Cyprus has under normal circumstances a rather high taxation on personal income, which starts at earnings of €19500 with 20% and goes all the way up to 35% from €60000 on. Employees and freelancers hired directly by their employers or clients are bound to this taxation system.

This fact notwithstanding, thousands of people from all over the world are moving to Cyprus to take advantage of a very effective (and legal) taxation scheme designed by the cipriot government to specifically attract hard working foreigners into the country - the Non-Domicile Tax Residency (Non-Dom).

After receiving the Non-Dom status, people with their main residence in Cyprus are exempt from the "Special Defence Contribution" (SDC) for up to 17 years, which includes the following taxes:

• 30 % on interest income
• 17% on dividend income (regardless of whether the paying entity is incorporated in Cyprus or abroad)
• 3% on rental income (after deducting 25%)

Yes, all these taxes are reduced to 0%!

This opens the door to a very favourable construct when working and earning a living in the country - the company registration. Instead of working as an employee for a (domestic or foreign) employer, the smart solution is to create a company and work as employee, director and owner of your own company! (Cyprus is full of one-person companies)

Since all your income is now invoiced by and routed through your company, it is subject to only 12,50% corporation tax. This income can then be distribuited to the shareholders of the company (you) as dividend as often as needed at 0% tax rate. Only a little contribution to the National Health System (GESY) of 2,65% applies. This is much lower than 20-35%!

You will need to pay yourself a small salary of around €1000 monthly though, which is taxed at the aforementioned normal cipriot tax rate and charged with contributions to the public social pension system. Another detail to consider is that the scheme described in this article only applies if the company pays a minumum of 6,25% corporate taxes.

At the end of the day, taking all your earnings, taxes, contributions and expenses (accounting, auditing, corporate fees, etc.) into consideration, and depending on the kind of sector the company operates in, the final tax rate is aprox. 5 to 15%!

As you can see, the Non-Dom scheme coupled with a company registration is a very powerful tool, used by most people relocating to the island.

Disclaimer: This article is published for educational and informational purposes only and does not represent legal, financial or investment advice. The reader is responsible for seeking professional counsel.

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