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CYPRUS NON-DOMICILE INDIVIDUALS (NON-DOM)

  • Introduction 

On 16 July 2015 a number of highly attractive amendments to the Cyprus corporate and personal tax laws were introduced to provide an exemption from taxation for personal investment income (dividends, interest, and rents), of “non-domiciled” individuals.

The so called “non-dom” provisions aim to further encourage high net-worth individual investors (HNWIs) to reside and invest in Cyprus.

  • Definitions 

Domicile is defined as the place of someone’s permanent residency and where they intend to live permanently.

Domicile of Origin is defined as the place of birth and as a rule is the same as the domicile of the father at the time of birth, and in exceptional cases of the mother.

Domicile of Choice is defined as the place that has been chosen by an individual (adult), to have as his permanent residency with the intention to permanently live there.

Non-Dom person is a person who lives in a country where he is not legally domiciled in.

  • Amended Law Provisions

Prior to the amendments, Cyprus tax resident individuals earning Cyprus or foreign sourced income in the form of dividends or “passive” interest, were subject to Cyprus Special Defence Contribution (“SDC”), at the rate of 17% on dividends,30% on interest and 2.25% effective tax rate on rental income, irrespective of their domicile status.

With these aforesaid amendments, individuals who have non-dom status are no longer subject to SDC.  Coupled with the income tax exemptions existing for such income, these amendments result in non-doms being exempt from taxation in Cyprus on their dividends,“passive” interest and rental income, irrespective of whether such sources of income are earned in Cyprus or abroad.

Furthermore for rental incomes, whether Cyprus or foreign sourced, Cyprus tax resident individuals who have non-dom status are now only subject to income tax on rental income.

For the purposes of the SDC Law, an individual is domiciled in Cyprus if he/she is either:

  1. an individual who has a domicile-of-origin in Cyprus*(please note below exceptions) or
  1. an individual who is a resident of Cyprus for a period of at least 17 years out of the last 20 years prior to the tax year of assessment.

*Exceptions to point 1 above:

  • an individual who has acquired and maintains a domicile-of-choice outside Cyprus and was not a tax resident of Cyprus,as per the Income Tax Law for any period of at least 20 consecutive years prior to the tax year of assessment; or
  • an individual who was not a resident of Cyprus for a period of at least 20 consecutive years immediately prior to these amending provisions enter into force.

The amendment introduces anti-avoidance provisions which restrict its application in cases where domiciled individuals transfer assets to non-doms in order to take advantage of these provisions of the SDC law.

  1. Practical Application – Helpful Diagram
YES
HAVE YOU BEEN A TAX RESIDENT OF CYPRUS FOR A PERIOD OF AT LEAST 17 YEARS OUT OF THE LAST 20 YEARS PRIOR TO THE TAX YEAR OF ASSESSMENT? 

NO
IS CYPRUS YOUR DOMICILE OF ORIGIN?
NO
YES
YES
HAVE YOU BEEN NON CYPRUS TAX RESIDENT DURING THE PERIOD 1995 – 2014?
NO
IS YOUR DOMICILE OF CHOICE OUTSIDE CYPRUS?
NO
YES
HAVE YOU BEEN NON CYPRUS TAX RESIDENT FOR ANY PERIOD FOR AT LEAST 20 CONSECUTIVE YEARS?
YES
NO
NON DOMICILEDOMICILE
  • Conclusion

HNWIs can now relocate their tax residency to Cyprus (meaning they physically reside in Cyprus at least 184 days in a calendar year), and enjoy 17 years of full exemption on the following sources of worldwide income: dividends, interest, and rents. Furthermore, all Cyprus tax residents are exempt from gains on the disposal of securities, such as shares, bonds, derivatives etc.

Since the above sources of income typically comprise the main income stream of HNWI’s, Cyprus, albeit a full EU member, now offers HNWIs a personal tax regime comparable to offshore, no tax jurisdictions.

Most importantly, according to a notification issued by the Cyprus Tax Department on the 10th of March 2017, an individual may request for the issuance of a Tax Residency Certificate any time during a tax year, despite that he/she might not have completed 183 days in the Republic of Cyprus in the same calendar year, provided that the person is registered with the Cyprus Tax Department and has obtained a Tax Identification Code, and at the same time has submitted a confirmation letter to the Cyprus Tax Department declaring his/her intention to stay in the Republic for one or more periods exceeding in total 183 days.

Savva & Associates aims to work with clients to ensure their Cyprus, international and personal structures are established and administered to the highest level of international standards. Our highly experienced and qualified team will ensure the correct structuring of your Companies and provide comprehensive advice in all VAT and Tax matters.