those assets, the court will issue an appropriate order. Generally, the court has the power to grant interim orders regarding issues including, but not limited to, the following:

• interim injunctions;
• interim declarations;
• freezing injunctions, which may also include ancillary disclosure orders;
• search orders;
• disclosure or inspection orders; and
• interim payment orders.

Where such orders are issued, many cases are settled before they reach the hearing stages.

The subject matter in wealth disputes is usually the assets, so the remedy normally sought is restoration of the asset; where this is not possible, monetary compensation may be possible. Applicants may also seek injunctions or interim orders, as described above.

The fiduciary sector is prevalent in Cyprus and has been a contributor to the country’s GDP for the last two decades. The provision of fiduciary services is regulated by national legislation (Law Regulating Companies Providing Administrative Services and Related Matters), and the supervisory authority is the Cyprus Securities and Exchange Commission (CySEC). 

All the administrative service providers (ASPs) offering fiduciary services, including the managing and directing of trusts, as well as the undertaking or providing of services of managing companies or other entities, should acquire a licence (ASP licence) from CySEC. 

Licensed entities are required to abide by the provisions of the Directives of CySEC in regard to anti-money laundering and terrorist financing prevention.

In view of the fiduciary and statutory duties owed by the trustees to the beneficiaries, the liability on such trustees and fiduciaries regarding any of their actions is significant, and the onus is on the trustees to prove that they have fulfilled their duties and indicated the level of skill and care required for their position, in order to be exempted from liability in cases where their actions are challenged.

A trustee of a Cyprus law-governed trust is empowered to invest the assets of the trust, as long as the terms of the trust are complied with, as if such trustee were the beneficial owner of said assets. However, the trustee is deemed to owe fiduciary duties to the beneficiaries of the trust and is therefore required, inter alia, to act in good faith and with proper purpose, to not act in any way that would conflict with his/her duties as trustee, to show independent judgement and act fairly between the beneficiaries of the trust, and to indicate a degree of skill and care. Moreover, the trustee’s rights and obligations are clearly stipulated in the Cyprus Trustee Law, Cap. 193.

According to Cyprus law, in terms of investing, a trustee should be able to deal with the assets of the trust as if such trustee were the beneficial owner of said assets. Provided that the trustees adhere to the terms of the trust in the way they deal with the assets and that they are compliant with their fiduciary duties, their investments will be permitted and held valid.

Domicile

Domicile is a legal concept distinct from the concept of nationality or residence. As per the Wills and Succession Law (Cap. 195, Section 6), domicile can be obtained either (a) through origin (domicile of origin) if the person’s domicile is the domicile of his/her father at the time of birth, or of his/her mother if his/her parents were unmarried or if he/she was born after the father’s death, or (b) by choice (domicile of choice) if the person has chosen a different domicile than that of his/her origin, and the domicile has been obtained and maintained due to his/her efforts.

The domicile of choice can be obtained once the person establishes his/her residence within the Republic of Cyprus with the intention to permanently or indefinitely reside there. The domicile of origin prevails and is maintained until the domicile of choice is obtained. 

Residency

Non-EU citizens may apply for a residence permit in Cyprus, which can be temporary and renewable annually, or permanent.

Temporary Residency

The temporary residence permit applies to students, domestic workers, employees at international companies, volunteers and other categories; it is also suitable for visitors. Different requirements are in place for each category. 

Visitors who apply to obtain a temporary residence permit should obtain residence in the Republic of Cyprus, prove that they have sufficient funds to support themselves, including annual income from abroad and a bank account in Cyprus, and obtain medical insurance.

Employees at international companies seeking to obtain a work permit should secure a job position with a company having significant activity and operations in Cyprus, and which is registered with the Migration Department (if the company is hiring non-EU citizens). The employee should present an employment agreement, a bank guarantee, a criminal record certificate, proof of residence in the Republic of Cyprus, and medical insurance.

Permanent Residency

Non-EU citizens may apply to obtain an immigration permit if they intend to work as self-employed in the Republic of Cyprus in certain industries under specific requirements, or if they wish to reside in Cyprus (Category F). In the Category F case, the holders of the permit will not be allowed to undertake employment in Cyprus, but will be able to participate as shareholders in Cyprus companies and receive the dividends of such companies. The requirements for applicants under Category F are to obtain residence in Cyprus, to maintain a bank account in Cyprus, to present stable and sufficient income from abroad to support themselves, and to obtain a criminal record certificate.

Permanent Residency fast-track: An expedited scheme for a permanent residence permit (fast-track) is available for investors and business persons, under Regulation 6 (2) of the Aliens and Immigration Regulations. This category grants the applicant and his/her family members a permanent residence permit within three to five months of the submission of a completed application, including the spouse, dependent children up to 25 years old, and the applicant’s parents and parents-in-law. The requirements for an applicant under this category are to invest in Cyprus a minimum amount of EUR300,000 plus VAT if applicable, to present a stable and secured annual income from abroad that is sufficient to support the applicant and the dependents, and to obtain a criminal record certificate. The investment options under this programme include the acquisition of residential or commercial real estate, investment in the share capital of a Cyprus company with activities and staff in Cyprus, or investment in units of a Cyprus Collective Investment Organisation.

Long-term residency: This status enables non-EU citizens who have been residing in Cyprus for over five years to enjoy similar rights to EU citizens, including the ability to work, study, and operate a business. The status is granted as long as the applicants have not been absent from Cyprus for more than than six consecutive months or more than ten cumulative months within the five-year period. 

Citizens of the EU do not need to obtain a residence permit to reside in Cyprus; registration with the Migration Department confirming that they are residing in Cyprus is sufficient. The registration application should be submitted within four months of the date of entry into Cyprus.

Citizenship

Cyprus citizenship can be obtained due to the origin of the parents (mother or father), or by naturalisation based on the number of years of residence in the Republic of Cyprus. In the latter case, the residence should have been legal and continuous for at least seven years prior to the date of application. For foreigners who are either parents or children of Cypriot citizens, the time required is five years. In all cases, the applicant must have resided legally and continuously in Cyprus during the twelve months preceding the date of the application.

The spouse of a Cyprus citizen can acquire Cyprus citizenship after completing three years of marriage and two years of residence in the Republic of Cyprus, or, in the case of spouses of overseas Cypriots, the application can be submitted by the spouse after completing at least three years of marriage.

The Cyprus Investment Programme was terminated on 1 November 2020, by the decision of the Council of Ministers dated 13 October 2020. Therefore, no new naturalisation application can be submitted after this date under this programme.

Cyprus law recognises the existence of trusts and the use of such structures in order to provide for minors and adults with disabilities. Proper planning can be implemented to ensure that vulnerable members of the family can be provided for and taken care of financially, as well as to ensure other aspects of their lives through the relevant terms of the trust deed.

Under the law it is obligatory to obtain a court order for the appointment of a guardian. Following the court order, Social Welfare Services are responsible for ongoing supervision and for the preparation of any reports. 

Life expectancy has increased gradually in Cyprus. From the earliest years of the establishment of the Republic of Cyprus, a social insurance system has been designed and implemented in order to ensure that a person will receive a pension based on his/her contribution during his/her working life. Thus, it is safeguarded at a minimum level that pensioners will have financial support during their later years. 

In addition, many businesses in Cyprus in the private and banking sectors offer provident fund options to their employees, based on which employees contribute a percentage of their salary and at the same time the employer contributes another percentage. These funds are usually structured as pension funds, so as to become available to the employees upon retirement.

In Cyprus, a child born out of wedlock will have the same rights as a child born within a marriage regarding inheriting from his/her father and/or mother and/or their families. Cyprus is a member of the European Convention on the Legal Status of Children Born out of Wedlock, which was ratified by Law 50 of 1979.

Adopted children are protected under Succession Law regarding inheritance, since it is obligatory for such heirs to be registered as first degree beneficiaries.

Same-sex couples are legally recognised through civil cohabitation agreements.

Following the passing of Law 184(I)/2015, domestic partners (of any sex) can enter into a legal union by means of a civil cohabitation agreement.

Charitable giving is widespread in Cyprus, especially among companies, for which such actions provide several exemptions and tax benefits. The amount of the charitable giving is exempted from income tax, which encourages this approach.

In order to control the use of charitable giving and avoid any fraud, the government publishes each year on the website of the Ministry of Finance a list of all the approved charities to which individuals and companies may contribute.

Charitable trusts, associations, foundations and private non-profit companies are commonly used to serve worthy projects and noble purposes. The Cyprus legislation provides for different structures of organisations for charitable or non-profitable purposes, and each organisation is subject to the relevant legislation. Such structures are established for the promotion of educational, cultural, environmental, community and medical research causes, support of vulnerable groups or patients of particular diseases, support of professional and sports bodies, and other worthy causes.

Associations and foundations are regulated by the Associations and Foundations and Other Related Issues Law of 2017 (104(I)/2017) which was recently amended in order to further safeguard transparency and good governance and to establish a mandatory register.

A foundation is the totality of the property intended to serve the implementation of a particular not-for-profit objective. For the purposes of the foundation’s establishment, the dedicated property cannot amount to less than EUR1,000.

An association is an organised union comprising at least 20 persons, aiming to achieve a not-for-profit common objective, and does not include political parties or trade unions. An association must maintain a minimum number of 20 members, at all times, otherwise the association can be dissolved.

A Cyprus non-profit company is incorporated as per the provisions of the Companies Law (Cap. 113). To be considered as a non-profit company, the company should serve the promotion of commerce, art, science, religion, charity or any other useful object. Moreover, the company’s profits or other income should be used in promoting such objects, while the payment of any dividends to its members is prohibited. Non-profit companies are obliged to comply with all the obligations of limited companies, including the filing of audited financial statements and annual returns with the Registrar of Companies every year.