I am currently employed by a Cyprus-based Russian company and frequently go to work for our Russian office on matters related to information technology. My total income is composed of three elements: salary I receive from Cyprus, personal allowances paid by my employer for the business trips to Russia and additional remuneration from the Russian parent company for the work I perform there.
How will my income be taxed in Cyprus and Russia?
Thank you for your question. It appears you are Cyprus tax resident, therefore, your worldwide income will be taxable according to the Cyprus Income Tax Law 118(I)/2002. Furthermore, because you are a Cyprus tax resident, you will be allowed to apply the provisions of the double-taxation agreement between Cyprus and Russia (Tax treaty of 1998).
First of all, your Cyprus sourced income (salary and personal allowance) will be taxed under the progressive tax rates. However, it is possible, that you may qualify for some tax exemption under the "90-days rule" mentioned in Art.36(5) of the Cyprus Income Tax Law. In principle, the "90-days rule" states that income from salaried services provided outside Cyprus for more than 90 days in a tax year will be tax-exempt provided the service is provided to a non-Cyprus resident employer or to a permanent establishment of a Cyprus resident employer. To illustrate, let’s say your Cyprus salary is €60,000 p.a, allowance €10,000 p.a. and you worked for your Russian office for 4 months during the fiscal year. Under the 90-days rule, 4/12 (i.e €20,000) of your Cyprus salary and the €10,000 allowance will be tax-exempt in Cyprus. The remaining €40,000 of your income will be taxed in Cyprus under the progressive tax rates.
As regards the payments you received from the Russian company, although you may be withheld tax in Russia according to Art.15(1) of the 1998 Tax treaty, this income will continue to be tax-exempt in Cyprus under the “90-days rule”. From a pragmatic viewpoint, getting a withholding tax exemption from the Russian tax authorities is preferable as it will save you time in going through the process of reclaiming the tax withheld in Russia.
Finally, it is important to keep in mind that you need to have - in case the Cyprus tax authorities ask - evidence that you spent over 90-days outside Cyprus (boarding passes, border passport control stamps etc.) and substantiate your work for the Russian company.
Quantia Advisors Ltd is a Certified Public Accountants firm registered to carry on accounting and audit work in Cyprus by the Institute of Certified Public Accountants of Cyprus (ICPAC). Details about our statutory audit registration can be viewed at www.icpac.org.cy under reference number E264/A/2013.