Cyprus Non-Domiciled Explained
Cyprus Tax Residency
We recently looked at the ways in which tax residency can be obtained in Cyprus. Specifically, Cypriot legislation states that individuals whose physical presence in Cyprus exceeds 183 days during a tax year (the period from 1stJanuary until 31stDecember) are considered to be a Cyprus Tax Resident.
We also explained the new 60-day rule, which came into effect as of 1stJanuary 2017. This amendment offers individuals the option to become a Cyprus tax resident after spending only 60 days in the country, provided certain conditions are met. These include not residing in any other country for a period of more than 183 (collective) days, not being a tax resident of another country, residing in Cyprus for at least 60 days, and having business ties to Cyprus.
Individuals who are thus considered to be Cyprus tax residents – whether this is determined under the ‘183 day rule’ or the ‘60 day rule’ – are subject to tax in Cyprus on their worldwide income. However, certain exemptions apply. Of particular note are the Non-Domicile Rules for Individuals.
Non-Domicile Rules for Individuals
The Republic of Cyprus, as part of its overall efforts to continuously improve and simplify the Cyprus tax system, and remain a compliant and attractive jurisdiction, have passed several bills into laws in July 2015. Among these was the introduction of taxation rules for Non-Domiciled Individuals.
According to these tax laws, individuals who are tax residents of Cyprus under the provisions of the Income Tax Law but are considered ‘non-domiciled’ (meaning that their permanent residence is not in Cyprus), will be exempt from the Special Defense Contribution (SDC).
What is the SDC?
The SDC stipulates that dividends and interest income earned by individuals who are tax residents and domiciled in Cyprus are subject to tax at the rate of 17% and 30% respectively, whether the income is earned in Cyprus or from abroad. Rental income is also subject to tax at the rate of 3% on 75% of the gross amount.
Under the Non-Domicile Rules for Individuals, non-domiciled tax residents are able to receive their dividends, interest and rental incomes free from Special Defense Contribution.
What are the types of Domicile?
In accordance with the provisions of the Wills and Succession Law, there are two kinds of domicile:
- Domicile of Origin. This refers to the domicile received at birth (this is generally passed down from the father)
- Domicile of Choice. This refers to the domicile acquired by establishing physical presence in a particular country and demonstrating sufficient intention to make it the place of permanent residence.
It is important to note that individuals who have been tax residents in Cyprus for at least 17 of the last 20 years prior to the tax year in question are deemed to be domiciled.
Domiciled Individuals and the SDC
Individuals who have a domicile of origin in Cyprus will be deemed Domiciled in Cyprus for SDC purposes, with the exception of the following:
- Individuals who have obtained and maintained a domicile of choice outside Cyprus under the provisions of the Wills and Succession Law, provided that these individuals were not Cyprus tax residents for a period of at least 20 consecutive years prior to the tax year in question
- Individuals who were not Cyprus tax residents for a period of at least 20 consecutive years immediately prior to the introduced provisions coming into effect (i.e., prior to 16/07/2015).
Below you will find a breakdown of the tax rates and exemptions for both Domiciled and Non-Domiciled Individuals:
|Type of income||Income Tax||SDC|
|Rent||Taxable at normal rates||Taxable at 3% on 75% of rental income|
Non — Domiciled Individuals
|Type of income||Income Tax||SDC|
|Rent||Taxable at normal rates||Exempt|
Other Cyprus tax advantages for Individuals
There are additional tax advantages in Cyprus for Individuals besides the Non-Domicile Rules. These are:
- Dividends and interest are exempt from Cyprus Income Tax and subject only to SDC in the case of domiciled tax residents.
- Profit from the sale of shares and other qualifying titles is specifically exempt from Cyprus taxation, provided that the underlying assets do not include immovable property located in Cyprus.
- The first €19,500 of taxable income is tax exempt. Any taxable income in excess of this amount is taxed at progressive rates ranging from 20% to 35% (for taxable incomes over €60,000).
- 50% exemption for remuneration from employment exercised in Cyprus by persons who were resident outside Cyprus before commencement of their employment. The exemption applies for 10 years commencing from the year of employment, if such income exceeds €100,000 per year.
- In cases of remuneration in Cyprus which is less than €100,000, a 20% exemption is granted, up to a maximum of €8,550, for a period of 5 years commencing from 1st January of the year following the year of employment, and until year 2020.
- 100% exemption on remuneration for salaried services rendered outside Cyprus for more than 90 days in a tax year to a non-Cyprus resident employer.
- Pension received in respect of past employment outside Cyprus is taxed in Cyprus at the flat rate of 5% for amounts in excess of €3,420.
- 100% exemption on lump sum repayments from life insurance schemes.
- No Capital Gains Tax on the sale of immovable property located outside Cyprus.
- No inheritance tax, no wealth tax, no gift taxation.