This article is discussing the substantial tax benefits that UK domiciles (nationals) may gain by considering relocation in Cyprus for tax purposes.
There are two main tax reliefs for UK domiciles (nationals) who relocate in Cyprus and become Cypriot tax residents:
- First employment tax relief for several years which may reach up to a 50% reduction of their taxable income
- A full tax allowance for seventeen years on any dividends they receive from Cyprus Companies.
The Cyprus Tax Legislation is simple in contrast to the UK Tax Legislation, which is considered complicated. The simplicity of the Cyprus Tax Legislation results in considerable lower tax liabilities for individuals who are residents in Cyprus compared to those who are residents in the UK.
There are considerable differences in the way which the individuals are taxed on their income, as follows:
Income Tax Rates
The applicable income tax rates in which the individuals are taxed on their employment, trading and profit from property lending are considerably low in Cyprus compared with the rates which are applicable in the UK.
For example, the results of a computation that was carried out using the income tax rates of the two states revealed that an individual who resides in Cyprus might pay four times less income tax than an individual who is a UK tax resident.
In the example, it was assumed that the taxable income of UK tax resident derived only from employment, after allowable tax deductions, is £110.000 (gross salary £115,000).
This example assumes that the Cyprus Tax Resident individual was previously a tax resident in the UK and moved to Cyprus in 2018 for employment with a Gross Salary of €115.000. The individual can claim the first employment allowance of 50% for ten years amounting to €57.500, a benefit that is available under the Cyprus Tax Legislation.
The tax liabilities of the individual in the UK and Cyprus are estimated as follows:
|
|
UK (£) |
Cyprus (€) |
|
Tax Liability |
37.100 |
8.862 |
The above clearly shows that the tax liability for the individual is approximately four times more in the UK than Cyprus. Also, if the individual is also a shareholder of a Cyprus company, any dividends received from his company are exempt from any taxes in Cyprus for 17 years. On the contrary, in the UK, these will be taxed at a rate of 32,5% or 38,1%, depending on the amount.
This difference is arising because the Cyprus Tax Legislation is offering the first employment allowance. Also, the applicable tax rates are considerably lower in Cyprus compared to those of the UK.
The two tables below present the tax rates applicable in 2018/19 for UK and Cyprus:
|
UK |
|||
|
Rates |
Normal |
Dividend |
|
|
Basic |
£1 to £34,500 |
20% |
7.5% |
|
Higher |
£34,501 to £150,00 |
40% |
32.5% |
|
Additional |
£150,001 and over |
45% |
38.1% |
|
|
|||
|
Savings income nil rate band |
|||
|
– Basic rate taxpayers |
£1,000 |
||
|
– Higher rate taxpayers |
£500 |
||
|
– Dividend nil rate band |
£2,000 |
||
|
A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable income. |
|||
|
Cyprus |
||
|
Chargeable Income |
Tax rate (%) |
Accumulated Tax (€) |
|
First 19.500 euro |
Nil |
Nil |
|
From 19.501 – 28.000 euro |
20 |
1.700 |
|
From 28.001 – 36.300 euro |
25 |
3.775 |
|
From 36.301 – 60.000 euro |
30 |
10.885 |
|
Over 60.000 euro |
35 |
|
Exempt Income
The tax legislation in the two states also differs on the income, which is exempt from income tax.
In Cyprus, the tax legislation is allowing considerably more categories of income to be exempt from income tax in comparison to the tax legislation in the UK.
The table below presents the exempt income for Income Tax purposes which apply in the UK and Cyprus:
|
UK |
Cyprus |
|
· Interest, except for interest arising from the ordinary business activities or closely related to the regular business activities of an individual (subject to special defense contributions for tax residents and domiciled) · Dividends (subject to special defense contributions for tax residents and domiciled individuals). Non-domiciled individuals are exempt from any taxes for 17 years. · 50 % of the remuneration from any employment exercised in Cyprus by a non-resident individual, before the commencement of the employment, the exemption shall apply for ten years, for any employments commencing as from 1 January 2012, provided that the annual remuneration exceeds €100.000. For employments commencing as from 1 January 2015 the exemption does not apply in case the said individual was a Cyprus tax resident for 3 (or more) tax years out of the five tax years immediately before the tax year of commencement of the employment nor in the preceding tax year. In some instances, it is possible to claim the exemption where income falls below €100.000 per annum. · 20% of the remuneration (with a maximum amount of €8.550 annually) from any employment exercised in Cyprus by an individual who was not a resident in Cyprus before the commencement of the employment. For employments commencing during or after 2012, the exemption applies for five years starting from the tax year following the year of commencement of the employment with the last eligible tax year being 2020. This exemption may not be claimed in addition to the immediately above mentioned a 50% exemption for employment income. · Remuneration from salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer or a permanent foreign establishment of a Cyprus resident employer · Profits of a permanent foreign establishment under certain conditions · Lump sum received by way of retiring gratuity, commutation of pension or compensation for death or injuries · Capital sums accruing to individuals from any payments to approved funds (e.g., provident funds) · Profits from the sale of securities |
Income Tax Main Deductions
The Cyprus Tax Legislation is allowing considerably higher amounts of expenses to be deducted from the gross income, compared to those granted under the UK Tax Legislation.
In calculating the taxable income, the following main tax deductions apply in the UK and Cyprus:
|
UK |
Cyprus |
|
· Annual Personal Allowance of £11,850 up to £100.000 of income. For Income exceeding £100.000, the amount of the personal allowance is reduced by 50% of the amount exceeding the £100.000 · Insurance Premiums · Subscriptions to Professional Bodies · Qualifying Travel Expenses · Contributions to occupational pension schemes (subject to certain conditions) · Charitable payments under a payroll scheme |
· Contributions to trade unions or professional bodies · Donations to approved charities(with receipts) · Up to 1/6 of the chargeable income for Social Insurance, medical fund(maximum 1,5% of remuneration), pension and provident fund contributions (maximum 10% of remuneration) and life insurance premiums (maximum 7% of the insured amount) · 20% of gross rental income |
