Sun, Sea and Tax, Part One: The Med and Middle East

Accountants BDO have been considering the tax benefits of certain locations to go alongside the promise of a better lifestyle. Here they consider the merits of Cyprus, Malta and Dubai

 

Cyprus

 

Cyprus has long been a popular holding company jurisdiction for global corporate groups as well as an attractive, family-friendly destination for individuals looking to relocate or retire to the sun.

The island boasts a favourable tax regime, with relatively low income tax rates, capital gains tax generally restricted to disposals of immovable property situated in Cyprus, no gift or inheritance taxes, no withholding taxes on investment income (although a special defence contribution is levied on bank deposit interest and dividends) and an extensive Double Tax Treaty network.

A 50% exemption applies to the income of an individual who takes up residence in Cyprus to work for an employer in Cyprus. The exemption applies for a period of 5 years starting from the first year of employment, provided that the annual income of the employee exceeds €100.000 per annum and the individual has not previously worked in Cyprus.

Foreign pension income may be taxed separately at the rate of 5% above an annual exemption or may be taxed at normal progressive rates where personal allowances and deductions would produce a more favourable result. Further exemptions may also be available for profits realised from trading in shares, bonds and debentures, as well as income earned from the exploitation of intellectual property.

 

Malta

 

Not only is Malta a beautiful island with an abundance of history, a warm climate and stable economy, it has a low cost of living and a very attractive tax regime to supplement its extensive Double Tax Treaty network.

Similar to the UK and Ireland, Malta operates a remittance basis regime for foreigners living in Malta. This means that foreign source income is only taxable if remitted to Malta. Foreign capital gains are entirely outside the scope of Maltese tax. Further, there is no wealth tax, inheritance/gift tax or real estate tax and a low capital gains tax rate applies to disposals of immoveable property in Malta.

The High Net Worth Individuals Scheme, introduced in 2011, aims to attract foreign investment to Malta from high net worth individuals. Under this scheme, individuals who take up residence in Malta and meet the prescribed conditions are entitled to benefit from a reduced flat rate of tax on income which is received in Malta from foreign sources, whilst still being able to claim foreign tax credit relief. A separate scheme allows expatriates in receipt of income from qualifying contracts of employment in Malta with regulated financial services/gaming companies to pay tax at a reduced flat rate.

 

Dubai

 

The UAE is a nation of expats and is becoming increasingly popular with European nationals looking to earn a salary with no local income tax. Britons should feel right at home there while benefitting from the luxury cosmopolitan lifestyle, state of the art infrastructure and facilities, breathtaking scenery and tax-efficient incomes, meaning that they have more disposable earnings to spend on a busy social life.

The UAE presents a wide range of opportunities for different activities and operations. The incentives include a free enterprise system, no personal or withholding taxes on income or capital, no VAT and corporate tax limited to foreign banks and foreign oil companies.

 

See also our expat tax guides to Australasia and Southern Europe