Cyprus domicile resident; tax overview

[mesomon]

Hey everyone, long time lurker making my first post.
I have found little success finding a clear answer to a rather simple question. Imagine the following scenario.

I forfeit all current tax residencies and relocate to Cyprus where I form a new consultancy company with a local office.
I spend more than 180 days in Cyprus and thus become a tax resident in Cyprus and can not enjoy non-domicile status (as far as I can understand).

Given this scenario, what taxes will dividends paid to me be subject to?

 

[Sols]

I spend more than 180 days in Cyprus and thus become a tax resident in Cyprus and can not enjoy non-domicile status (as far as I can understand).

Tax residence and non-domicile status are different things.

A foreigner who moves to Cyprus can apply for non-domicile status. Once you have non-domicile status, it lasts for 17 years. During those 17 years, you are exempt from SDC (Special Defense Contribution). Number of days spent in Cyprus is irrelevant.

Given this scenario, what taxes will dividends paid to me be subject to?

As a non-domicile resident, you pay 0% SDC. The only tax you would be paying is 2.65% GHS (healthcare system), which is capped at 4,770 EUR/year (no further GHS payable after 180,000 EUR).

 

[CyprusLaw]

Hey everyone, long time lurker making my first post.
I have found little success finding a clear answer to a rather simple question. Imagine the following scenario.

I forfeit all current tax residencies and relocate to Cyprus where I form a new consultancy company with a local office.
I spend more than 180 days in Cyprus and thus become a tax resident in Cyprus and can not enjoy non-domicile status (as far as I can understand).

Given this scenario, what taxes will dividends paid to me be subject to?

It is exactly as Sols has explained above

 

[mesomon]

Tax residence and non-domicile status are different things.

A foreigner who moves to Cyprus can apply for non-domicile status. Once you have non-domicile status, it lasts for 17 years. During those 17 years, you are exempt from SDC (Special Defense Contribution). Number of days spent in Cyprus is irrelevant.


As a non-domicile resident, you pay 0% SDC. The only tax you would be paying is 2.65% GHS (healthcare system), which is capped at 4,770 EUR/year (no further GHS payable after 180,000 EUR).

Thank you for the response and clearing up my confusion. I falsely believed tax residency nullified non-domicile status.

What taxes are salaries subject to? Given a salary under €19K/y.

 

[Sols]

What taxes are salaries subject to? Given a salary under €19K/y.

For the employee: no income tax, but some social insurance. See Income Tax - Net Salary Calculator - TaxAppCy

For the employer: various payroll taxes, which I think typically amount to around 20%–25%.

 

[JimBeam]

On top of that your company would pay 12.5% CIT (+1% on top of it if you do not pay it in advance so that's 13.75%).
I think that the dividends would be tax free (for first 17 years) and after that only 2.65% (if not changed in the meantime) @CyprusLaw and @Sols please correct me on this one if I'm wrong.

Check it out (article is short, but you may find the video helpful):
https://visadb.io/blog/3-questions-about-cyprus-non-domicile-tax-residency-639c80f9c824bd6633b14062

 

[Paul Tudor Jones]

As a non-domicile resident, you pay 0% SDC. The only tax you would be paying is 2.65% GHS (healthcare system), which is capped at 4,770 EUR/year (no further GHS payable after 180,000 EUR).

This is great information, thanks.
What about "Social insurance contribution" tax? Assuming the non-domicile resident does not work in Cyprus / with any Cypriot company.

 

[Sols]

What about "Social insurance contribution" tax? Assuming the non-domicile resident does not work in Cyprus / with any Cypriot company.

Not in scope unless you pay yourself a salary as opposed to just taking out all your profit as dividends.

 

[Paul Tudor Jones]

Not in scope unless you pay yourself a salary as opposed to just taking out all your profit as dividends.

Sounds great.

A few people here mentioned a few months ago that if you are a day trader and this is your main income, Cyprus may try to still claim that this is your salary and try to charge social insurance tax on it, do you think this is likely?

 

[Sols]

A few people here mentioned a few months ago that if you are a day trader and this is your main income, Cyprus may try to still claim that this is your salary and try to charge social insurance tax on it, do you think this is likely?

I'll defer to @CyprusLaw or @CyprusLawyer101 as they have commented on that particular topic in the past.

 

[JimBeam]

Not in scope unless you pay yourself a salary as opposed to just taking out all your profit as dividends.

Is it possible and legal to be employed but take no salary - just dividends?

A few people here mentioned a few months ago that if you are a day trader and this is your main income, Cyprus may try to still claim that this is your salary and try to charge social insurance tax on it, do you think this is likely?

I guess if you are employed by a company (your or someone's else even better) and got a salary each month for your work - you could then safely say that day trading is your hobby and a side hustle.
And that your job is your main source of income. This is just the way you manage your portfolio.

 

[Sols]

Is it possible and legal to be employed but take no salary - just dividends?

Yes.

 

[CyprusLaw]

Sounds great.

A few people here mentioned a few months ago that if you are a day trader and this is your main income, Cyprus may try to still claim that this is your salary and try to charge social insurance tax on it, do you think this is likely?

The social insurance would apply the badges of trade basis in order to ascertain whether or not you should be paying S.I. We have previously had a debate in the forum about this, however, this is the S.I.'s position. Therefore, whether or not S.I. should be paid if you are trading as an individual would depend on on the badges of trade, which on the basis of case law consider the following elements:

• profit seeking motive
• the number of transactions
• the nature of the asset
• existence of similar trading transactions or interests
• changes to the asset
• the way the sale was carried out
• the source of finance
• interval of time between purchase and sale
• method of acquisition.

 

[Paul Tudor Jones]

The social insurance would apply the badges of trade basis in order to ascertain whether or not you should be paying S.I. We have previously had a debate in the forum about this, however, this is the S.I.'s position. Therefore, whether or not S.I. should be paid if you are trading as an individual would depend on on the badges of trade, which on the basis of case law consider the following elements:

• profit seeking motive
• the number of transactions
• the nature of the asset
• existence of similar trading transactions or interests
• changes to the asset
• the way the sale was carried out
• the source of finance
• interval of time between purchase and sale
• method of acquisition.

You have said a lot of words but nothing practical or actionable. I guess you really are a lawyer.

Would you mind translating this to English and what this actually means?

 

[CyprusLaw]

You have said a lot of words but nothing practical or actionable. I guess you really are a lawyer.

Would you mind translating this to English and what this actually means?

What it means is that essentially each case is assessed on its own merits.

It is not possible to provide advice without knowing the specific case and understanding your activities. Also, your accountants advice would also be of assistance, as he would be the person with access to this information.

 

[AndyAresa]

What it means is that essentially each case is assessed on its own merits.

It is not possible to provide advice without knowing the specific case and understanding your activities. Also, your accountants advice would also be of assistance, as he would be the person with access to this information.

Let’s discuss this in more detail.

How in practice the liability to pay SI on the gains made from securities trading can arise. For example, an individual tax resident in Cyprus transfers a certain sum, e.g. 200,000 EUR, to his own account with Interactive Brokers from his individual account in the Bank of Cyprus. So there remains info on the transfer in the Cyprus bank. Is this info reported by the Bank of Cyprus to the relevant authority, i.e. SI? If yes, how does this affect the individual?

Then, the individual instructs the broker to purchase and sell some securities over the course of the current year. There can be several outcomes of his activities. E.g. initially the individual is lucky to invest into a fast growing stock and in a couple of months he sells the stock for 280,000 Euro, gaining 40% on his initial 200,000 Euro investment. He then makes a wrong choice and invests the whole 280,000 Euro into a portfolio which loses value down to 220,000 Euro by the end of the year. Is this balance reported by the broker to any authorities in Cyprus? E.g. to the tax authorities or to SI? If yes, what is the procedure that can be followed by the relevant authority in order to assess any SI payments to the individual?