Registration as a tax resident with the Cypriot tax authorities is an important process that is governed by Cypriot tax law, international double tax treaties and European directives. Cyprus has established itself as one of the most attractive jurisdictions for individuals and companies due to its low tax rates, transparency of the tax system and the existence of effective agreements with more than 60 countries.

Legal basis for registration of tax residency in Cyprus

The registration of tax residency in Cyprus is governed by legislation and international obligations, which aim to establish transparency and compliance with the principles of international taxation. The main legislation regulating the tax status of individuals and legal entities is the Income Tax Law. Its norms comply with international standards, including European Union directives and recommendations of the Organization for Economic Cooperation and Development (OECD).

1. Tax residency of individuals

The criteria for recognizing an individual as a tax resident of Cyprus are set out in Article 2 of the Income Tax Law. An individual is considered a tax resident if one of the following conditions is met:

1.1.The 183 days rule.

This is a basic criterion based on the individual’s time of residence in the country. According to the legislation, an individual becomes a tax resident if he/she stays in Cyprus for at least 183 days in a calendar year. Not only the actual stay, but also the purpose of the visits (work, business, personal interests) is taken into account.

Method of calculation of days:

• The day of arrival in Cyprus is counted as a full day.
• The day of departure from the country is also counted.
• Days spent in Cyprus for transit purposes (e.g. airport transfer) do not count.

1.2. The 60 day rule

Since 2017, an alternative rule has been introduced to allow individuals to obtain tax residency status provided the following requirements are met:

1. Staying in Cyprus for at least 60 days in a calendar year.
2. Having an economic connection with Cyprus:
   • Employment under an employment contract.
   • Doing business (e.g. managing a company).
   • Acting as a director in a Cypriot company.
3. The person must not be a tax resident of another country.
4. Having a permanent place of residence in Cyprus (rental or ownership).

The 60day rule was designed to attract international professionals, freelancers and investors. For example, if a person works remotely for a foreign company but has a permanent residence in Cyprus and spends a sufficient number of days here, he/she can register as a tax resident.

2. Tax residency of legal entities

The criteria for tax residency of legal entities are based on the concept of Place of Management and Control. According to the law, a company is considered to be tax resident in Cyprus if key management and administrative decisions are made in Cyprus.

2.1. Place of Management and Control

The following factors must be considered to determine the tax residency of a company:

• Location of the board of directors. If board meetings are held in Cyprus, the company is considered to be managed and controlled from Cyprus.
• Key Decision Making. Proof that strategic and operational decisions are made in Cyprus is an important criterion.
• Availability of office premises. The company’s office must be registered and actively operating in Cyprus.
• Accounting and banking operations. The company must keep records and manage its finances through Cypriot financial institutions.

2.2. Exceptions

Companies that are formally registered in Cyprus but have no real activities in the country (so-called “shell companies”) cannot obtain tax residency status. This rule was introduced as part of the fight against tax evasion and is in line with the OECD standards on Base Erosion Prevention Standards (BEPS).

3. International aspects of tax residency

3.1. Double Taxation Agreements

Cyprus has signed agreements with over 65 countries, making it attractive to international investors. These agreements define the rules for the allocation of tax powers between countries, eliminating double taxation.

The main provisions of the agreements include:

• Exemption from taxation of certain types of income (e.g. dividends or interest).
• Application of reduced tax rates on certain types of income.
• The possibility of crediting tax paid in another country.

3.2. Automatic exchange of tax information

As part of compliance with OECD standards and the EU Tax Transparency Directive (DAC6), Cyprus participates in the automatic exchange of tax information through the CRS (Common Reporting Standard) system. This increases transparency and reduces the risks of tax evasion.

4. Tax Resident Registration Process

4.1. Individuals

The registration procedure includes the following steps:

1. Preparation of documents:

To obtain a Tax Residence Certificate (TRC) in Cyprus, the following documents must be submitted:

• Cyprus tax number (TIC)
• Proof of residence in Cyprus:

◦ A lease agreement or certificate of title to the property.

• Evidence of economic activity:

◦ Employment contract proving employment in Cyprus.
◦ Documents proving ownership or management of a company in Cyprus.

• Proof of residence in Cyprus:

◦ Copies of passport with entry and exit stamps.
◦ Tickets confirming travel.

• Proof of income:

◦ Bank statements proving receipt of income in Cyprus or from abroad.

• Tax returns for previous years:

◦ If you have Cyprus tax residency status in previous years, you must submit the relevant declarations.
◦ Submission of an application to the Cyprus Tax Department (Tax Department) using form T.D.2001.

2. Obtaining a tax residency certificate.

4.2. Legal entities

For companies, the registration procedure includes:

1. Preparation of incorporation documents, list of directors and address of incorporation.
2. Proof of doing business in Cyprus (office, Cyprus bank account).
3. Submission of an application using the T.D.2004 form.
4. Obtaining a tax resident certificate.

5. Advantages of tax residency

Registering tax residency in Cyprus offers significant advantages including:

• Low income tax rates (12.5% for companies and reduced rates for individuals).
• Exemption from tax on dividends, interest and capital gains (subject to certain conditions).
• Access to a wide range of international double tax treaties.

6. Control and liability

The Cyprus tax authorities pay special attention to the confirmation of residency. This requires:

• Keep complete records of Cyprus residency and business operations.
• File tax returns in a timely manner.
• Comply with international tax rules, including disclosure requirements.

Examples from practice

Case Study 1: Individual Entrepreneur

Ivan, an IT specialist from Russia, decided to move to Cyprus in 2023. He registered as a tax resident under the “60 days” rule by renting an apartment and entering into a remote work contract with an international company. Due to his tax residency, his freelance income is not subject to double taxation and his earnings of €120,000 per annum are taxed at a reduced rate, using the high earners’ allowance.

Example 2: International holding company

Global Investments Ltd. has moved its management to Cyprus to optimize taxation. Board meetings are now held in Limassol, with Cypriot directors making key decisions. Due to its tax resident status, the company was able to take advantage of dividend tax credits and minimize its tax burden through a network of double tax treaties.

Statistical data

• According to the Cyprus Ministry of Finance, more than 14,000 foreign individuals registered as tax residents in 2023. This represents a 27% increase from 2022, indicating the country’s growing popularity among expats.
• Legal entities are actively utilizing Cyprus tax incentives: 70% of resident companies are involved in international trade and holding structures.

Current challenges and prospects

1. Difficulties in proving residency: Companies and individuals are faced with the need to strictly comply with residency criteria, especially given the increased scrutiny by the tax authorities of other countries. This makes it mandatory to document all transactions and provide evidence of actual presence in Cyprus.
2. International pressure: The EU and OECD continue to tighten requirements for transparency and exchange of tax information. In 2021, Cyprus was forced to revise its tax residency rules to meet BEPS (Base Erosion and Profit Shifting) standards.
3. Attracting new residents: Programs such as the Digital Nomad Visa and simplified rules for highly skilled professionals continue to increase the number of tax residents.

Conclusions

The process of registering as a tax resident in Cyprus is attractive to individuals and companies due to the low tax rates, extensive benefits and the availability of international treaties. However, successful registration and compliance with the status requires a detailed approach, including preparation of documentation, compliance with residency criteria and consideration of changes in international legislation. Cyprus remains one of the key jurisdictions for tax planning and international business.