The Cyprus Non-Domicile (Non-Dom) Tax Residency status offers significant tax advantages to foreigners relocating to Cyprus. This status allows individuals to be exempt from paying certain taxes, including the 17% Special Defense Contribution (SDC) on dividends and interest, for up to 17 years. As a result, Cyprus has become an attractive low-tax jurisdiction for both EU and non-EU nationals looking to optimize their tax obligations.
How to Qualify for Non-Dom Tax Residency in Cyprus
1. Become a Cyprus Tax Resident
Individuals can become tax residents by meeting one of the following criteria:
The 183-Day Rule: Spend more than 183 days in Cyprus within a tax year to achieve tax residency.
The 60-Day Rule: This rule allows individuals to become tax residents by spending at least 60 days in Cyprus within a tax year, provided they meet specific conditions, such as:
– Not being a tax resident in another country.
– Having business or employment ties to Cyprus.
2. Meet the Non-Domiciled Criteria
Domicile is determined under the Wills and Succession Law and includes:
Domicile of Origin: Typically, the domicile acquired at birth.
Domicile of Choice: Acquired by establishing a permanent home in a new location.
To be considered “non-domiciled” in Cyprus, individuals must ensure:
– They have acquired and maintained a domicile of choice outside Cyprus and were not a Cyprus tax resident for at least 20 consecutive years before the relevant tax year.
– They have not been a Cyprus tax resident for at least 20 consecutive years prior to the introduction of these provisions (before July 16, 2015).
Note: An individual who has been a Cyprus tax resident for at least 17 out of the last 20 years will be considered domiciled in Cyprus for SDC purposes, regardless of their domicile of origin.
Tax Benefits of Non-Domicile Status in Cyprus
Non-Dom’s in Cyprus are exempt from the SDC tax, which is applied at 17% on dividends and interest income. This exemption is particularly beneficial for high-net-worth individuals whose primary income sources are dividends and interest. Compared to tax obligations in other countries, Cyprus provides a competitive advantage, making it a favorable destination for those looking to maximize income retention.
How to Benefit from Non-Dom Status: A Practical Example with setting up a Cyprus Company
Consider John, a UK-based tech entrepreneur who relocates to Cyprus and becomes a tax resident under the 183-day rule. By establishing non-Dom status, John sets up a Cyprus-based company to invoice clients, which is subject to a 12.5% corporate tax on its profits.
Cyprus companies can deduct various expenses from their taxable income, further reducing tax liability. The remaining profits are distributed to John as tax-free dividends, which would typically be taxed at 17% but are exempt due to his non-Dom status. Note, however, that dividends are subject to a 2.65% General Health System (GHS) contribution, capped at EUR 180,000.
By leveraging Cyprus’s tax exemptions, including the SDC exemption and no withholding taxes on dividends, John significantly reduces his tax burden and retains more earnings while enjoying Cyprus’s low-tax environment.
More on Cyprus Company Incorporation here.
Documents Needed to Apply for Non-Dom Status
To apply for non-Dom status, applicants must have a Cyprus Tax Identification Code (TIC) and submit the following documents:
– Forms T.D.38 and T.D.38QA.
– Evidence of the father’s place of birth (birth certificate or passport).
– A copy of the applicant’s passport or ID.
– Certificate of Registration (Form MEU1).
Additional documents may include:
– Shareholder’s Certificate.
– Property title or rental agreement with stamp duties.
– Employment contract with stamp duties.
– Full-year utility bills showing Cyprus residence.
– A copy of the submitted tax return (T.D.1).
The Cyprus Tax Department may request further information.
Conclusion
The Cyprus Non-Domicile Tax Residency status presents a compelling opportunity for individuals seeking to optimize their tax liabilities while enjoying the benefits of living in a strategically located EU member country. With significant exemptions on taxes like the Special Defence Contribution (SDC) and a favorable corporate tax rate, Cyprus has positioned itself as a top destination for high-net-worth individuals, entrepreneurs, and professionals.
By understanding the qualifying criteria and leveraging the tax benefits available, you can significantly enhance your financial efficiency.
Contact Us
If you’re considering relocating to Cyprus and want to explore how the Non-Domicile Tax Residency status can benefit you, our team of experts is here to help. We offer personalized advice and guidance to ensure you maximize the advantages of Cyprus’s favorable tax laws.
