HMRC Removes all QROPS in Cyprus
QROPS Cyprus will not become a reality. The Inland Revenue has slammed the door closed and removed all Cyprus Qualifying Recognised Overseas Pensions Schemes (QROPS) from its list of approved schemes.
All 5 of the QROPS schemes in Cyprus have been removed form HMRC’s approved list. It follows HMRC’s crackdown on QROPS which saw new rules and regulations introduced in April which led to the closure of more than 300 Guernsey QROPS and Isle of Man QROPS schemes.
Pension income paid from a QROPS in Cyprus is taxed at only 5% and up to 30% is allowed as a tax-free lump sum. On death there is no tax to pay on unused QROPS assets.
In April Guernsey lost 300 Qrops after HMRC implemented new rules forcing residents and non-residents to pay the same rate of tax.
Guernsey had planned to introduce a completely new pensions regime 157e open to both Guernsey residents and non-residents to cope with changes to Qrops rules, but this was frowned upon by the Inland Revenue
The new regime would have provided no tax relief on pension contributions but would have enabled benefits to be paid free of Guernsey tax.
However HMRC confirmed it would only allow Guernsey QROPS to be available for Guernsey residents.
QROPS in Cyprus Now Closed
We can only guess that HMRC have closed down Cyprus QROPS as income is only taxed 5% on amounts over EUR3,420 pa provided that the individual is neither Cypriot, nor has economic activity on the island. Therefore, residents and non-residents are treated differently.
Cyprus tax rates
Chargeable income (after all allowances) is taxed (from 2008) as follows:
| – up to EUR19,500 | nil |
| – from EUR19,501-28,000 | 20% |
| – from EUR28,001-36,300 | 25% |
| – above EUR36,300 | 30% |
From the 2011 tax year, 35% income tax is payable on income over EUR60,000.
Cyprus’s Income Tax Law 2002 (specifically amended articles 5(1) (d) and 5 (2) (c)) mean that a non-resident member of a QROPS, who had no historic employment connection in Cyprus would not be taxed on income, where as a resident scheme member would.
As Cypriots and non-Cypriots are treated differently, this is against HMRC’s new QROPS rules and could be the reason why QROPS in Cyprus were axed.
Click here for more info on Cyprus tax laws
The government published regulations on 21 March 2012 that changed the QROPS tax rules that came into effect from 6 April 2012. The regulations can be found here. If a scheme had been included on this published list in circumstances where it should not have been included because it did not satisfy the conditions to be a recognised overseas pension scheme, any transfer that had been made to that scheme could potentially have given rise to an unauthorised payments charge liability for the member (see the Registered Pension Schemes Manual (RPSM).
According to Harney’s in Cyprus:
An occupational pension scheme established in Cyprus may satisfy the QROPS requirements, but Cypriot provident funds and pensions set up under Cyprus International Trusts cannot satisfy HMRC’s QROPS requirements. Right now there are no QROPS in Cyprus on HMRC’s approved list on their web site.
“Pension scheme funds established in accordance with the Provident Fund Law while regulated by the Regulatory Body do not permit the establishment of a cross-border pension schemes, being an important requirement to qualify as a QROPS.
A condition which must be met in order to establish a Cyprus International Trust in accordance with the Cyprus International Trust Law is that a beneficiary to the trust cannot be a permanent resident of the Republic of Cyprus. This conflicts with the requirement of HMRC on QROPS. Also, there is no regulatory body for the approval and registration of a Cyprus International Trust in order to make it a Regulated QROPS.”
- More from Harney’s legal guide in Cyprus
QROPS Cyprus. Where should I transfer a QROPS to now?
As of April 6th 2012, the de facto QROPS is now in Malta which has Double Taxation Agreements with over 65 countries around the world. This helps your pension avoid 55% tax upon death after drawing benefits as well as maximizes your income tax efficiency. You would only pay income tax in the country you reside. However, for some countries you may be better off transferring to a QROPS in Gibraltar or New Zealand or even the Isle of Man. Send us an email for more information.
HMRC have stressed that they do not wish QROPS to be used to avoid tax, but seeing as residents and non-residents would have both been paying taxes, it may be due to other technical reasons. This bolsters Malta as the de facto QROPS.
British Expatriates and Tax Relocation to Cyprus
For British expatriates who are living in Cyprus, your best bet is now to move your existing UK pensions to Malta. A UK pension transfer to Malta will avoid the 55% tax upon death and UK income taxes of up to 50%. You will pay no tax in Malta and your pension will grow tax-free. You would then pay only the Cyprus tax rates which is currently the 5% income tax. This is the Cyprus expatriate tax and the Cyprus tax rate for locals.
For enquiries, please email info@qropsspecialists.com
