There is no doubt about it; living in Cyprus brings amazing tax advantages. Did you know that if you reside or stay in Cyprus for 183 days a year, you will be considered tax resident? What’s more, unlike the UK where you are taxed after earning £6,745, you are entitled to earn up to €19,500 before you owe a penny to the Inland Revenue Department.

For most people, that is a huge saving. And that’s not all. VAT is only 15 per cent. And if you fancy a beer, a glass of wine or a meal out in a restaurant, the rate drops to 8 per cent. Buying books, chocolate, bottled water and quite a few more goods sees the rate drop even further to just 5 per cent.

More good news comes in the form of council tax. When you look at the average council tax bill in the UK, staggeringly now around £1,500, in comparison, Cypriot council tax is incredibly cheap. The average annual council tax bill in Cyprus is around €150 and included in that are two refuse collections a week.

Moving on to entrepreneurs and corporations, many more are taking resident status in Cyprus because of the tax advantages – and who can blame them? Capital gains tax is currently set at 20 per cent. Corporation Tax is set at 10 per cent. For both these taxes, there is an enormous variety of allowances to take into consideration, so seek professional advice.

Since Cyprus became a full member of the EU in 2004, its taxation system has continued to remain very attractive. Even those who earn over €36,300 are still only taxed at 30 per cent.

The Cyprus income tax year is from 1 January to 31 December.

Tax bandings in euros for 2011 are as follows:

0-19,500   – nil

19,501-28,000  – 20 per cent

28,001-36,300  – 25 per cent

Over 36,300   – 30 per cent

Pensioners don’t miss out either. You have two options. If your global income is under €19,500 then you pay no income tax at all. If your earnings are over €19,500, you can opt for an annual exemption of €3,420 with the rest of your income taxed at just 5 per cent. An added advantage is that you can switch these options each year depending on what you earn, so you just can’t lose.

But you must be sure you do qualify for tax resident status. Let’s just clarify what the 183 days residency means. You must spend 183 days in any one calendar year in Cyprus. Days in and out of Cyprus are calculated as follows:

- The day of departure from Cyprus counts as a day of residence outside Cyprus

- The day of arrival in Cyprus counts as a day of residence in Cyprus

- Arrival and departure from Cyprus in the same day counts as one day only

Be very careful about your 183 days. A couple of days miscalculating your trips could mean a taxation disaster! Are there any disadvantages to the tax system in Cyprus? Well, VAT registration can hit small businesses hard, as it starts at just €15,600. But that’s about it.

Best advice? As with all tax planning - consult the experts.