Tax incentives and bonuses for investors in Cyprus

The tax policy of Cyprus is determined by experts as one of the most loyal among the countries of the European Union. The stability of the legal framework, the favorable geographical location of the republic increases the investment interest of the region in the real estate sector. Expatriates are offered tax incentives to encourage them to invest in the sector and maximize profits.

Offshore tax regime in Cyprus

Before joining the EU, Cyprus was associated with a classic zone with reduced tax rates. The country’s main source of income was created from servicing business companies. Since 2004, the republic has not had a standard offshore tax regime. But Cyprus has kept low taxes and preferential fees, adapted them to EU standards, which has become an undeniable factor in its attractiveness for investors.

The international virtual reference book on tax systems PWC describes in detail the features of mandatory payments in Cyprus and a number of concessions, such as:

• reduced fees on passive income of non-residents;
• no property tax on inheritance;
• adequate CGT rate – maximum 20%;
• exemption from non-resident duty on royalties, shareholder income and dividends;
• residency programs.

The corporate duty under the Cyprus tax regime is 12.5%. Only a few countries in Europe offer such low rates. The country has signed agreements with various countries so that investors can avoid paying tax on one income in two countries – the Republic of Cyprus and their home country. This has secured cross-border investments and attracted investors.

Reduced VAT rates when purchasing real estate

When investing in real estate assets, the buyer is obliged to pay 19.5% of the purchase price to the Cyprus state treasury. Since 2023, a program has been in effect to reduce the percentage to 5% on the purchase of property.

You can take advantage of the privilege if certain requirements are met:

• the property is being sold for the first time by a developer, has not previously been owned by other persons;
• the future owner is not a child, he or she has reached the age of 18;
• the property must be used on a permanent basis or used as a primary residence for at least 10 years;
• the area of the building cannot exceed 130 m2;
• the maximum value of the property is €350,000;
• the buyer is a disabled person, the total area of the building is up to 190 m2.

Only individuals can apply for a reduced VAT percentage. The tax authorities will reject applications from companies.

Tax incentives for foreign investors

Foreign investors who invest large capital in real estate can expect favorable tax preferences.

Individuals are given incentives:

• tax-free income of less than €19,500/year;
• a tax percentage of 20 to 35% on profits above the minimum (the maximum percentage is paid by individuals whose annual profit exceeded €60,000).

Those who have received the status of a taxpayer, residing in the country for 183 days/year or a full 2 months, are exempt from taxes:

• on capital increase from the sale of real estate located outside the island;
• on real estate objects donated or inherited.

People who are not taxpayers of other countries and participants in the Tax Resident, Investment Property, Permanent Residency, Citizenship by Investment programs can apply for benefits.

Residence permit program through investment — tax advantages

Investors who have become owners of no more than two real estate objects, with a total value of €300,000, receive a residence permit and the opportunity to apply for preferential taxation:

• exemption from tax on profits from the sale of assets or dividends received outside the island;
• low corporate interest rate – 12.5%;
• no inheritance duty.

After 8 years, the investor can officially become a citizen of Cyprus.

Tax planning: advice from experts

Successful financial management depends on the literacy of tax planning. Experts recommend:

• study tax terms;
• monitor the country’s tax legislation;
• use the services of tax consultants;
• use tax incentives, deductions and concessions;
• use the status of a foreigner to minimize income tax;
• conduct tax optimization through trust management of real estate;
• use tools and technologies to improve taxation through special software and online financial platforms.

It is important to monitor changes in the tax code, take advantage of the opportunities that Cyprus is developing for investors. This is a mutual benefit for both the island and the investors.