An important consideration when buying a home in Cyprus, whether you’re a resident or non-resident, is taxation, which includes income tax, immovable property tax, capital gains tax, inheritance tax and value added tax.
If you live permanently in Cyprus, you will have to pay Cypriot income tax on your worldwide earnings. However, the good news is that tax rates are some of the lowest in Europe, especially for those who choose to retire there. Cyprus also has double-taxation treaties with many countries, which are designed to ensure that income that has already been taxed in one country isn’t taxed again in another. Other advantages of living in Cyprus are that there are no inheritance, gift or wealth taxes.
Cyprus has traditionally been considered a favourable tax location, if not exactly a tax haven. In the ’70s, in an effort to attract ‘offshore’ companies to the island, the government introduced a package of tax incentives which ensured its success as a European financial centre. However, once it was agreed that Cyprus should join the European Union, its tax legislation had to come into line with EU requirements and comply with OECD initiatives against harmful tax practices. Consequently on 1st January 2003, the tax system in Cyprus underwent some major reforms, some of which temporarily weakened the country’s economy. The main changes in the tax legislation since 1st January 2003 are as follows:
Any person resident in Cyprus for more than 183 days per tax year (1st January to 31st December) is liable to pay tax there on their worldwide income. Non-residents are taxed only on income earned in Cyprus.
The terms ‘alien’ (foreigner) and ‘citizen of the Republic’ have been abolished as taxation terms and the distinction is now ‘resident’ and ‘non-resident’.
There are no longer exchange controls or restrictions on importing and exporting money. Financial and banking institutions are slowly being liberalised in line with EU regulations.
Cyprus tax law has now been harmonised with that of other EU countries, but its tax rates are still low. If you qualify or choose to be a tax resident in Cyprus, as opposed to your home country, you may save a considerable amount in taxes, depending on your circumstances and it’s imperative to take expert professional advice.
This article is an extract from Buying a Home in Cyprus from Survival Books.