Its borders have reopened, but tourism is struggling to come back to life. Two years into the pandemic, Cyprus is again facing a summer with very few holidaymakers. A bad sign for the economy, which is battling against inflation and the repercussions of Covid. The government believes it has found a solution: attract more expats, especially well-off ones. Cyprus is luring foreigners with new tax breaks. What's changing for expats? Why is Cyprus counting on them?
Even more tax incentives for expats
Cyprus had already done a lot to lower the taxes on new expats. In January 2022, the country granted a 50% tax exemption on the income of foreign workers who had started their first job at the beginning of the year and who earn over 55,000 euros per year. To be eligible for this exemption, these new expats must not have lived in Cyprus for at least 10 years. Another 20% tax exemption applies to non-resident expats who work for a non-resident employee.
This new bill voted on 15 July 2022 plans to grant the 50% tax exemption for 17 years, as compared to 10 years, as it previously was. The 20% tax exemption is intended to last 3 years. The country's objective is clear: attract new foreign workers. For expats who were in the process of relocating to Cyprus, this government bill is a blessing. Prospective expats who meet the criteria for tax exemption will also benefit from this bill. Moving to Cyprus under these conditions represents a new opportunity, all the more because the benefits offered by the island don't end here.
What are the other benefits of moving to Cyprus?
In Cyprus, there is no wealth tax and no inheritance tax. No taxes either (or only very low taxes) on international dividends, interest payments, royalties, capital gains (unless it's from the sale of property in Cyprus) and pensions received from abroad. In total, Cyprus has over 65 tax exemption agreements.
The country attracts digital nomads and entrepreneurs. By launching its digital visa in January 2022, Cyprus made it clear that it intends to make the most out of changes in work organization since Covid. Since the pandemic, digital nomad visas have been booming. The visa proposed by Cypus is valid for 1 year and can be renewed for 2 years. This visa doesn't target only freelancers. Employees who work remotely can also benefit from it.
As for entrepreneurs, the Ministry of Finance of Cyprus has established a Business Facilitation Unit. Its role is to facilitate the immigration of highly-qualified workers. This leg-up from the government allows expats to obtain a work visa more easily. The government is also promoting business creation. This way, Cypriot citizens can open their own company, hire third-country nationals, and obtain a work permit and family reunification permit for them. After 7 years, these foreigners can be eligible for Cypriot citizenship. The country is also targeting startupers and has created a startup visa that allows them to set up their business in Cyprus
Is Cyprus trying to overcome the end of the Golden Visa?
And what if all of these new measures were just compensating for the discontinuation of the Golden Visa? In November 2020, Cyprus put an end to its Golden Visa. The European Union (UE) pressured member states to stop this controversial golden passport scheme that allowed wealthy foreigners to obtain residency through significant investments. This way, Cyprus allowed non-European foreigners to obtain a passport in exchange for an investment of 2.5 million euros (by purchasing a property, for example). The Golden Visa program brought Cyprus over 7 million euros. The controversial program was upheld despite multiplying scandals and abuses.
In October 2020, the European Commission launched an infringement procedure against Malta and Cyprus. For the EU, Golden Visa programs “undermine the essence of EU citizenship.” Cyprus agreed to terminate its program the following month. Malta resisted until a new appeal from the European Commission in April 2022. However, several other countries are maintaining their Golden Visa programs, notably Portugal, Spain, Luxembourg, Estonia and Italy.
It's hard to say whether the new tax incentives will bring as much revenue to Cyprus as the golden passports did. But at a time when inflation is threatening purchasing power, any tax incentive is welcome. Wealthy expats could be tempted to wager on this European island. Other expats could also be tempted by a new adventure in Cyprus. But we yet have to see how the local population reacts to these tax incentives. It's important to attract expats, but without neglecting Cypriots. That is the challenge president Níkos Anastasiádis wants to take on.
