I INTRODUCTION
Despite being among the smallest countries in terms of area and population, Cyprus has developed into one of the world's most important financial and business centres. It has numerous advantages, including a strategic location, membership of the EU and the eurozone, a mature and transparent legal system, world-class professional and financial services and a modern, business-friendly tax regime, which offers attractive planning opportunities. During the years following perestroika, Cyprus developed into the portal of choice for investment from the West into the rapidly developing economies of Russia and central and eastern Europe.
Even the largest Russian and eastern European companies have a substantial degree of owner involvement, and high net worth individuals from the region have found Cyprus an excellent location for their personal financial affairs. In 1992 Cyprus enacted the International Trusts Law, which gave investors from overseas formidable asset protection and tax mitigation opportunities and allowed individuals from jurisdictions with forced heirship regimes effectively to regain testamentary freedom.
The links between eastern Europe and Cyprus extend beyond finance. Both share a common Orthodox religious culture and Cyprus is home to tens of thousands of Russians and eastern Europeans.
Today, Cyprus is a low-tax jurisdiction with a modern tax regime and an extensive network of double taxation treaties, allowing effective tax planning. All forms of succession taxes were abolished in 2000. It has world-class professional and financial services and a robust legal infrastructure founded on common law. It enjoys an excellent climate and a high standard of living, and its strategic location at the crossroads of Europe, Asia and Africa gives it a cosmopolitan atmosphere. While Russia and central and eastern Europe remain the key markets for Cyprus, China, India and the Middle East are also significant. The island is home to a large number of extremely wealthy individuals and the financial base for many thousands of non-residents.
II TAX
i Introduction
Cyprus offers a benign personal tax system, with generous allowances and a top rate of 35 per cent on taxable income in excess of €60,000. Interest and dividends are exempt from income tax. A special defence contribution (SDC tax) is payable on interest, dividends and rents received by individuals if they are both resident and domiciled in Cyprus (see below); individuals who are resident but not domiciled in Cyprus are not liable to SDC. There are no succession taxes and all capital gains apart from those deriving from the disposal of real estate located in Cyprus are exempt from taxation.
ii Personal income tax
The tax year is the calendar year and individuals are considered to be resident if they are present in Cyprus for more than 183 days in the relevant year. Cyprus residents are taxed on the basis of worldwide income, irrespective of whether it is remitted to Cyprus. Husbands and wives are taxed separately. Persons who are not resident in Cyprus are subject to income tax on income accruing or arising from sources in Cyprus.
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* Elias Neocleous is vice-chairman of the firm and head of the corporate and commercial department and Philippos Aristotelous is a partner at Andreas Neocleous & Co LLC.
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