ICLG Private Client Cyprus 2016

Dr. Jean-Philippe Chetcuti | Published on 10 Nov 2016

Iclg Private Client Cyprus 2016

Chetcuti Cauchi has authored the Cyprus Chapter of the ICLG Private Client 2016 (5th Edition). The ICLG Private Client provides a practical cross-border insight into the private client work of 29 jurisdictions, and delves into common issues pertinent to Private Client laws and regulations, including pre-entry tax planning, connection factors, taxation issues on inward investment, succession planning, trusts and foundations, immigration issues and tax treaties. This publication has been published by Global Legal Group, in association with CDR.

Managing Partners Dr Jean-Philippe Chetcuti, a renowned private lawyer to HNW individuals in Malta and Cyprus has prepared Cyprus’ chapter for this edition.

The Cyprus Private Client chapter, which can be accessed from here, was divided into eleven sections dealing with private client law.

  • Pre-entry Tax Planning

In this section, the authors focus on the pre-entry income and capital gains tax planning which can be undertaken by all newcomers to Cyprus. Special reference was made to the newly introduced Cyprus “non-domicile” regime which allows individuals with non-dom status to be exempt from a Special Defence Contribution (SDC). This means that non-doms are exempt from taxation in Cyprus on their dividends and “passive” interest, irrespective of whether such sources of income are earned in Cyprus or abroad.

  • Connection Factors

This section deals with the relevance of domicile or habitual residence to the private client, and the role which it plays when determining liability in taxation to taxation in trusts. SDC law defines who is a domiciled person or habitual resident for taxation purposes. In Cyprus, any individual physically present in Cyprus for 184 days or more in a calendar year is deemed tax resident, and subject to tax on worldwide income. This is subject to numerous exemptions i.e. dividend income, profit on disposal of securities, applicability of SDC etc.

  • General Taxation Regime

Our authors give a brief overview of the Cypriot tax regime in this section. The two main taxes which are applicable to individual/personal tax residents of Cyprus are the personal income tax and the Special Contribution for Defence.

Additionally, in Cyprus, VAT is charged at 19%, with the possibility of various reductions, for example on the purchase of yachts through a Cyprus yacht leasing arrangement.

This section also tackles Cyprus’ anti-avoidance or anti-abuse rules to counteract tax advantages.

  • Taxation Issues on Inward Investment

This section deals with tax on the acquisition, holding or disposal of, or receipt of income from investment in Cyprus. Since Cyprus does not impose tax on a remittance basis, no liability to tax arises on the acquisition, holding or disposal of investments that qualify as securities/titles.

The section also specifies tax issues in relation to the purchase of residential properties and the importation of goods, depending on their category.

  • Taxation of Corporate Vehicles

In this section, our authors highlighted which corporations are taxable in Cyprus and the main tax liabilities which such corporations will be liable to. This section also details how branches of foreign corporations are taxed in Cyprus.

  • Tax Treaties                                                                 

Cyprus has signed a robust and extensive network of Double Tax Treaties (‘DTT’) relating to income tax and capital gains with over 60 countries which generally follow the OECD model.

  • Succession Planning

This section deals with the relevant private international law (conflict of law) rules on succession and wills that applies in Cyprus. With respect to immovable property, the applicable law is the law of the country where the immovable is situated, whilst with respect to movable property, the law of the country where the deceased was domiciled at the time of death shall apply with respect to the substance and legal effect of wills.  Cypriot succession law embodies a system of “forced heirship”, a fairly complex system of inheritance which depends upon which family members (degree of family) survive the deceased. Property located in Cyprus follows the heirship rules of Cyprus, unless this has been settled into a Cypriot Trust.

  • Trusts and Foundations

Cyprus recognises both trusts and foundations in Cyprus. Cyprus also recognises trusts governed by other jurisdiction to the extent possible, pursuant to the applicable laws in Cyprus. This section goes into great detail about the taxation of trusts in Cyprus and how these are affected by succession and the forced heirship rules in Cyprus.

Cyprus has legislated with respect to foundations as well. These entities are primarily used for charitable purposes, however, one will find that in practice, foundations are rarely used due to the high degree of bureaucracy required under the current law. However, a new law on foundations is expected to be enacted shortly which will simplify the procedures and in turn should lead to a increase in the use of foundations.

  • Matrimonial Issues

This section deals with all matrimonial issues relevant to the private client in Cyprus. These include civil partnerships or same-sex marriage, matrimonial property regimes, pre-/post- marital marriage contracts and divorce.

  • Immigration Issues

This section provides a concise guide for all immigration issues in Cyprus which are of interest to the private client. Our authors outline the restrictions and qualifications imposed by Cyprus to enter into the country, which typically defer, depending on whether the person seeking to enter Cyprus is an EU citizen or a third country national.

This section also outlines the possibility of obtaining permanent Cypriot residency or Cypriot citizenship by investment

  • Reporting Requirements/Privacy

Cyprus has adopted a number of automatic exchange of information agreements which private clients need to be aware of, including the  Global Common Reporting and Due Diligence Standard (CRS), and the Multilateral Competent Authority Agreement.

With respect to public registries, registered shareholders of Cyprus companies are detailed in the public files of the Registrar of Companies, whilst trustees of Cyprus trusts are detailed in the official trusts register.

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Dr Jean-Philippe Chetcuti

Senior Partner, Tax & Immigration

+356 22056411

Dr Antoine Saliba Haig

Senior Lawyer

+356 22056446