Cyprus Tax Residency – Guide for Individuals and Businesses

Cyprus is a premier destination for individuals and companies seeking a competitive tax environment combined with high living standards and a stable legal framework. As a member of the European Union, Cyprus adheres to international standards of transparency and compliance, while offering unique tax benefits that attract businesses, investors, and expatriates globally. This guide explores everything you need to know about obtaining and maintaining Cyprus tax residency, including legal criteria, tax benefits, procedural requirements, and frequently asked questions.

Overview of the Cyprus Tax System

The Cyprus tax system is renowned for its simplicity, predictability, and attractiveness to foreign investors. Key features include:

  1. Corporate Tax Rate: Cyprus applies a corporate income tax rate of 15% (effective from 1 January 2026).
  2. Personal Tax Rates: Progressive tax rates with the first €22,000 of income being tax-free (from 1 January 2026).
  3. Non-Domicile Tax Regime: Significant exemptions from Special Defence Contribution (SDC) for qualifying individuals, with an optional extension mechanism available after the standard 17-year period.
  4. Double Tax Treaty Network: An extensive treaty network minimising double taxation for cross-border transactions.
  5. No Wealth or Inheritance Tax: Encourages wealth preservation for high-net-worth individuals.
  6. Stamp Duty Abolished: Stamp duty has been abolished under the 2026 reform, reducing friction for a wide range of contracts and corporate transactions.
  7. EU and OECD Compliance: Cyprus complies with international standards on anti-tax avoidance and transparency.

Legal Basis for Tax Residency in Cyprus

The determination of tax residency in Cyprus is governed primarily by the Income Tax Law of 2002 (L.118(I)/2002), as amended, and related legislation including the Special Defence Contribution Law (L.117(I)/2002), as amended. These laws set out the criteria for individual and corporate tax residency and establish the framework for tax obligations and benefits.

Individual Tax Residency

Two primary rules govern tax residency for individuals:

  1. 183-Day Rule:
    • An individual is considered a tax resident if they spend more than 183 days in Cyprus within a calendar year.
  2. 60-Day Rule: Introduced in 2017, this rule allows individuals with business or professional ties to Cyprus to qualify as tax residents even if they spend less than 183 days, provided the following conditions are met:
    • At least 60 days are spent in Cyprus during the tax year.
    • The individual does not spend more than 183 days in another country.
    • They are not tax resident in any other country for the same tax year.
    • They maintain a permanent home in Cyprus (owned or rented).
    • They are employed in Cyprus, conduct business activities, or hold a position in a Cyprus tax-resident company.

Corporate Tax Residency

A company is considered tax resident in Cyprus if it is managed and controlled from Cyprus. The location of incorporation is secondary to where key management decisions are made. Factors determining corporate tax residency include:

  • Location of board meetings.
  • Residence of directors (and where decisions are taken).
  • Location of the company’s principal place of business.

Tax Benefits of Cyprus Tax Residency

Achieving tax residency in Cyprus provides significant advantages for individuals and businesses. These benefits are discussed in detail below.

1. Personal Taxation Benefits

  • Tax-Free Income Threshold: Individuals enjoy a tax-free income threshold of €22,000 annually (from 1 January 2026).
  • Progressive Tax Rates: From 2026, the main bands are: 0% up to €22,000, 20% (€22,001 to €32,000), 25% (€32,001 to €42,000), 30% (€42,001 to €72,000), and 35% above €72,000.
  • Non-Domicile Status: Qualifying non-domiciled individuals are exempt from SDC on dividends and interest for the standard 17-year period. Following the 2026 reform, an optional extension mechanism is available after the 17-year period (subject to statutory conditions and payment requirements).
  • Pensions: Foreign pensions may be taxed at 5% on amounts exceeding €5,000 annually (with an option to be taxed under normal personal income tax rates, depending on the individual’s circumstances).
  • Capital Gains Tax Exemptions: No tax on the disposal of shares, securities, or property outside Cyprus (subject to anti-avoidance rules and specific exceptions under Cyprus law).

2. Corporate Taxation Benefits

  • Corporate Tax Rate: A flat 15% corporate income tax rate applies to company profits from tax years beginning on or after 1 January 2026.
  • IP Box Regime: Income from qualifying intellectual property can be taxed at an effective rate of approximately 2.5% (subject to the nexus approach and eligibility conditions).
  • Dividend Income: Dividend income received by Cyprus companies can be exempt from taxation under specific conditions (including the participation exemption framework and relevant anti-avoidance provisions).
  • Capital Gains Exemptions: No tax on profits from the sale of securities (as defined), subject to the general framework for Cyprus companies and any applicable anti-avoidance considerations.
  • Group Relief: Losses within a group of companies can be offset against profits of other group entities in Cyprus, subject to statutory conditions.
  • Deemed Dividend Distribution: For profits earned from 1 January 2026 onwards, the deemed dividend distribution regime is abolished. Transitional rules may apply for earlier years and should be considered when reviewing retained earnings.

3. VAT Advantages

Cyprus applies the standard EU VAT rules, but businesses may benefit from:

  • A reduced VAT rate of 5% on certain goods and services.
  • Exemption from VAT registration for businesses with low annual turnover or purely export-focused operations (subject to the VAT registration rules and any reverse-charge registration triggers).

4. Strategic Location

Located at the crossroads of Europe, the Middle East, and Africa, Cyprus offers a geographic advantage for businesses seeking access to multiple markets.

Procedures for Obtaining Cyprus Tax Residency

The process for establishing tax residency involves a combination of administrative procedures and documentation. Here is a step-by-step guide:

Step 1: Establish Presence in Cyprus

  • For individuals: Meet the 183-day or 60-day residency criteria.
  • For companies: Ensure management and control are conducted in Cyprus.

Step 2: Register with the Cyprus Tax Department

  • Obtain a Tax Identification Number (TIN) by completing Form TD2001.
  • Submit proof of residency (e.g., rental agreement, utility bills) and any other supporting documentation requested by the Tax Department.

Step 3: Submit Annual Tax Returns

  • Individuals: File annual income tax returns using Form TD1.
  • Companies: File corporate tax returns and audited financial statements (where applicable).

Step 4: Additional Steps for Non-Domicile Status

  • Submit a declaration confirming non-domicile status to the Tax Department, together with any supporting evidence requested.

Step 5: Compliance and Record-Keeping

Maintain accurate records of income, expenses, and proof of presence in Cyprus to substantiate tax residency claims and support tax filings.

Frequently Asked Questions

1. How long does it take to obtain Cyprus tax residency?

Obtaining Cyprus tax residency depends on whether you qualify under the 183-day rule or the 60-day rule. Once the requirements are met, tax registration typically takes a few weeks after submitting the necessary documents to the Cyprus Tax Department.

2. Can I apply for non-domicile status immediately after becoming a Cyprus tax resident?

Yes. As long as you were not a tax resident of Cyprus for at least 17 of the last 20 years, you can apply for non-domicile (non-dom) status immediately upon obtaining Cyprus tax residency.

3. Can a Cyprus tax resident work remotely for a foreign company?

Yes. As a tax resident in Cyprus, you can work remotely for a foreign employer. Your worldwide income is taxable in Cyprus, but if you qualify for the non-dom status, certain income streams (such as dividends and interest) may be exempt from SDC.

4. What happens if I exceed 183 days in another country?

If you exceed 183 days in another country, that jurisdiction may claim tax residency over you. This could result in dual tax residency, where you might have to rely on a Double Tax Treaty (DTT) to determine tax obligations.

5. Do I need to inform my home country that I am a tax resident in Cyprus?

Yes. It is recommended to de-register from tax residency in your home country (if applicable) to avoid dual taxation and unnecessary tax filings.

6. Does Cyprus tax foreign income?

Cyprus taxes worldwide income for tax residents. However, non-domiciled individuals are exempt from SDC, meaning they do not pay SDC on dividends and interest from foreign sources during the period of eligibility.

7. Is there a minimum income requirement for tax residency?

No. Cyprus does not impose a minimum income threshold for individuals to become tax residents under the 183-day or 60-day rule.

8. Can I own property in Cyprus without becoming a tax resident?

Yes. You can purchase and own property in Cyprus without being a tax resident. However, if you rent it out, you may still be liable for rental income tax in Cyprus (and, following the 2026 reform, SDC on rental income has been abolished, with rental profits remaining subject to income tax rules).

9. Are cryptocurrency earnings taxable in Cyprus?

From 1 January 2026, Cyprus introduced specific statutory rules for crypto-assets. In summary:

  • Gains from the sale, gift, exchange (crypto-to-crypto), or use of a crypto-asset as a means of payment are taxed at a flat 8%.
  • Losses from crypto-asset disposals are ring-fenced and can be offset only against crypto-asset disposal gains of the same person in the same tax year. They cannot be carried forward and cannot be group-relieved.
  • Crypto-assets acquired through mining are excluded from this special 8% disposal regime and require separate analysis under the ordinary income tax rules.

10. What are the VAT obligations for Cyprus tax residents?

  • If you operate a business in Cyprus, you must register for VAT if your annual turnover exceeds €15,600.
  • The standard VAT rate is 19%, with reduced rates of 5% and 9% for specific goods and services.

11. Do I need to file an annual tax return as a Cyprus tax resident?

Yes. Every Cyprus tax resident must submit an annual income tax return (Form TD1 for individuals and TD4 for companies).

12. How do I prove my tax residency in Cyprus?

To prove Cyprus tax residency, you can request a Tax Residency Certificate from the Cyprus Tax Department, which confirms compliance with the 183-day or 60-day rule.

13. What is the penalty for failing to file a tax return in Cyprus?

Failure to file a tax return on time can result in penalties:

  • €100–€200 for late submissions.
  • Interest on unpaid taxes, calculated at statutory rates.

14. Can I benefit from Cyprus’s tax system if I am retired?

Yes. Retirees benefit from favourable pension tax rules, where foreign pensions may be taxed at a flat rate of 5% for amounts exceeding €5,000 per year (subject to the applicable election and individual circumstances).

15. Can a foreigner become a Cyprus tax resident without physical presence?

No. Even under the 60-day rule, you must spend at least 60 days per year in Cyprus and meet other requirements to qualify as a tax resident.

16. Can I pay myself a salary from a Cyprus company at a low tax rate?

Yes. Cyprus offers a competitive personal tax framework, and if structured properly, you can manage your overall tax profile using salary, dividends (where applicable), and allowances, always subject to substance, payroll compliance, and anti-avoidance considerations.

17. How does Cyprus compare to Malta for tax residency?

While both countries offer favourable tax regimes, Cyprus typically has:

  • A straightforward 15% corporate tax rate (from 1 January 2026), compared to Malta’s higher headline rate with a refund mechanism.
  • No remittance-based taxation like Malta.
  • A comparatively simpler tax structure, making it more appealing for certain planning and operational models.

18. Are rental income and capital gains from property taxed in Cyprus?

  • Rental income is subject to income tax. Following the 2026 reform, SDC on rental income has been abolished.
  • Capital gains tax (CGT) applies only to property sales within Cyprus at 20% on profits. Property sales abroad are not taxed in Cyprus.

19. What are the key documents required for tax residency application?

  • Passport/ID copy
  • Proof of residence in Cyprus (rental contract or property deed)
  • Employment contract or business registration
  • Utility bills and bank statements
  • Completed tax registration forms (TD2001, TD1, TD4, etc.)

Conclusion

Cyprus offers a robust framework for tax residency, making it an attractive destination for individuals and businesses alike. Its favourable tax regime, strategic location, and compliance with international standards make it a premier choice for those seeking a tax-efficient jurisdiction. Whether you are an entrepreneur, a high-net-worth individual, or a multinational corporation, Cyprus provides tailored solutions to optimise your tax position.

Contact our Cyprus lawyers today to see how you can benefit from becoming a Cyprus Tax Resident.