Chapters in this guide
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In recent years, Cyprus has enhanced its role as an attractive European option for private clients and high-net-worth individuals to live and work from, driven by gradual but continuous enhancements to the tax framework, investor-friendly policies and stable business environment, alongside a modern trust law system and a robust common law legal environment.
Key highlights relevant to businesses and their owners include the lack of inheritance or wealth taxes, the non-domicile regime, and incentives for relocation of executives and other key persons.
Other relevant attractions for high-net-worth individuals looking to retire in Cyprus include the principle of testamentary freedom, which empowers individuals to distribute their assets with significant autonomy, while the statutory portion ensures the protection of family members through forced heirship provisions. The key legislation governing estate planning in Cyprus is the Wills and Succession Law, Cap. 195, in addition to the Administration of Estates Law, Cap. 189, and the European Union (EU) Succession Regulation, reflecting the country’s adaptability to both local and international contexts.
Thus, Cyprus is becoming increasingly popular with family offices that manage the assets and needs of their principals and their families across the globe. The implementation of the International Trusts Law in 1992 created robust asset protection and tax optimisation avenues for overseas investors, simultaneously granting individuals from jurisdictions with enforced heirship regulations the ability to regain control over their testamentary decisions.
The abovementioned factors, as further discussed in this chapter, along with the island’s distinctive characteristics, such as its membership of the EU, strategic location at the intersection of three continents, a well-educated and skilled workforce, a high standard of living, favourable regulations regarding estate planning and trusts, and an optimal climate, make Cyprus an appealing option for both residence and business endeavours for high-net-worth individuals.
Generally, Cyprus implements the principle of worldwide tax on income (not wealth), i.e., Cypriot tax-resident persons are subject to Cypriot taxation on their worldwide income. This is not as onerous as it sounds — the law affords various exemptions and reliefs narrowing the Cypriot tax base. For example, there is no wealth or inheritance tax; double tax treaty and unilateral credit relief (in the absence of a double tax treaty) is allowed, offsetting the corresponding Cypriot tax, and gains from the sale of corporate titles (such as shares) are generally excluded from Cypriot taxation.
Corporate taxation
Business and/or trade profits are taxed at a flat corporate tax rate of 12.5% after the deduction of relevant costs. Such costs are generally defined to include expenditure incurred wholly and exclusively for the production of taxable income. Despite the application of the 12.5% tax rate, the effective Cypriot taxation may be lower (e.g., when the company mainly transacts in corporate titles). The Cypriot Tax Law removes the bias favouring debt financing by allowing notional interest deduction when a company employs issued share capital proceeds. The Cypriot Tax Law also allows for surrendering of tax losses between group members.
Specific types of revenue streams are also subject to investment taxation, such as the Special Defence Contribution (SDC). These mainly include interest and dividend streams. The tax base is very narrow. Starting with interest income streams, the SDC applies here, taxing interest income streams that are not produced in the context of commercial dealings and/or business dealings. Commercial and business dealings are broadly interpreted and applied. Regarding dividend income streams, the SDC will only apply if a cumulative two-part test is met: (a) source taxation is lower than 6.25%; and (b) over 50% of the dividend derives (directly or indirectly) from passive/investment activities.
Personal taxation
Business and/or trade profits and/or employment income are taxed using a progressive scale with an upper taxable band of 35% for taxable income streams exceeding EUR 60,000. Similarly, as for companies, transactions relating to ‘corporate titles’ are excluded from the personal tax base. The personal tax law provisions provide incentives for attracting expatriates to relocate to Cyprus by substantially lowering the effective taxation on employment income (e.g., by providing 50% for employment income exceeding EUR 55,000). The SDC also applies for Cypriot tax-resident physical persons if they have domicile status for the SDC Law. Generally, persons with non-Cypriot origins should be able to claim the non-domicile status for a period of 17 years, therefore disapplying the SDC.
Wealth planning
As already mentioned, there is no wealth and inheritance taxation which, coupled with the flexibility afforded by the familiarity with the concept of trusts, allows high-net-worth individuals and family offices to make long-term and effective succession plans.
The Cypriot Parliament has recently passed a law implementing the EU Directive on minimum taxation. The new law applies for groups (multinational enterprises or domestic) that produce consolidated revenues that exceed EUR 750 million for two years over a total time span of four years.
There have been no local legislative and regulatory developments.
There have been no material case law developments. Most tax disputes are settled during negotiations between the tax advisor and the tax administration amid a tax audit; or tax rulings are obtained clarifying grey areas, thereby providing certainty.
There have been no local case law developments.
Not applicable.
There have been no pandemic-related developments.
In Cyprus, matters pertaining to succession and probate are governed by the Administration of Estates Law, Cap. 189, the Wills and Succession Law, Cap. 195 (“Succession Law”), and the Probate and Estates (Inland Revenue) Law of 2000.
For probate cases initiated outside of Cyprus that involve property located within the jurisdiction, the Probates (Re-Sealing) Law, Cap. 192, along with any and all associated regulations, applies.
Succession methods
The legal framework in Cyprus allows for the management and allocation of a deceased individual’s estate to occur via a will, in the absence of a will (intestate), or through a combination of both a will and intestate provisions concerning any estate components not addressed in the will. A core principle of the Succession Law is the principle of testamentary freedom, which allows individuals the liberty to allocate their assets according to their preferences. This principle, rooted in English legal tradition, has been adopted in Cyprus, reflecting a commitment to personal autonomy in asset management.
In addition to the principle of testamentary freedom, Cypriot law recognises aspects of forced heirship, a concept more prevalent in civil law systems. Specifically, forced heirship provisions mandate that a designated portion of an estate, referred to as the ‘statutory portion’, must be allocated to certain family members, termed ‘compulsory heirs’. Consequently, even in the presence of a valid will, these regulations guarantee that compulsory heirs receive a legally mandated share of the estate. For instance, if the deceased is survived by a spouse or father or mother, but no child or descendant of a child, the disposable portion must not exceed one-half of the net value of the estate, and if the deceased is survived by a spouse and a child or a spouse and a descendant of a child, or there is no spouse, but a child or descendant of a child, the disposable portion of the estate must not exceed one-fourth of the net value of the estate.
Through this, the Succession Law upholds an individual’s rights to manage their assets whilst also ensuring family members are protected.
Administration of estates in Cyprus and the grant of probate
The initial phase of estate administration involves ascertaining whether the deceased has left behind a valid will. In instances where a will exists, the individual designated within it is referred to as the executor. Conversely, if no will is present or if the will fails to designate an executor, the court will appoint an administrator. The appointed executor or administrator holds the responsibility of collecting and distributing the deceased’s assets.
In order to legally manage and administer the estate, the executor or administrator must secure a grant of probate, in cases where a will is available, or letters of administration, in cases where a will is absent. This legal instrument serves to validate the authority of the executor or administration in order to proceed with handling the assets of the deceased. The procedure entails submitting a petition to the relevant district court of Cyprus located in the deceased’s last-known residence in Cyprus, as well as to the tax authorities.
Prior to the allocation of assets to beneficiaries or heirs, it is imperative for the executor or administrator to address and resolve any existing debts and tax obligations of the deceased. This encompasses unpaid bills, loans, and various taxes, including income tax. After the settlement of all debts and taxes, the residual assets may be allocated to the beneficiaries and/or heirs.
EU Succession Regulation
The EU Succession Regulation, commonly referred to as “Brussels IV”, is codified under Regulation (EU) No. 650/2012. This regulation came into effect on 17 August 2015, with the primary objective of simplifying and standardising succession laws across the EU. Prior to its implementation, individuals faced considerable challenges and legal uncertainties when dealing with succession matters in different EU jurisdictions.
Brussels IV has profoundly impacted inheritance laws within EU Member States, including Cyprus, by establishing a clear framework for identifying the applicable law governing a deceased person’s estate. The law that applies may either be that of the deceased’s habitual residence at the time of death or the law of the country of which they are a national, provided that this choice is explicitly stated in their will. The possibility of selecting the governing law contributes to greater predictability and clarity in estate planning.
In the specific context of Cyprus, Brussels IV presents a significant consideration for UK citizens residing there, even though the regulation does not apply to the UK. For example, a UK citizen living in Cyprus who chooses to apply the law of England and Wales, where forced heirship rules do not exist and individuals enjoy complete freedom to dispose of their estate during their lifetime, can do so in their succession planning. If this choice is clearly articulated in their will, the forced heirship rules of Cyprus will not apply to their estate. However, if the individual fails to make such a designation, the law of their habitual residence, Cyprus, will govern their estate, thereby subjecting it to the forced heirship provisions of Cypriot law.
Trusts
As a common law jurisdiction, the concept of a trust is deeply ingrained in Cyprus legal doctrine and their use is not uncommon in wealth and estate planning. This is in line with global trends where trusts play an important role and are a key tool for professionals and their clients in making plans for their future and their families’ futures.
The framework for trust regulation in Cyprus is established by the Trustees Law, Cap. 193, (“Trustees Law”) and the International Trusts Law, No. 69(I)/92 (“Cyprus International Trusts Law”). The Cyprus International Trusts Law was enacted in 1992 and amended in 2012. This law established Cyprus as one of the best jurisdictions for the creation of international trusts due to their numerous benefits compared to other jurisdictions.
There have been no local legislative and regulatory developments.
There have been no case law developments in relation to this.
There have been no local case law developments.
In Cyprus, the management of estates reflects an integration of traditional and modern practices, including the use of trusts. There is a notable rise in private wealth clients seeking expertise in multijurisdictional estate planning, particularly in the context of Brussels IV.
Additionally, Cyprus serves as an attractive destination for expatriates, thanks to its stable, robust, and straightforward legal and tax systems, all within a secure and pleasant environment that ensures a high quality of life. This has led clients to actively pursue succession planning that includes assets across various jurisdictions.
The onset of the COVID-19 pandemic led to numerous changes, especially in the context of probate applications and court proceedings, which encountered substantial delays due to imposed lockdowns and restrictions. Executors and administrators began to depend more heavily on digital tools to co-ordinate with beneficiaries, courts, and tax authorities. Furthermore, the pandemic amplified public awareness surrounding estate planning, resulting in a significant uptick in the creation of wills and estate planning arrangements.
In addition to the Trustees Law and the Cyprus International Trusts Law, Cyprus is also a signatory to the Hague Convention on Trusts, which aims to improve the legal environment by offering a cohesive and harmonised set of choice of law rules for voluntary written trusts. Additionally, common law and the principles of equity apply, provided they do not come in conflict with the constitution.
A significant development in the context of trusts in Cyprus and the EU is the mandatory registration of Ultimate Beneficial Owners (UBOs) for legal entities and trusts, as required by the Fourth and Fifth Anti-Money Laundering Directives. Regarding access to this information, the Court of Justice of the EU ruled in a crucial decision in November 2022 that unrestricted access to beneficial ownership registers is “invalid”, as it violates the privacy and personal data protection rights of beneficial owners. As a result, several EU countries, including Cyprus, have limited public access to their registries.
Types of trusts established in Cyprus
In the context of Cyprus, the most prevalent forms of trusts are “local trusts,” which operate under the Trustees Law, and “Cyprus International Trusts,” which are regulated by the Cyprus International Trusts Law. A local trust is contingent upon the residency of either the settlor or one beneficiary in Cyprus. On the other hand, the formation of a Cyprus International Trust is contingent upon the non-residency of both the settlor and the beneficiaries in Cyprus during the year prior to the trust’s establishment, with the stipulation that at least one trustee must be a resident of Cyprus.
Pursuant to the Cyprus International Trusts Law, international trusts in Cyprus are regulated by the legal framework selected by the settlor in accordance with the trust deed. If the settlor has not specified a governing law, the court is empowered to determine the applicable law. Nevertheless, the selection of law is subject to certain restrictions outlined in clause 3 (1A) of the Cyprus International Trusts Law, which mandates that specific matters be governed solely by Cyprus Law, regardless of any foreign law that may have been chosen. Should the chosen law be Cyprus law, the provisions of the Cyprus International Trusts Law will take precedence over any conflicting provisions within Cyprus law.
The Cyprus International Trusts Law provides an avenue for both the settlor and beneficiaries to relocate to Cyprus, enjoy the benefits provided by the favourable tax system of Cyprus, and perhaps attain tax residency following the establishment of the trust. Issues concerning the validity, interpretation, modifications, revocation, and the powers of trustees and protectors, as well as the administration of a Cyprus International Trust, are governed solely by the laws currently in effect in Cyprus, without consideration of the laws of any other jurisdiction. Section 3(1A) of the Cyprus International Trusts Law delineates the specific matters that are exclusively governed by Cypriot law. Furthermore, trustees have the option to petition the court for guidance on how to proceed with particular issues, and the court is empowered to issue relevant orders concerning the trust. Such applications may be submitted by the trustee, protector, trust enforcement supervisor, or any other interested party.
There have been no local legislative and regulatory developments.
There have been no case law developments in relation to this.
There have been no local case law developments.
Recent geopolitical developments have profoundly influenced the global trust sector, with Cyprus experiencing notable repercussions. The regulatory environment is continuously changing, characterised by a growing focus on transparency and information exchange, alongside the implementation of EU sanctions and a complex financial landscape. As a result, compliance obligations have intensified for both trust practitioners and their clients. Professionals in this field are now expected to adhere to more stringent standards, which demand an enhanced level of professionalism and expertise. It is anticipated that the Cyprus Bar Association will soon be making proposals for amendments to the legislation dealing with trusts to adapt it to the changing environment and further enhance its appeal.
There have been no pandemic-related developments.
4.1 What formalities are required for a will to be valid in Cyprus?
In order for a will to be deemed valid under Cypriot law, it is imperative that certain formal criteria are met.
Firstly, the testator must be at least 18 years old and possess the requisite mental capacity, ensuring that they have a comprehensive understanding of the implications of a will and the rights it bestows. Additionally, the will must be composed in written form and executed according to specific protocols. This includes the requirement that the testator or an authorised individual must sign the document at its conclusion.
Moreover, the will must be witnessed by at least two individuals who are present simultaneously. These witnesses are required to observe the testator’s signature and must also sign the document in the presence of one another and the testator. It is crucial that the witnesses are of legal age, mentally competent, and capable of affixing their signatures.
Finally, in cases where the will spans multiple pages, each page must be signed or initialled by both the testator or their representative and the witnesses.
4.2 Is there a process by which dissatisfied heirs and/or beneficiaries can file a claim in Cyprus against the deceased’s estate?
Disappointed heirs and/or beneficiaries have the right to initiate legal action against the executor, challenging the formal validity of the will, its adherence to legal stipulations regarding the statutory share, or the testamentary capacity of the deceased. Individuals who assert their legal entitlement may initiate a court action, regardless of whether they are named in the will. Legal actions aimed at disputing the validity of a will, or addressing matters related to the estate of a deceased person, including any specific bequests, cannot be initiated after a period of eight years has elapsed from the date of the individual’s death. In cases where the claimant was absent from Cyprus, the limitation period will only be deemed complete after one year has passed since the claimant’s return to Cyprus or their knowledge of the death, or the moment at which they could have reasonably become aware of it.
4.3 In view of the fact that a Cyprus International Trust benefits from the favourable current tax system of Cyprus, under what circumstances will an individual be deemed as a tax resident in Cyprus?
An individual qualifies as a tax resident in Cyprus if they meet one of the two Cypriot tax residency tests: (i) the 183 days test; or (ii) the 60 days test. The numerical day criterion lies at the core of these two tests. The relevant tax law provisions define a day in Cyprus as follows:
- the day of departure from Cyprus is counted as a day not spent in the country;
- the day of arrival in Cyprus is counted as a day spent in the country;
- if an individual arrives and departs from Cyprus on the same day, it is counted as a day spent in Cyprus; and
- if an individual departs and returns to Cyprus on the same day, it is counted as a day not spent in Cyprus.
183 days test. This is the main tax residency test whereby the person claiming the Cypriot tax residency should pass the 183 days threshold in a calendar year (January–December) as prerequisite to receiving the Cypriot tax residency. It is not a requirement that the 183 days are consecutive. It suffices if the person resides 183 days in Cyprus in the relevant year of assessment (which is equal to the calendar year).
60 days test. Alternatively, a physical person may also be a Cypriot tax resident if they reside in Cyprus for a time span of 60 days in a calendar year, provided: (i) they are not a tax resident in any other country; and (ii) they do not reside in any other country for more than 183 days. Further, the 60 days test requires the candidate to have a minimum Cypriot nexus. In this regard the candidate claiming Cypriot tax residency under the 60 days test should:
- engage in business activity in Cyprus, be employed in Cyprus, or serve as a director of a company that is a tax resident in Cyprus, or fulfil all of the above roles; or
- maintain a permanent residence in Cyprus.