Cyprus 90-day rule for foreign employment income

[boogieboogie]

Hi everyone,

I've been reading about Cyprus's tax legislation and I've found about an exception on employment income tax for tax residents in Cyprus if the recipient spends at least 90 days outside of Cyprus.
On paper this looks very interesting for digital nomads. Can any of the experts in this forum clarify how that'd work, and what are the caveats, if any? I'm assuming one would have to register as a freelancer. At first glance this seems better than creating a company for remote workers/employees of foreign companies.

Thanks!

 

[ImKing]

That would be @CyprusLawyer101 and @CyprusLaw

 

[boogieboogie]

Also tagging @CyprusBusiness
And attaching an image of exactly the paragraph I'm referring to

 

[CyprusLawyer101]

This works indeed. The basic premise is that your employer is abroad or its a branch abroad and that the employment is exersized while abroqd for at least 90 days

 

[CyprusBusiness]

This tax incentive will depend whether it will work on the country where the employer resides. For instance, employment income in i.e. Germany (even though you will be working remotely from Cyprus) is subject to withholding tax in Germany.

In addition, for this to work smoothly you need to convince the employer to officially transfer your employment permanently to Cyprus, and to do this your employer must have a Cyprus subsidiary/ permanent establishment in Cyprus, otherwise there would be issues with social insurance, health insurance, work permits etc.

The best possible way that many expatriates follow is changing their status to a freelancer/contractor, and set up a company in Cyprus. This will allow you to live in Cyprus, pay low taxes as well utilising the non-domiciled regime.

In all cases you will need to examine this with a tax practitioner in your current country of employment and speak with your employer after resolving to move to Cyprus.

Happy to PM if more info is needed.

 

[CyprusLawyer101]

In addition, for this to work smoothly you need to convince the employer to officially transfer your employment permanently to Cyprus, and to do this your employer must have a Cyprus subsidiary/ permanent establishment in Cyprus, otherwise there would be issues with social insurance, health insurance, work permits etc.

Can you elaborate further why you consider this is necessary?

 

[CyprusBusiness]

Can you elaborate further why you consider this is necessary?

I have only pointed out issues from experience I had with UK and German clients.

Please see Deloitte's guide for remote working below. There are many issues to consider which most of them are laid out in this guide:

https://www2.deloitte.com/cy/en/pag...the-country-of-choice-for-remote-working.html

 

[CyprusLawyer101]

I have only pointed out issues from experience I had with UK and German clients.

Please see Deloitte's guide for remote working below. There are many issues to consider which most of them are laid out in this guide:

https://www2.deloitte.com/cy/en/pag...the-country-of-choice-for-remote-working.html

Thank you for your reply and the guide provided. Different cases can be treated differently as you are aware for sure. This rule in particular could work without setting up a company but for someone who is performing its employment to a foreing employer and spends at least 90 days abroad. There are though lots of possibilities for planning with this rule.

 

[boogieboogie]

This is super interesting, thanks for your replies.

This tax incentive will depend whether it will work on the country where the employer resides. For instance, employment income in i.e. Germany (even though you will be working remotely from Cyprus) is subject to withholding tax in Germany.

In addition, for this to work smoothly you need to convince the employer to officially transfer your employment permanently to Cyprus, and to do this your employer must have a Cyprus subsidiary/ permanent establishment in Cyprus, otherwise there would be issues with social insurance, health insurance, work permits etc.

The best possible way that many expatriates follow is changing their status to a freelancer/contractor, and set up a company in Cyprus. This will allow you to live in Cyprus, pay low taxes as well utilising the non-domiciled regime.

In all cases you will need to examine this with a tax practitioner in your current country of employment and speak with your employer after resolving to move to Cyprus.

Happy to PM if more info is needed.

I see. If the employment is subject to withholding tax within the country of origin, it obviously stops being advantageous for the employee, that's the thing I didn't take into account. Good to know, thanks!
btw, I can't send PMs, but I'm open to receiving them from any of you guys

 

[AndyAresa]

Hello everyone, following up on this thread. Is this foreign employment income exempt both from personal income tax and from social security contributions in Cyprus? E.g. a person makes 50k Euro as salary from a non-Cyprus employer. Then the person must pay GESY of 2.65% only, or are the social security contributions as the percentage of 50k Euro also payable in Cyprus? The location of the employer and the actual place where the employment duties are performed are outside of Cyprus.

 

[thedirtyteller]

This tax incentive will depend whether it will work on the country where the employer resides. For instance, employment income in i.e. Germany (even though you will be working remotely from Cyprus) is subject to withholding tax in Germany.

In addition, for this to work smoothly you need to convince the employer to officially transfer your employment permanently to Cyprus, and to do this your employer must have a Cyprus subsidiary/ permanent establishment in Cyprus, otherwise there would be issues with social insurance, health insurance, work permits etc.

The best possible way that many expatriates follow is changing their status to a freelancer/contractor, and set up a company in Cyprus. This will allow you to live in Cyprus, pay low taxes as well utilising the non-domiciled regime.

In all cases you will need to examine this with a tax practitioner in your current country of employment and speak with your employer after resolving to move to Cyprus.

Happy to PM if more info is needed.

It seems a bit too good to be true. I'm a self-published writer who mainly receives my income from Amazon. Cyprus has a tax treaty with the US so they won't withhold anything. So if I relocate there and I live 90 days in a foreign country, I will be able to not pay a dime in taxes? Are there any catches, since I don't see how this will benefit the government of Cyprus at all. Are there a lot of paperwork involved in this, and how long will I have to live there?

 

[CyprusLawyer101]

It seems a bit too good to be true. I'm a self-published writer who mainly receives my income from Amazon. Cyprus has a tax treaty with the US so they won't withhold anything. So if I relocate there and I live 90 days in a foreign country, I will be able to not pay a dime in taxes? Are there any catches, since I don't see how this will benefit the government of Cyprus at all. Are there a lot of paperwork involved in this, and how long will I have to live there?

The answer is in your reply. You are self-published ( self employed ) . Amazon is not your employer - am i correct ?
Though some planning can be achieved in your case.

 

[thedirtyteller]

The answer is in your reply. You are self-published ( self employed ) . Amazon is not your employer - am i correct ?
Though some planning can be achieved in your case.

No, they aren't my employer, I just receive royalties from them. I'm not sure what such a relationship is called.

I got excited for a second there...

 

[Throwaway]

Hello everyone, following up on this thread. Is this foreign employment income exempt both from personal income tax and from social security contributions in Cyprus? E.g. a person makes 50k Euro as salary from a non-Cyprus employer. Then the person must pay GESY of 2.65% only, or are the social security contributions as the percentage of 50k Euro also payable in Cyprus? The location of the employer and the actual place where the employment duties are performed are outside of Cyprus.

Did anyone find out about this? If a tax free salary (90 day rule) is paid from a non-resident company does the company have to pay social insurance in Cyprus?

 

[CyprusBusiness]

Did anyone find out about this? If a tax free salary (90 day rule) is paid from a non-resident company does the company have to pay social insurance in Cyprus?

If you are employeed by a foreign company, you will probably pay taxes in that foreign company (i.e. this is the case for Germany). Officially, living in another country for longer than 3 months is only possible, if your company officially sends you there. Otherwise, there are issue with social insurance, health insurance and other things.

If you want to move to another country and still be employed, this can normally be done by a subsidary of the company in Cyprus (making sure, that all neccesary payments for you are made here). There are also agencies that offer this service to companies, as not every company has a subsidary in every country and things get complicated then

An alternative will be to convince the foreign employer to hire you as a freelancer through your Cypriot limited, that you can setup for this purpose. – This allows you to officially live here, pay taxes here (in more optimised way) and get rid of all the limitations of foreign burocracy

Please let me know if you need more details. Happy to PM you

 

[JustAnotherNomad]

If you are employeed by a foreign company, you will probably pay taxes in that foreign company (i.e. this is the case for Germany).

Not really, that would actually be an exception. Many countries don't have withholding tax on salaries.
And on top of that, the tax treaty would typically say that a salary can only be taxed in the country where the employee is tax resident, except for work that is physically performed in the country where the company is registered.

I'm not sure if it is the latest version of the treaty, but here I found the tax treaty with Germany:
https://mof.gov.cy/assets/modules/w...any_2011_02_18_2nd_and_2011_02_18_prot_en.pdf
Have a look at Article 14 - it says just that, salaries can only be taxed in the country where the employee is tax resident, except for income that is earned in the country where the employer is located (and unless the employee spends 183+ days in the employer's country, which would obviously change their tax residency).

So why would there be tax in Germany if the employee doesn't work in Germany?

Officially, living in another country for longer than 3 months is only possible, if your company officially sends you there. Otherwise, there are issue with social insurance, health insurance and other things.

That's completely false.
For up to 2 years or so, you can use that "temporary employment abroad" rule for the employee to keep social security and health insurance in their country of origin. In that case, the employment contract already has to specify such a limitation.
In all other cases, the employee will simply be like any other employee in that new country. The employer will have to register some sort of branch in that country, but that's only so that social security contributions can be made, and so forth. There won't be any "issues". It's absolutely normal for a company in one country to have employees in another country. The paperwork may not be as smooth as with a local company, but that's all. It's 100% legal and normal.

 

[CyprusBusiness]

Not really, that would actually be an exception. Many countries don't have withholding tax on salaries.
And on top of that, the tax treaty would typically say that a salary can only be taxed in the country where the employee is tax resident, except for work that is physically performed in the country where the company is registered.

I'm not sure if it is the latest version of the treaty, but here I found the tax treaty with Germany:
https://mof.gov.cy/assets/modules/w...any_2011_02_18_2nd_and_2011_02_18_prot_en.pdf
Have a look at Article 14 - it says just that, salaries can only be taxed in the country where the employee is tax resident, except for income that is earned in the country where the employer is located (and unless the employee spends 183+ days in the employer's country, which would obviously change their tax residency).
So why would there be tax in Germany if the employee doesn't work in Germany?

The exemption provided under 14(2) of the DTT requires that all requirements of the paragraph ((a)-(c)) are met. In your comments above you merely stated requirements subject to 14 (2) (a). Paragraph (b) for instance, mentions that the employer must not be a resident of the other State and (c) a PE in that other State. Of course each case needs to be addressed in its own merit. Happy to PM if you need further details on this. We had many cases so far and discussions with Authorities in several States.

That's completely false.
For up to 2 years or so, you can use that "temporary employment abroad" rule for the employee to keep social security and health insurance in their country of origin. In that case, the employment contract already has to specify such a limitation.
In all other cases, the employee will simply be like any other employee in that new country. The employer will have to register some sort of branch in that country, but that's only so that social security contributions can be made, and so forth. There won't be any "issues". It's absolutely normal for a company in one country to have employees in another country. The paperwork may not be as smooth as with a local company, but that's all. It's 100% legal and normal.

I did not mention that being employed in another State by a foreign employer is illegal or not possible to be structured. I just stated that all matters need to be addressed (Social insurance, NHS, pension etc, and also migration/visa)

 

[JustAnotherNomad]

In your comments above you merely stated requirements subject to 14 (2) (a). Paragraph (b) for instance, mentions that the employer must not be a resident of the other State and (c) a PE in that other State.

Why would b or c be an issue? Isn't b) sort of what it means to have a "foreign employer"? And c) is simply says the salary shouldn't be paid by a PE in Cyprus, if there is one?

I did not mention that being employed in another State by a foreign employer is illegal or not possible to be structured.

Ok, then I apologize. To me it sounded like you were saying that cross-border employment isn't possible without sending an employee to the other country.

Long story short: If the employer's country doesn't impose withholding tax on salaries, can this work? Could it even work if you own the company yourself, but have some nominee director in the other country? Not sure how strict Cyprus is about such things...

 

[EliasIT]

Long story short: If the employer's country doesn't impose withholding tax on salaries, can this work? Could it even work if you own the company yourself, but have some nominee director in the other country? Not sure how strict Cyprus is about such things...

interesting question which I hope someone of the PRO's can answer!