ICLG Private Client: Cyprus Chapter 2017

An overview of the Private Client Sector in Cyprus

| Published on 01 Feb 2017

Iclg Private Client Cyprus 2016

ICLG Private Client 2017

Chetcuti Cauchi has authored the Cyprus Chapter of the ICLG Private Client 2017 (6th Edition). The ICLG Private Client provides a practical cross-border insight into the private client work of 28 jurisdictions, and delves into common issues pertinent to Private Client laws and regulations, including pre-entry tax planning, connection factors, the Cypriot tax regime, taxation issues on inward investmentsuccession planningtrusts and foundationsimmigration issues and tax treaties. This publication has been published by Global Legal Group, in association with CDR.

Managing Partner 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 2017 Chapter, which can be accessed from here, was divided into eleven sectors dealing with private client law.  

Pre-entry Tax Planning

This section deals with all the pre-entry income and capital gains tax planning which can be undertaken. Primarily, regard should be had to the newly introduced Cyprus “non-domicile” regime which exempts all individuals who have non-dom status from being subjected to the Cyprus Special Defence Contribution (“SDC”). This means that non-doms will be exempt from taxation in Cyprus on their dividends and “passive” interest, irrespective of whether such income is earned in Cyprus or abroad. Non-doms will only be subject to income tax on rental income. 

Connection Factors

This section deals with domicile, habitual residence and residence, and how these effect one’s liability to taxation in Cyprus, as well as in determining the taxation liable on trusts. Individuals who are physically present in Cyprus for 184 days or more in a calendar year are deemed to be tax residents in Cyprus, and subject to tax on worldwide income. However, this is subject to numerous exemptions such as dividend income, profit on disposal of securities, applicability of SDC etc. Foreigners who establish tax residency in Cyprus for the first time may qualify as non-doms and thus may be exempt from SDC as outlined above.

General Taxation Regime

The two main taxes which are applicable to individual/personal tax residents in Cyprus are: personal income tax and the SDC.

The standard VAT rate is charged at 19%, however there is the possibility of reducing the rate in certain scenarios, such as when purchasing a yacht through a Cyprus yacht leasing agreement.

With respect to anti-avoidance or anti-abuse tax rules, Cyprus follows the “substance over form” and “business purpose test” doctrines which allow the Cypriot tax authorities to re-categorise an artificial or fictitious transaction, but at the same time, they recognise the individual’s right to arrange his or her affairs in a way which attracts minimum tax liability. However, business arrangements which are carried forward with the object or intent of tax avoidance without a bona fide purpose may be restricted in the reduction of their liability to pay tax.

Taxation Issues on Inward Investment

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

With respect to the importation taxes, Cyprus imposes different import taxes on goods, depending on their category.  When it comes to tax liabilities in relation to the purchase of residential properties, Cyprus imposes a one-time transfer tax which is subject to various exemptions, an annual property tax which is typically not material.

Taxation of Corporate Vehicles

Companies are considered to be tax residents in Cyprus if their management and control are exercised in the Republic. The main taxes which a Cyprus Company would be subject to are the Corporate Income Tax and the Special Defence Tax.

This section also delves into detail about the taxation of branches of foreign corporations.

Tax Treaties

Cyprus is a party to over 60 Double Tax Treaties relating to income tax and capital gains tax. These generally follow the OECD model.

Succession Planning

The Cypriot law of inheritance embraces a system of ‘forced heirship’ whereby in cases of persons who pass away intestate or cannot make a will, it is the law itself which determines who will inherit their estate.

With respect to the devolution of immovable property in Cyprus, this may be done through a written will attested by two competent witnesses and should reflect clearly the true wishes of the same and competent testator. Property located in Cyprus will be regulated by the Cypriot rules of heirship unless they have been settled into a Cyprus Trust.

Trusts and Foundations

Both trusts and foundations are recognised under Cypriot Law. Cypriot law recognises trusts governed by other jurisdiction to the extent which is allowed by Cypriot law. This section also covers the taxation of trusts.

Foundations on the other hand are primarily used for philanthropic purposes, and in practice, these are rarely used, owing to the bureaucracy required under the current law. A draft law which is passing through the legislative process is expected to reform the Cypriot foundations law in order to establish foundations as a viable alternative to trusts.

Matrimonial Issues

This section explored matrimonial issues pertinent to the private client in Cyprus, including same-sex marriages which are not recognised in Cyprus but are gaining support with a gender-neutral bill on civil partnerships which shall be put up for voting in parliament. It also covers matrimonial property regimes, pre/post marital marriage contracts and divorce.

Immigration Issues

This section deals with all the immigration issues pertinent to the private client in Cyprus. Entry into Cyprus will differ, depending on whether the individual is an EU national or not.

Moreover, this section delves into the possibility of gaining Cypriot Citizenship by Investment, as well as Cyprus Permanent Residency.

Reporting Requirements/Privacy

Cyprus has adopted the Global Common Reporting and Due Diligence Standard, as well as the Multilateral competent authority agreement.

Moreover, the private client needs to be aware that registered shareholders of Cyprus companies are detailed in public files of the Registrar of Companies and trustees of Cyprus Trusts are detailed in the official Trusts register.

Chetcuti Cauchi’s work in the Private Client Sector

Apart from contributing to reviews such as the ICLG Private Client 2017, Chetcuti Cauchi strives to be at the forefront of the Private Client Sector not only by conducting thorough research about topics which are of particular importance to the Private Client, but also by attending various conferences such as the Private Client Russia & CIS 2016, the 8th Milan Luxury Summit and the WealthPro Latvia, Riga 2016. Such events help us to stay in touch with the needs of our private clients and the sector.

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Key Contacts

Dr Maria Chetcuti Cauchi

Senior Partner, Property & Projects

+356 2205 6112