Non-Domicile mode: optimization of the tax burden in Cyprus

Cyprus has established itself as one of the most attractive tax jurisdictions for international investors and companies: the lowest corporate tax in the EU, benefits for qualified employees, and many options to optimize the workload for foreigners.

According to the Cyprus tax legislation, individuals who become tax residents of the republic, but do not have Domicile status, are exempt from paying a special defense fee (SDC). The Non-Dom mode allows you to receive dividends, interest and rental income tax-free according to SDC.

Let’s take a closer look at how profitable it is to receive Non-Dom status and how to optimize the tax burden in Cyprus.

The content of the article

1. Cyprus tax regime: tax residency
2. Non-Dom status in Cyprus
   1. Advantages of Non-Domicile status
3. Tax advantages of Cyprus for foreigners

Cyprus tax regime: tax residency

Cyprus has implemented a tax system based on the principle of residency. The key factor in determining the tax status is the physical presence on the territory of the country.

According to the current legislation, staying in Cyprus for more than 183 days during the tax year (from January 1 to December 31) automatically determines the tax residence of an individual.

Since January 1, 2017, changes have been made to the tax legislation of Cyprus, expanding the concept of tax residency. According to the latest update of the law, an individual can be recognized as a tax resident of Cyprus, even if they stay on the island for 60 days a year. To do this, the following conditions must be met:

• an individual does not reside in any other country for a total of more than 183 days during the same year;
• it is not a tax resident of any other country this year;
• an individual stays in Cyprus for at least 60 days a year;
• he carries out business activities in Cyprus, and/or is employed in Cyprus, and/or holds a position in a company that is a tax resident of Cyprus, in any period of the tax year;
• an individual has a permanent place of residence in Cyprus (own or rented).

It is important to note that all these conditions must be fulfilled simultaneously.

How to calculate the days of stay in Cyprus:

1. The day of departure from the republic is considered a day spent outside Cyprus.
2. On the contrary, the day of arrival in Cyprus is counted as a day spent in the republic.
3. If arrival in Cyprus and departure from the country take place on the same day, such day is considered to be spent on the territory of the republic.
4. In the case when a person leaves Cyprus and returns to the island on the same day, this day is paradoxically considered to be spent outside the republic.

Non-Dom status in Cyprus

An individual can take advantage of the Cyprus Non-Domicile status and optimize the tax burden. 

An individual can use the status of a Cypriot Non-Domicile if the taxpayer: 

• He is a tax resident of Cyprus; 
• received and retains domicile outside Cyprus; 
• has not been a tax resident of Cyprus for at least 20 consecutive years. 

The Non-Domicile status is granted for 17 years. To obtain the status, you need to submit an application to the Tax Department and provide confirmation that the applicant’s permanent place of residence is in another country.

Advantages of Non-Domicile status

Non-Domicile exempts from paying a special defense contribution from passive income in the form of dividends, interest on deposits and rent.

Bets without Non-Domicile:

• the contribution from the dividends received is 17%;
• contribution from interest on bank deposits — 30%;
• the contribution from rental income is 3%.

Income tax for individuals is paid at a rate from 0 to 35%. In particular, they are taxed on rental income.

Tax advantages of Cyprus for foreigners

Rent

Only 80% of the declared rental income is subject to income tax, 20% is a preferential deduction.

There is no taxation on the principle of remitting
Unlike Ireland and Malta, Cyprus does not tax income transferred from abroad. This allows an individual to store, distribute or move capital gains around the world without restrictions.

Capital Gains Tax
Income from the sale of shares, bonds, other securities or movable assets is not taxable.

The tax is levied only on capital gains from the sale of real estate in Cyprus.

The standard capital gains tax rate is 20%. It applies to the following transactions:

• sale of real estate located in Cyprus;
• sale of shares in companies owning real estate in Cyprus, if the property is more than 50% of the value of the company;
• sale of rights related to real estate, such as lease agreements or options for the purchase of real estate.

Income tax in Cyprus applies only to income received from property located in the country. Income from the sale of real estate outside Cyprus is not subject to capital gains tax, even if the seller is a resident of Cyprus.

Tax benefits for employees in Cyprus:

• income less than 19,500 euros per year is not taxable;
• 50% tax reduction for those who started working in Cyprus for the first time, with an income of over 55,000 euros per year, for up to 17 years;
• an additional 20% income benefit for new employees who do not fall under the 50% benefit for 7 years under certain conditions.

Special conditions for working abroad

Income from the work of a non-resident of Cyprus or a foreign branch of a Cypriot company outside Cyprus is not taxed if the work was carried out outside the country for more than 90 days a year.

There are no taxes on real estate, donation and inheritance of property in Cyprus.

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