Cyprus: A premier destination for Israeli individuals and businesses

Cyprus, renowned for its strategic location at the crossroads of Europe, Asia and Africa, has emerged as a favoured destination for individuals and multinationals establishing their headquarters in Cyprus. Offering an attractive lifestyle, a high-calibre educated workforce, a competitive tax regime and a strategic location, Cyprus invites investors and entrepreneurs seeking to capitalise on its business-friendly environment. Cyprus is particularly appealing to Israeli investors focusing on the attractiveness of the corporate and personal tax landscape.

Why Cyprus Attracts Israeli individuals

The allure of Cyprus extends beyond its Mediterranean beaches and rich cultural heritage. For Israelis, the island offers a combination of lifestyle and proximity, along with several tax benefits. Israeli individuals can work in Cyprus under the various residency schemes, while the country facilitates easy access to EU markets and offers a stable and secure living environment. Cyprus offers an unparalleled blend of the above with strategic tax incentives that can enhance the personal wealth optimisation of Israeli individuals who become Cyprus tax residents, such as the non-domiciled status that allows an exemption from all passive income, unconditional exemption from gains on qualifying titles, foreign pension income being subject to a flat rate of 5%, and a 50% or 20% exemption from income tax of employment income. Combining all the above with a progressive personal taxation capped at 35%, a tax-free band, no inheritance tax, no wealth tax, no estate tax, the applicability of English common law principles and a transparent and reliable judicial process, Cyprus offers a compelling opportunity to Israeli individuals seeking to relocate in a stable living environment with very close proximity to their homeland.

The Corporate Tax Environment

Cyprus’ corporate tax regime is one of the main attractions for international businesses and investors. The streamlined process for establishing a Cyprus company paired with the attractive corporate tax rate are key considerations for businesses seeking to establish international structures and optimize tax efficiency. Unconditional capital gains exemption on disposal of qualifying titles, dividend exemption if participation exemption rules are met, and an effective tax rate of as low as 2.5% on IP profits and equity-financed taxable income are amongst some of the corporate tax benefits, which can be easily obtained by Israeli multinational groups establishing in Cyprus.

Considering global tax transparency and anti-avoidance measures, Cyprus has introduced reforms impacting payments to low-tax and blacklisted jurisdictions and intends to proceed with a targeted tax reform that ensures the alignment of Cyprus with international efforts to improve fiscal compliance and safeguard the applicability of the above corporate tax benefits.

For Israeli investors, an understanding of the interplay between Cyprus’ tax environment and Israeli-controlled foreign company (CFC) rules, Israeli exit tax considerations and substance requirements is crucial.

Cyprus’ advantageous tax framework, bolstered by recent reforms, presents compelling opportunities for Israeli individuals and enterprises. While there is a need for carefully navigating the Israeli rules, Cyprus stands out as a strategic partner for fostering deeper business and investment ties with Israel.

• By Iva Angelova, Director, Tax Advisory, PwC Cyprus

This article was first published in the special publication Doing Business in Cyprus. To view it, click here. To read the entire publication, click here.