The United Kingdom also maintains a reciprocal agreement with Cyprus in respect of National Insurance pensions benefits, which in the hands of foreign retirees living in Cyprus remain index linked.
Cyprus levies taxation only on a remittance basis, that is, it taxes only assets that are brought into Cyprus, rather than the more punitive system of taxation on world-arising income that is practiced in may other countries including the U.K. and U.S.A. as well as Spain and Portugal. Residents of Cyprus can thus legally hold assets tax-free in banks in tax havens such as the Isle of Man and Jersey, and suffer no taxation on bank interest or dividend income remaining outside Cyprus. No capital gains tax is charged on the remittance of capital assets to Cyprus such as money needed for the purchase of property and other similar capital assets such as motor vehicles.
Increasingly, Cyprus is used as a residential base for former residents of the U.K. Who wish to restructure their personal assets in a favorable tax jurisdiction, where U.K. capital gains tax and income tax exposure can be effectively and legally minimized. The potential tax advantages for retirees are thus truly substantial and the use of Cyprus as a fiscal base for retirees of all nationalities should not be ignored.