Filenews 14 March 2022
Alexis Christodoulou Lawyer – Department of Companies, Limassol Office and Theodora Alexandrou Trainee Lawyer – Department of Companies, Limassol Office
The updated conditions in relation to the acquisition of tax residence in the Republic of Cyprus
On February 1st, the Ministry of Finance issued circular 1/2022 (the "Encyclical"), which, among other things, amended the conditions in relation to the acquisition of tax residence in the Republic of Cyprus ("CCT") in accordance with the legislative condition of the 60-day rule. It should be noted that this circular replaces all previous circulars on the subject (circular 8 dated 22/09/2017 and circular 36 dated 22/02/2019). From the new circular, the following emerges:
1.APPLICATION OF THE 60-DAY RULE FOR THE ACQUISITION OF A TAX RESIDENCE
According to the Income Tax Law, a "resident of the CCT" is defined as a person who resides for 183 days in the CCT or who meets the following criteria and conditions:
THE RULE OF "60 DAYS"
In relation to the above criteria and conditions, it is emphasized that:
- where a person seeks tax residency in the CCT on the basis of the 60-day rule for a given tax year and for a period of that year is also considered to be a tax resident of the United Kingdom (UK), clause iii above shall not be considered to be infringed.
It is reported that the U.K. tax year begins on April 6 and ends on April 5 of the following calendar year. Therefore, a person who is a tax resident of the U.K. either during the tax year ending or the year that begins, may also claim and acquire tax residency in the CCT.
It is further stated that, after approval by the Registrar of Taxation, the above-mentioned tax treatment may be applied additionally to cases of taxpayers who, for part of the relevant tax year, are also considered as tax residents of another state and the tax year of that State does not coincide with the tax year of the CCT.
- in the case of a person holding the position of director in a company that is tax resident in Cyprus, condition (iv) shall be deemed to be fulfilled only if that person personally holds the position of director and is named as a director in that company in accordance with the Companies Register of the Department of the Registrar of Companies and Intellectual Property. A prerequisite for the satisfaction of the above criterion is the position of the director to be maintained until the 31st day of December of each respective tax year.
2. OBLIGATION OF AN EXTRAORDINARY DEFENCE CONTRIBUTION
A person who is a tax resident of Cyprus according to the 60-day rule is subject to the obligation to pay a special defence contribution under the Special Contribution for the Defence of the Republic Law, provided that he/she simultaneously has a domicile in the CCT.
Although it is not specified in the Circular, it is important to note that all residents of the CCT are subject to the obligation to pay a special defence contribution to the following types of income:
• dividend income at a rate of 17%
• "passive" interest income at a rate of 30%
• gross rental income (reduced by 25%) at a rate of 3%
It should also be noted that individuals who are tax residents of Cyprus but are not residents of Cyprus/do not reside in Cyprus, will not be subject to the obligation to pay a special defence contribution and are therefore exempt from this obligation for income from dividends, interest and rents (note - rental income are subject to income tax) until they have completed 17 years of their tax residence in Cyprus provided that this is their first period as tax residents of Cyprus.
3. CERTIFICATE OF TAX RESIDENCE
For the purposes of issuing a certificate of tax residence for a person who meets the requirements of the 60-day rule, form P.F.126(2022) must be submitted.
It is noted that the certificate of tax residence may be issued before the expiry of the 60-day period provided that:
- evidence is presented concerning the exercise of an enterprise or the employment or position of the person as a manager and the maintenance of permanent residence in the CCT, and/or
- evidence is provided for the imminent collection of income (receivable from foreign sources, where applicable as the case may be, and/or
- it is documented to the Superintendent of Taxation that there are other reasons justifying the issuance of a tax residence certificate before the expiry of the 60 days of stay.
It is noted that documents submitted to the Cyprus Tax Department as evidence must be duly stamped in accordance with the provisions of the Stamp Duty Law N.19/1963 (as amended). If the language of writing of these documents is other than Greek or English, the applicant is obliged to submit an additional certified translation into Greek or English.
