The 60-Day Tax Residency Rule

05/04/2018

On 14 July 2017 the Parliament of Cyprus approved a bill that gives the right to an individual to be considered as tax resident in Cyprus, provided that he/she meets certain requirements. The new provision, also known as “60-day tax residency rule”, provides an incentive to individuals who are not tax residents in any other state for any tax year to transfer their tax residence to Cyprus.

The requirements to be fulfilled in order for an individual to be able to exercise such a right are as follows:

• the individual should not remain in any other state for one or more periods which in total exceed 183 days in the same tax year; and
• the individual should not tax be a resident in any other state for the same tax year; and
• he/she should remain in Cyprus or at least 60 days during the tax year; and
• he/she  should pursue any business in Cyprus and/or work in Cyprus and/or be a director in a company tax resident in Cyprus at any time during the tax year; and
• the individual should maintain a permanent residence in Cyprus, either owned or rented.

It is clarified that an individual who fulfils the above conditions will not be considered as tax resident of Cyprus in a tax year, if in that year the exercise of any business and/or employment in Cyprus and/ or the holding of a post in a taxable person of Cyprus have ceased.

For the purposes of calculating the period of stay in Cyprus the following should be considered:

• the day of departure from Cyprus is considered as a day outside Cyprus;
• the day of arrival in Cyprus is considered as a day in Cyprus;
• arrival in Cyprus and departure from Cyprus within the same day is counted as one day in Cyprus;
• departure from Cyprus and return to Cyprus within the same day is counted as one day outside Cyprus.

On 22 September 2017 the Tax Department issued Interpretative Circular 2017/8 clarifying the conditions for securing tax residency status based on the “60-day tax residency rule”, as well as the applicants’ obligations and responsibilities. The Circular provides that in order for an individual to obtain a Tax Residency Certificate based on the above mentioned rules he/she must submit a specific return (TD126) together with supporting documents, such as copy of passport, boarding passes, title deed or lease agreement for property in Cyprus, employment or related contract, etc.

A Tax Residency Certificate can be issued even before the accumulation of 60 days of stay in Cyprus in a year provided that the following are applicable:

• all other conditions of the 60-day tax residency rules are satisfied;
• the application for issuance of a Tax Residency Certificate concerns receipt of dividends or interest from sources outside the Republic of Cyprus, supported by relevant documentation;
• the name of the tax authority or other organisation to which the Tax Residency Certificate will be presented will be written on the certificate

The Circular further clarifies that in order for a property in Cyprus to be considered as permanent residence the relevant person must make all arrangements for the maintenance of the property in a usable condition. The applicant should further arrange that the property is available to him/her at all times.

The “60-day residency rule” can be combined with other very attractive advantages aiming at attracting high calibre persons to relocate to Cyprus and set up their business in the country or move an existing venture (or part of it) and/or carry out a remunerated function (directorship, employment, etc.).  Examples include:

• the 50% exemption on earnings of more than EUR55,000 from employment in Cyprus for a period of 17 years; and
• the non-dom status acquired for the first 17 years upon establishing tax residency in Cyprus, which grants an exemption from Special Contribution for Defence on dividends, interests and rents received either abroad or in Cyprus.

It is reminded that the first EUR19,500 of taxable income per year are exempt from Income Tax and the maximum rate is 35% for taxable income exceeding EUR60,000.