Cyprus: Tax planning for incoming individual sportspersons and artists

by Angelos M. Gregoriades[1]

 

Introduction

Before providing an overview of the taxation of incoming individual sportspersons and artists let me introduce Cyprus. Cyprus, the third largest island in the Mediterranean Sea after Sicily and Sardinia, is the eastern most corner of the European Union and a strategic post throughout the centuries and layers of history. The first sign of civilization goes back to the 9h millennium BC. Cyprus is the warmest island in the Mediterranean with long dry summers and mild winters, it is perhaps the best type of Mediterranean climate with about 300 warm and sunny days in the year. Skiing is possible on the higher parts of Troodos mountain for about 8 weeks in the year. The minimum temperature in January is 4°C or 39°F whereas maximum mean temperature during July and August is 37°C or 99°F.

Unlike other jurisdictions, Cyprus does not have any specific provisions or reliefs related to foreign individual sportspersons and artists[2] intending to move to Cyprus. Cyprus is well known for having one of the lowest personal income tax rates in the European Union and sportspersons are taxed under the Cyprus residency rules that apply to all individuals which could be one of the benefits of working and playing in Cyprus.

This article provides an overview of the tax rules and social insurance scheme in Cyprus and how the Cyprus residency rules apply to individual sportspersons and artists who come to Cyprus to carry on their sporting or artistic activities.

This article briefly comments as well on the Cyprus tax treatment of non-resident professional team sports players or artists and focuses on the general features of Cyprus tax law, the taxation of incoming individual sportspersons and artists, and tax planning areas which can be taken.

Finally tax planning areas have been set out which can be examined to reduce the tax liabilities for incoming individual sportspersons and artists.

 

Immigration requirements and working conditions

All aliens[3] from outside the EU[4] arriving in Cyprus for reasons other than immigration must possess an official and valid passport and have obtained a visa[5] from an official representative of the Republic of Cyprus in their home country before entering Cyprus to pay a continuous visit or several visits where the duration of each visit does not exceed three months in half a year, starting from the date of first entry.

In case of aliens who need to travel frequently to Cyprus, e.g. for business, short stay visas may be issued for several visits, provided that the total length of these visits does not exceed three months in any half year. This multiple-entry visa may be valid for one year and, in exceptional cases, for more than a year, but for no more than five years for certain categories of persons.

Accordingly, incoming individual sportspersons and artists may enter Cyprus under the multiple entry visa for the purposes of business negotiations, preparatory/preliminary work performance and may stay in Cyprus for ninety (90) days in a half year starting from the date of first entry. These visas may be obtained from an official representative of the Republic of Cyprus in their home country upon presentation of letters of invitation from the Cypriot parties involved.

 

Temporary/permanent residence permits and entry and employment permits for foreign (EU and third country) citizens

In terms of the permanent relocation of incoming individual sportspersons and artists to Cyprus and to stay in Cyprus for the purpose of employment in Cyprus, it should be taken into account that, in accordance with the Cypriot legislation[6], the Civil Registry and Migration Department of the Ministry of lnterior[7] is the competent authority for granting entry permits as well as temporary and/or permanent residence permits to EU, and to third country nationals.

 

Procedure for the employment of EU citizens

The employment of European citizens is regulated by law.[8] According to this legislation, the freedom of movement and residence in the Republic can be restricted only on grounds of reasonable threat of public order, safety or health.

Nationals from EU Member States have the right to enter Cyprus by simply showing a valid EU passport or ID card without having to register upon arrival. However, if there is an intention to stay for more than three months (and/or take up employment) then they have to:

a   apply within eight (8) days of their arrival for a Registration Certificate at the local Immigration Branch of the Police in all districts (issued automatically for monitoring purposes) and pay the relevant fee of € 20.

b  If there is an intention to stay and take up employment, one has to apply for a registration certificate. This application must be submitted personally within 4 months after entering Cyprus at the Civil Registry and Migration Department (this service is for the time being, provided at the local Immigration Branch of the Police in all districts except Nicosia where a District Migration Office exists) together with the following:

–   a duly completed application form MEU1 (obtainable from the Civil Registry & Migration Department or from the local Immigration Branch of the Police)[9] depending on the category of residence permit one is applying for (employed activity, self employment etc.);

–   valid passport or ID card and copies of the same;

–   confirmation of engagement by the employer (Part Ill of the application or certificate of employment);

–   two passport sized photographs;

–   a fee of € 20.

(Note: if one is applying for family members, he must present:

–   valid passport or ID and copies of the same;

–   a document attesting to the existence of family relationship;

–   where appropriate the registration certificate of the Union Citizen whom they are accompanying or joining; and

–   fee of € 20 for each family member.)

 

c   Apply for a social insurance number upon securing employment in Cyprus.

It should be noted that a fine is imposed in the case of non-compliance (Law N27 (1)/2007) and specifically a fine of € 2,562.90 to any European national who works in the Republic without being registered.

The members of the family of a European national have the right to exercise an employed or self-employed activity in the Republic.

 

Procedure for the employment of aliens

Application[10] for the issue of Entry and Work Permits in General Categories of Employment are submitted to the Civil Registry and Migration Department by the intended employer, through the respective District Aliens and Immigration Branch of the Police while the applicant is still abroad. The applications should be accompanied by a contract of employment sealed by the Department of the Ministry of Labour of the Ministry of Labour and Social Insurance, which is the competent authority responsible for examining whether there are qualified and/or available Cypriot citizen, and to what extent, for the profession or position in question. The applications must also be accompanied by a certificate of good conduct and a bank guarantee letter in view of the likely costs of repatriation. The applications are submitted and examined by the Director of the Civil Registry and Migration Department. If nothing emerges that hinders the entry of the foreigners in question into Cyprus, the relative entry and work permits are issued.

 

Duration of stay/exemption

The maximum period of stay of an alien for purposes of employment is 4 years except employees in agricultural and animal husbandry who can stay a maximum period of 6 years.

Exemption – Among others athletes and trainers of personal and group contestants are exempted from the above restrictions.

Cyprus secures equal treatment between foreign workers and local personnel through its Constitution, which guarantees the protection of human rights regardless of race, religion or ethnic origin. Also a number of administrative arrangements exist, to promote and guarantee that migrant workers are at least treated equally with nationals, in respect to, among other things, terms and conditions of employment.

 

Taxation of individuals – general principles

Individuals pay Cyprus income tax solely on their tax residency status.

The term “resident”[11] is defined in the Cyprus Income Tax Law[12] (CITL) when applied to an individual, who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the “year of assessment”. A year of assessment (tax year) is the period of twelve months commencing on the first day of January in each year.[13]

A Cyprus tax resident individual is liable to pay personal income tax on his/her aggregate income accruing or arising from sources both within and outside Cyprus.[14] The tax rates for individuals are graduated, starting at 0% from € 0 to € 19,500, 20% from € 19,501 to € 28,000, 25% from € 28,001 to € 36,300, 30% from € 36,301 to € 60,000 and 35% thereafter.[15]

However, where incoming individual sportspersons and artists (public entertainers) not resident of Cyprus or other groups including football clubs and other athletic missions from abroad derive income from performances in Cyprus, subject to the provisions of double tax treaties, they are liable to tax on their gross income at the flat rate of ten cent in the Euro.[16] Where such tax is imposed on any group, its individual members are not liable to tax.[17]

It is possible for incoming individual sportspersons and artists to operate through a company.

 

Image rights and endorsement income

There is no special treatment of income from exploitation of image rights and endorsement of sportspersons and artists (public entertainers). Therefore, such income accruing or arising from sources both within and outside Cyprus will be taxable on resident sportspersons and artists (public entertainers)

 

The payment of taxes

Any person who is required to submit[18] a return of income has, under the self­ assessment system, to pay[19] to the Tax Authorities, on delivering the return any tax due according to the self-assessment made. Individuals who derive income other

than emoluments have to make payments of tax during the tax year on account of their final tax liability.[20] The prepayment of tax is made on 1 July and 31 December of the tax year in amounts determined in two (2) installments by the individual’s provisional assessment under self-assessment system. Any refund of tax overpaid under the self-assessment system[21] carries interest as from 1 January following the tax year.[22]

The difference between the amount of tax payable as it is finally determined after the end of the financial year and the tax prepaid under the provisional assessment regime, is due by self-assessment in the case of:

1   individuals who are required to submit their tax returns by 30 June of the year following the year of assessment on or before 30 June of the following year;[23]

2   individuals who are required to submit their tax returns by 31 December of the year following the tax year on or before 1 August of the following year.[24]

Income received by an individual under a contract of services is treated as income from employment subject to income tax on their remuneration which includes moneys paid or payable by way of salary, wages, overtime, bonus, allowance, share of profits, perquisite, fee, commission or pension and the annual value (determined at the current market rates) of any residence, quarter, lodging board or other perquisite or allowance granted in respect of employment whether in money or otherwise to the person providing the salaried services or to any member of the family and these are subject to the income tax rates stated as above.[25]

Individuals must file their income tax returns not later than 30 April (this is extended to 31 July if filed via the Taxisnet system) following the end of the tax year (31 December). This return in the case of an employee requires a statement of taxable income (form IR63) for the tax year as well as a claim for deduction and allowances for the same year (form IR59). The return requires a calculation of any balance of tax that may be due and the taxpayer is required to pay the balance of the tax due any time on or before 30 June.

After receiving the completed return, the tax office will be issuing an assessment of any tax payable or refundable.[26] If the assessment is correct, any tax due should be paid by the end of the month following the month in which the assessment is raised.

If the assessment made is not correct, a notice of objection must be lodged not later than the end of the month following the month in which the assessment is raised.[27]

 

Other taxes and/or exemptions

1   Capital gains on immovable property situated in Cyprus is taxed separately at the rate of 20%.[28] Immovable property includes shares in companies, excluding shares in listed companies[29],the assets of which include immovable property[30]

2   Income received in the form of interest is exempt from income tax.[31] However, it is subject to a withholding special contribution under the Special Contribution for the Defence of the Republic Law at the rate of 30%.[32]

3   Income received in the form of any dividend is exempted from income tax.[33] However, dividends are subject to a withholding special contribution under the Special Contribution for the Defence of the Republic Law at the rate of 17%.[34]

4   There is no capital transfer tax.

5   Income or gains derived from the disposal of stocks and shares are not liable to income tax or capital gains tax.[35]

6   There is no Estate Duty (Inheritance Tax) in Cyprus.

7   There is no wealth tax.

8   The 20% of the emoluments from any employment which is exercised in Cyprus by an individual who was not a resident of Cyprus before taking up employment in Cyprus or € 8,550 whichever is the lowest. This exemption applies for a period of three years (it is proposed to raise the three years to five) commencing from 1 January of the year following the year of commencement of such employment.[36] (It is proposed to discontinue this exemption as from the year of assessment 2021.)

9   The 50% of the emoluments from any employment which is exercised in Cyprus by an individual who was not a resident of Cyprus before taking up employment in Cyprus. This exemption shall apply for a period of five years (it is proposed to raise the five years to ten) commencing from the year of employment, provided his/her said income exceeds one hundred thousand euro (€ 100,000) per annum.[37]

 

Social Insurance Scheme

The Social Insurance Scheme[38] in Cyprus covers compulsorily every person gainfully occupied in Cyprus, either as an employed person or as a self-employed person.

The Social Insurance Scheme is financed by contributions paid by the employers, the insured individuals and the State. Contributions to the Social Insurance Fund for the year 2015 are 20.2%[39] of insurable earnings not exceeding € 1,046 a week or € 4,533[40] a month of the insured individual for the year. In the case of employees, 7.8% is paid by the employee himself/herself, 7.8% by the employer and 4.6% by the Government.

Where an employer has a non-contributory pension scheme for his/her employees, the employees contribution is 3.95%, the employer’s contribution is 11.65% and 4.6%[41] by the Government. In the case of self-employed individuals, 14.6% is paid by the insured and 4.6% by the Government[42] and in case of voluntary contributions 13% is paid by the insured individual and 4.1%[43] by the Government.

For the purposes of calculating employees’ contributions, the actual gross earnings, subject to ceilings as mentioned above, are taken into consideration. In the case of the self-employed, however, the law prescribes notional incomes, which vary according to the occupational category. For each category of self-employed persons, a compulsory minimum insurable income is prescribed, but the individual self-employed person has the right to opt for a higher income up to the maximum insurable earnings.

The social insurance scheme provides equality of treatment for nationals and non-nationals.

International business companies have the same obligations for the payment of contributions to the social insurance fund and the various other funds as all other employers.

Contributions to the various funds are tax deductible. The employer’s contribution is not considered taxable income to the employee. Capital sums payable out of these funds do not form part of the taxable income of the beneficiaries.

The employer is liable for the total amount of contributions and should withhold the employee’s portion from his/her wages or salary.

 

Bilateral social insurance agreements

Where an individual is sent to work temporarily in Cyprus by an employer in a country with which Cyprus has concluded a bilateral Social Insurance Agreement covering social insurance contributions, they may be able to or in some circumstances have to, continue paying their home country social insurance contributions.

Incoming professional team sports players

In general, professional team sports players coming to Cyprus come to play under a full-time contract of employment. Although the contract period may vary, usually the contracts are to be for long term and the player may become a tax resident due to his/her stay in Cyprus in aggregate over a period of 183 days. On taking up Cyprus tax residency, the sports player will be subject to Cyprus income tax on his/her worldwide income on accruing or arising basis regardless of where the income was earned and the services performed.

 

Income tax treaties

A point to be attentive with regard to taxation of foreign professional athletes is to ascertain whether or not an income tax treaty exists between Cyprus and the foreign country of residence. The tax treaties between Cyprus and the foreign countries are generally based on the OECD model providing the following taxation scheme for artists and sportspersons. Tax is charged in the country of the sports event. Mediators and other persons receiving income in connection with personal activities exercised by the entertainer or sportsman himself/herself are taxed in the country in which the activities of the entertainer or sportsperson are exercised.

Some tax treaties allow exemption from tax, income derived in respect of activities exercised by an entertainer or sportsperson if the visit is wholly or mainly supported by public funds as part of an interstate and intergovernmental or political subdivisions or local authorities cultural program. In such a case, the income is taxable only in the state in which the entertainer or the sportsperson is resident.

An entertainer or sportsperson claiming for exemption in one of the countries must confirm the right to the above exemption in the country where the income is received.

 

Image rights advertising and endorsement income

In the case of an incoming sports player, who is resident in Cyprus, any payments received in respect of the exploitation of the player’s image rights, advertising and endorsement activities are treated as trading income and subject to Cyprus income tax rates as shown above, regardless of where the income accrues or arises.

Where any person is not treated as a tax resident of Cyprus all gross income derived from sources within Cyprus in respect of exploitation of the person’s image rights, advertising and endorsement income are subject to Cyprus tax at the rate of 10%.[44]

 

Conclusion

Foreign professional team sports players are subject to Cyprus income tax under the Cyprus tax residency rules that apply to individuals. They need to understand the general outline of the Income Tax Law of the Republic of Cyprus regarding the taxation of foreign nationals. However, tax planning opportunities exist, as the Cyprus income tax allows incoming professional team sports players to take tax planning considerations on their foreign sourced income, in particular receipts from foreign image rights and advertising income, before they decide to come to Cyprus. Knowing the substantial remuneration earned by foreign professional sports players and their tax planning to minimize their Cyprus tax on their foreign source income, the Cyprus Inland Revenue has increased its activity to enforce compliance with the Cyprus tax laws by foreign professional team sports players. It is, therefore, advisable for any incoming professional team sports player to consult qualified tax professionals ahead of coming to Cyprus and before signing contracts for both playing and non-playing activities.

 

[1] Angelos M. Gregoriades, BSc (Econ.), FCA is Chairman of KPMG Ltd., Cyprus; Head of Tax Services; President of the Cyprus Investment Fund Association; and Member of the Board of Management of Cyprus Investment Promotion Agency. http://www.kpmg.com.cy

[2] This does not include visiting sportspersons and artists who are subject to the rules explained later in this article under “Non-resident visiting public entertainers including football clubs, or athletic missions”. [Where is this paragraph? Not found in this article.]

[3] As from 1 May 2004 the definition of an “alien” does not include citizens of the EU Member States or citizens of Norway, Iceland and Liechtenstein which belong to the European Economic Area, as well as the citizens of Switzerland.

[4] Citizens of a member state of EU, as well as, of Switzerland, Iceland, Liechtenstein and Norway may enter Cyprus with their national identity card (provided there is a photo identification on it).

[5] List of countries whose citizen do not need a visa for a stay of up to 90 days, provided they are bona fide visitors: Andorra, Antiqua and Barbuda, Argentina, Australia, Bahamas, Barbados, Bermuda, Brazil, Brunei Dar Es Salam, Canada, Chile, Costa Rica, Croatia, Guatemala, Holy See (Vatican), Honduras, Hong Kong SAR, Israel, Japan, Macao SAR, Malaysia, Mauritius, Mexico, Monaco, New Zealand, Nicaragua, Panama, Paraguay, Saint Kitts and Nevis, Salvador, San Marino, Seychelles, Singapore, South Korea, Taiwan, USA, Uruguay and Venezuela. For further Information please contact by e-mail minforeignl@mfa.gov.cy.

[6] Aliens and Immigration Law of 1972 as amended. E-mail: migration@crmd.moi.gov.cy.

[7] For more information those interested may communicate with the Civil Registry and Migration Department, CY 1457 Nicosia, Cyprus. E-mail: migration@crmd.moi.gov.cy.

[8] The Right of Union Citizens and their Family Members to Move and Reside Freely within the Territory of the Republic of Cyprus Law N27(1} of 2007.

9 The forms can also be downloaded from the website of the Ministry of Interior: www.moi.gov.cy (more information at telephone +357 22804442, migration@crmd.moi.gov.cy.

[10] Applications on forms M.58 and M.64 are submitted together with:

– a photocopy of alien’s passport;

– a clean criminal record certificate of alien;

– a bank letter of guaranty for € 341.72-854.30 depending on the country of origin of the alien, to cover possible repatriation expenses, valid for six months after the expiration of the work contract.

A work contract stamped by the Department of Labour of the Ministry of Labour and Social Insurance and stamped with a revenue stamp from the Revenue Stamps Registrar. € 34,17 (fee for submission of application).

[11] The Income Tax Law of 2002 as amended, section 2.

[12] The CITL of 2002 as amended does not provide a definition of the word “income” however the types of income chargeable to income tax prescribed are:

a any profits or other benefits from any business; for whatever period of time such business may have been carried on or exercised (The word “business” in the Income Tax Law means commercial or manufacturing business profession or vocation and includes any other business of a trading nature.);

b any profits or other benefits from any office or employment, including the estimated annual value of any quarters or board or residence or of any other allowance granted in respect of office or employment, whether in money or otherwise, to the individual providing the salaried services or to any member of his family;

c any dividend, interest or discount;

d any pension, charge or annuity;

e any rents, royalties, remuneration or other profits arising from property, including the value of the benefit derived by the owner of land from the erection thereon at the expense of the tenant of any structure or from any addition or alteration or both made to any structure, building or works at the expense of the tenant, where such structure, addition or alteration shall upon the termination of the tenancy become the property of the owner.

f any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchasing of such trade goodwill.

g any company that grants a loan or any other financial assistance including drawings except balances arising from trading transactions to directors or shareholders, to persons or to their wives/husbands or to relatives up to second degree relationship then it is considered that such a person has a monthly benefit which is equal to nine per cent (9%) per annum on the balance of the loan or any other monthly financial assistance at the end of each month, provided that the tax computed on the monthly benefit is assessed according to the Income Tax (Deduction from Emoluments) Rules.

It is possible that an incoming individual sportsperson and artists operate through a company.

[13] The Income Tax Law of 2002 as amended, section 2.

[14] The Income Tax Law of 2002 as amended, section 5(1).

[15] The Income Tax Law of 2002 as amended, section 25 and Schedule II.

[16] The Income Tax Law of 2002 as amended, section 23.

[17] The Income Tax Law of 2002 as amended, section 23.

[18] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 5(1).

[19] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 13.

[20] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 24(1).

[21] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 38(1) (c).

[22] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 26(2).

[23] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 50(4) (a).

[24] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 50(4) (b). The Income Tax Law of 2002 as amended, section 5(1)(b) and the Assessment and Collection of Taxes Law N24 of 1978 as amended, section 6(3) and 43.

[25] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 38(1) (a) (4th proviso).

[26] The Assessment and Collection of Taxes Law N24 of 1978 as amended, section 20(1).

[27] The Capital Gains Tax Law, N252 of 1980 as amended, section 4.

[28] The Capital Gains Tax Law, N252 of 1980 as amended, section 5(3).

[29] The Capital Gains Tax Law, N252 of 1980 as amended, section 2(30).The Income Tax Law of 2002 as amended, section 8(19).

[30] The Income Tax Law of 2002 as amended, section 8(19).

[31] The Income Tax Law of 2002 as amended, section 8(19).

[32] The Special Contribution for the Defence of the Republic Law N2117 of 2002, as amended section 3(2) (b).

[33] The Income Tax Law of 2002 as amended, section 8(20).

[34] The Special Contribution for the Defence of the Republic Law N2117 of 2002, as amended section 3(2) (a).

[35] The Income Tax Law of 2002 as amended, section 8(22).

[36] The Income Tax Law of 2002 as amended, section 8(21).

[37] The Income Tax Law of 2002 as amended, section 8(23).

[38] The Social Insurance Law of 2010 as amended.

[39] The Social Insurance Law of 2010 as amended, section 5{1) (d).

[40] The Social Insurance Law of 2010 as amended, section 20.

[41] The Social Insurance Law of 2010 as amended, section 5(2) (c).

[42] The Social Insurance Law of 2010 as amended, section 12(e).

[43] The Social Insurance Law of 2010 as amended, section 15(1) (d).

[44] The Income Tax Law of 2002 as amended, section 23.