Today the tax system in Cyprus, offers one of the most favorable rates in Europe. There are many benefits and opportunities to obtain local tax residency status and has one of the lowest EU corporate tax rates, currently set at 12.5 %.
The table below indicates the progressive global income tax rates for individuals.

The Republic of Cyprus provides multiple tax optimization opportunities while also enjoying a worldwide reputation as an excellent residency option. Cyprus tax residency is exempt from income tax on the sale of securities, including stocks, bonds, debentures, tax on dividends and interest under loan and royalty agreements, property taxes, luxury assets and gifts, inheritance tax and retirement benefit tax. In addition, property tax has been eliminated since 2017. Today, owners only pay municipal tax, which is set at 0.1-0.2% of their property’s market value.
In addition, individuals can choose a special tax regime designed for foreign pension payments, where the first €3420 is untaxed and the rest of the pension income is taxed at 5 %.

Low social security rates are offered to individuals who take up employments in Cyprus and a 50% exemption from personal income tax is provided, for a maximum period of ten years, on remuneration from an employment exercises in Cyprus that is in excess of €100 thousand per annum. Key condition: the individuals must not be tax residents of Cyprus prior to starting employment.

Moreover, tax residents who work outside Cyprus for more than 90 days a year also enjoy an added benefit, as they do not need to pay local income tax on wages earned from the specific employment.

You can obtain a Tax Residency status in Cyprus by fulfilling one of two conditions of stay on the island. According to a relative law passed in 2017, an individual is considered a Tax Resident of Cyprus provided he or she meets the requirements set by the ’60-day rule’ or the ‘183-day rule’.

60-day rule
An individual will be considered a resident of Cyprus for the current tax year if the following mandatory conditions have been met:
— stay in Cyprus for 60 days;
— stay in any other country for one or more periods, which did not exceed 183 days in total, during the same tax year;
— lack of tax residency status in any other country during the same year;
— carrying out business activities in Cyprus, working in Cyprus, holding the title of ‘company director’ for a company that is a Tax Resident in Cyprus at any time of the tax year in question;
— permanent residence in Cyprus on the basis of ownership or lease.

183-day rule
The Cyprus taxation system allows an individual to be considered a Tax Resident if he or she has been in Cyprus for a period exceeding 183 days from January 1 to December 31 of the current tax year.

The following must be taken into account in order to correctly determine an individual’s number of days of stay in Cyprus:
— the day of arrival is considered the first day of stay in Cyprus;
— the day of departure from the Republic is considered a day of stay outside the Republic;
— same day arrival and departure to Cyprus is considered one day of stay in Cyprus and is included in the calculation of personal income taxes;
— departure and return to Cyprus on the same day is considered one day of stay outside Cyprus.

Benefits regarding salaries, employee benefits and director's remunerations include:
— 20% of income is exempt from tax for five years. This applies to remuneration that arises from work in any position or work activity carried out in Cyprus by an individual who was a resident outside Cyprus before starting employment on the island, or amounts of €8,543; whichever is lowest;
— 50% of income of non-residents are exempt from tax for ten years. This applies to income that arises from employment carried out in Cyprus, and the amount of which exceeds 100,000 euros per year;
— donations to Cypriot charitable organizations from the approved list are subject to deduction without restrictions.

In addition, the Special Defense Contribution (SDC) is withheld from individuals at the source of payment, while taxes withheld abroad can be offset against the relevant Cypriot tax. The employee's total social security contribution rate is 8.3 %. Profits from the sale of shares and property rights are not taxed.

The retirement income of an individual who is a resident of Cyprus based on the results of his work outside Cyprus is taxed at 5% if it exceeds € 3,417.

There are only two types of Tax Residents in Cyprus: domicile and non-domicile. The first status is received only applicable to individuals born in Cyprus and people who have lived here for the last 17 years from a total of 20. Otherwise, individuals are granted non-domicile tax status.
Non-domiciles pay income taxes at a progressive rate (from 0 to 35 % depending on the amount of income) from: renting real estate in Cyprus and abroad, employment in Cyprus, the sale of Cypriot real estate and company shares of businesses that own real estate in Cyprus, commercial activities such as individual entrepreneurship. The first € 19.5 thousand of personal income earned, is not taxed.

There are a number of advantages for companies in Cyprus. The corporate tax rate on net income is only 12.5%, dividend income is tax deductible and interest paid to non-resident group companies is tax deductible.

Profits received from the sale of securities and shares of subsidiaries, bonds, financial derivatives, shares, etc., are not subject to taxation. This applies to all profit categories, including capital gains and profits sourced from trading securities. Capital gains are not taxed, with the exception of a 20% income tax rate on immovable property located in Cyprus.

Comprehensive legislation prevents double taxation and provides zero or low withholding tax on interest, dividends and royalties while intellectual property including copyrights, patented inventions and trademarks, benefit from an 80% tax exemption from the total profits derived from a qualifying intangible asset.

Losses set off against other sources of income are deferred over five years and may be offset against the profits of another company belonging to the same Group of Companies that is a corporate resident of Cyprus.

It is relatively expensive for a foreign startup to relocate to Cyprus as it is necessary to obtain visitor visas, and the only grounds for their issuance are a) money in the registered bank account and b) the presence of a stable income outside Cyprus. Interested parties will need at least €10,000 for the main applicant and another €5000 for each family member. This is usually deemed as a relatively high fee for many startups.

Closing an employment contract and staying in Cyprus to create your own startup will not work. The entrepreneur will only have a month to find a job and conclude a new contract, or he will have to leave the island.

Individuals can try to get a Cyprus startup visa. As part of a pilot program, the government is issuing annual visas to startups that can develop a business ecosystem and create jobs. But this system is still at an infancy stage.

Startup investors do exist in Cyprus, but they are very meticulous and choose to invest in both very good and already up and running concepts, or startups that can potentially collaborate with local companies working in industries such as game development, fintech and media.

Dozens of IT companies from post-Soviet countries set-up operations in Cyprus, mainly from Russia, Belarus, Ukraine. Most of these companies operate in Limassol, or in the capital of Nicosia, the two largest cities in the island, located conveniently close to each other. Cyprus was once known as the "capital of offshore", but this reputation did not particularly affect IT companies, who were and still are substantially drawn to the island for a number of reasons, four of which are:

1. English legal system
Cyprus law is based almost entirely on the English legal system, which allows IT companies to safely and easily transfer intellectual rights, structure pre-incorporation transactions, conduct transactions with options and equity participation, and more. This advantageous legal system, is currently present in just three countries within Europe: Great Britain (cold climate and high cost of living), Malta (a very small state equal to the size of the city of Limassol), and Cyprus.

2. Tax optimization
Income tax can be reduced to 2.5 % in absolutely transparent and legal ways. A number of other payments may be added, but the company will still benefit considerably from this reduction.

3. Profitable bank and fintech services
Rumors concerning possible risk for foreign investors using Cypriot banks, are greatly exaggerated. A significant amount of years ago, banks were a slightly more loyal to new foreign capital, but there were no previous negative case studies, to instigate the need to operate differently. In recent years, financial institions operate under very similar rules, but the approach and outlook has changed a little. Affected by anti-Russian sanctions, operations with "toxic" money, the global trend of identifying customers through KYC processes (Know Your Customer), and newly formulated anti-money laundering laws, local banks simply began to follow rules that were already in effect, more systematically. These processes however, were new practices and had not yet been optimized, leading to payment execution delays and a small number of gratuitous cancellations.

This caused a wave of panic globally instigating rumours regarding an unfriendly approach toward foreign capital by Cypriot banks. This however, is entirely baseless and untrue. Local banks simply began to improve their operations.

4. A clear regulatory framework for issuing work and guest visas
IT companies can invest a certain amount of money in Cyprus (the amount varies case-by-case) in order to gain immediate permission to hire foreigners, including individuals residing outside the EU, under one fundamental condition:

— To not compete with the Cypriot labor market by attempting to employ individual from another country, who have skills that can also be found in Cyprus.

For example, employing a conventional office manager from Russia will not be allowed, but bringing in an experienced team leader or senior developer, would not be a problem.