CYPRUS: An Introduction to Private Wealth Law

The Landscape in Cyprus

Cyprus, although a small country with a population of around 1 million, over the last few years has been attracting, and to date continues to attract, high net worth individuals (HNWIs) 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.

In recent years, Cyprus has sought to attract even more HNWIs as such individuals have been re-assessing their priorities and a jurisdiction like Cyprus, for the reasons set out below, is very strategic and attractive.

Headquartering in Cyprus

Cyprus recently implemented an action plan called “Strategy for Attracting Businesses for Activities or/and Expansion of their Activities in Cyprus”, aiming to attract HNWIs and their businesses, and indirectly to attract talent.

As part of the foregoing scheme, but also because of the uncertainty in their jurisdictions (political or otherwise) and certain other advantages of Cyprus, a large number of companies in the financial services sector (including Financial Technology “fintech” businesses) have relocated to Cyprus. As mentioned, such relocations are usually driven by tax and financial reasons, including benefits for the leadership teams and owners of such businesses. A number of HNWIs take advantage of the fact that HNWIs relocating to Cyprus can also obtain Cypriot citizenship, provided that they satisfy certain conditions.

Impact of War in Ukraine and Gaza

Following the commencement of the wars in Ukraine and Gaza and the imposition of sanctions, a number of international companies (mostly in the technology sector and hospitality) 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 in accordance with such local legislation.

While estate planning is usually undertaken through wills or trusts, there is no inheritance tax, wealth tax or gift 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.

The existence of Cyprus International Trusts also has significant advantages for HNWIs, such as enhanced confidentiality, perpetual validity and additional asset protection.

Family Law Matters

Cyprus is also a jurisdiction of choice for family law matters, primarily because of its quite straightforward procedures, including, inter alia, for commencing divorce proceedings. One of the main reasons is that 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 HNWIs have taken 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 July 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 “its 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.

Given the recent abolishment of the current non-dom scheme in the UK, it is anticipated that even more HNWIs will now elect Cyprus.

Tax – Other Considerations

Other key tax features that attract HNWIs and their businesses to Cyprus include the following:

• Cyprus has one of the most attractive tax regimes in Europe (corporate tax rate is 12.5%), fully compliant with EU and OECD regulations;
• exemption of profits realised on disposal of securities irrespective of whether the profits and gains are considered to be of a revenue or capital nature;
• 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;
• 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;
• 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%); and
• a 50% exemption on remuneration (commencing 1 January 2022) applies for first employment taken up in Cyprus with remuneration exceeding EUR55,000 per annum, for individuals who were not residents of Cyprus for a period of at least 15 consecutive tax years immediately prior to the commencement of their employment in Cyprus.

Ongoing proposed tax reform, per the current proposal, would (amongst other things) (i) increase the corporate tax rate from 12.5% to 15%, but (ii) abolish the deemed dividend distributions rules and (iii) maintain the majority of the other tax advantages referred to above.

Family Offices

In addition to all the benefits set out above, many HNWIs have sought to set up family offices in Cyprus for the following reasons, amongst others:

• availability of highly skilled staff to employ;
• relative ease of setting up family offices and variety of possible structures;
• owners of family offices can take advantage 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 legal reforms have been implemented recently which include the adoption of new CP 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 HNWIs from a business as well as a personal perspective.

All of the above-mentioned factors, combined with the unique features of the island, that is, 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 Cyprus a very attractive choice for living but also for conducting business for any HNWI.