CYPRUS: An Introduction to Private Wealth Law

Private Wealth Law in Cyprus: an Introduction  

The landscape in Cyprus  

Although a small country with a population of around 1 million, over the last few years Cyprus has been attracting high net worth individuals (HNWI) who are looking to relocate to another country for tax or business reasons, or because of the unique features of the island and its offering.

Since COVID-19 and as a result of the wars in Ukraine and Gaza, Cyprus has sought to attract even more HNWI, as such individuals have been re-assessing their priorities and a jurisdiction like Cyprus is very strategic and attractive, for the reasons set out below.

Headquartering in Cyprus 

Cyprus has recently implemented an action plan, called the “Strategy for Attracting Businesses for Activities and/or Expansion of their Activities in Cyprus”, with the aim of attracting HNWI and their businesses, and indirectly attracting talent.

As part of this scheme, a large number of companies in the financial services sector (including fintech businesses) have relocated to Cyprus. Such relocations are usually for tax and financial reasons, including benefits for the leadership teams of such businesses, such as the HNWI who own such businesses. In addition, Cyprus benefits from excellent international and English-speaking schools. Finally, there are a number of ways that HNWI relocating to Cyprus can also obtain Cypriot citizenship, after three years living in Cyprus, provided that they satisfy certain additional conditions.

Impact of the wars in Ukraine and Gaza 

Following the commencement of the wars in Ukraine and Gaza and the imposition of sanctions, there was a slight worry that business would slow down in Cyprus, but a number of international companies – mostly in the technology and hospitality sectors – have sought to relocate together with their employees and their families, and to take advantage of all the benefits the country has to offer. As a result, Cyprus – and more specifically the city of Limassol – has become a hub for such businesses, including fintech businesses, creating a very active and competitive business environment.

Trusts and estate planning 

There are several beneficial succession laws in Cyprus, and estates of individuals domiciled in Cyprus are disposed of according to such local legislation.

While estate planning is usually undertaken through wills or trusts, there is no inheritance tax in Cyprus. Setting up a trust in Cyprus can serve asset wealth protection reasons as well as estate planning reasons, as trusts can offer tax and other advantages.

In the last couple of years, there has been a flurry of activity relating to the setting up of trusts and estate planning in Cyprus, as numerous HNWI seek to take such actions, including as part of their relocation to Cyprus.

Family law matters 

Cyprus is also a jurisdiction of choice for family law matters, primarily because of its quite straightforward procedures with regards to family law matters, including for commencing divorce proceedings; the only requirement for such proceedings to commence in Cyprus is for one of the spouses to be living in Cyprus for at least three months (even if the wedding did not happen in Cyprus). Lastly, another important advantage is that the marriage itself does not affect the independence of the estate of each spouse.

Tax – non-dom scheme 

One feature of the local regime, which plenty of HNWI take advantage of, is the non-dom scheme, whereby an individual may enjoy non-domiciled status if they have not been a tax resident of Cyprus for a period of 20 years prior to 16/07/2015. The main benefit of the scheme is that there is no tax liability on income from interest and dividends from Cyprus or any other country.

The main conditions are as follows:

• stay at least 60 full days in Cyprus during each calendar year;

• rent/buy a house/flat;

• demonstrate an “economic interest in Cyprus”, as the law stipulates; and

• not be a tax resident and/or stay 183 days or more in any other country.

Tax – other considerations 

Other key tax features that attract HNWI and their businesses to Cyprus include the following.

• It has one of the most attractive tax regimes in Europe, with a corporate tax rate of 12.5%, and is fully compliant with EU and OECD regulations.

• Profits realised on the disposal of securities are exempt, irrespective of whether the profits and gains are considered to be of a revenue or capital nature. Securities, as defined in the law, include shares, bonds, debentures, founder’s shares and other securities of companies or other legal persons and options over such securities.

• There are no withholding taxes on dividends and interest paid to non-tax residents.

• Profits of a permanent establishment of a Cypriot tax resident company maintained abroad are generally exempt from tax in Cyprus.

• There is a 100% exemption from personal income tax for remuneration earned from an employment exercised outside Cyprus for a period of more than 90 days (in aggregate) in a tax year for a non-Cyprus tax resident employer/foreign permanent establishment of a Cyprus tax resident employer.

• There is no wealth tax, gift tax or inheritance tax in Cyprus.

• The new Cyprus IP box allows for a deductible notional expense calculated as 80% x qualifying profits from qualifying intellectual property. Only 20% of qualifying IP income (after costs) is taken into account for tax purposes. In conjunction with the corporate tax rate of 12.5%, the effective tax rate is 2.5%.

• A 50% exemption on remuneration applies for first employments commencing as of 1 January 2022 exercised in Cyprus with remuneration exceeding EUR55,000 per annum, by individuals who were not a resident of Cyprus for a period of at least 15 consecutive tax years immediately prior to the commencement of their employment in Cyprus.

Family offices 

In addition to all the benefits set out above, many HNWI have sought to set up family offices in Cyprus for various reasons, including:

• there is highly skilled staff to employ;

• it is quite easy to set up such family offices;

• owners of family offices can take advantages of the non-dom status and other tax advantages set out above; and

• foreign investors are not restricted in any manner with regard to the business they choose to conduct.

Conclusion 

Cyprus benefits from a stable legal system and from all EU law instruments. The legal system is based on the English common law system, and recent legal reforms include the adoption of new Civil Procedure Rules (similar to the English ones) and a three-tier court system, with a specialist commercial court to hear high-value commercial claims exclusively, all of which would benefit HNWI from both a business and personal perspective.

All of the factors outlined in this article, combined with the unique features of the island (ie, low crime rates, 340 days sunshine per annum, high quality of life, being an EU member situated at the crossroads of three continents, with highly skilled and trained labour, and with attractive laws for estate planning, trusts, etc), render the country a very attractive choice for living but also for conducting business for any HNWI.