Cyprus Tax Residency & Non-Domicile (Non-Dom) Rules
Cyprus offers a favorable tax environment for individuals seeking residency, particularly through its tax residency and non-domicile (“non-dom”) rules. ASC Law Firm can guide you through every step of obtaining Cyprus tax residency and securing non-domiciled status. Our experienced team is here to simplify the process and ensure you maximize the available tax benefits. If you have any questions or need personalized advice, feel free to contact us for a consultation. Let’s discuss how we can assist you in achieving your tax planning goals.
Tax Residency Rules in Cyprus
Cyprus determines individual tax residency based on physical presence within a calendar year (January 1 to December 31). There are two primary tests to establish tax residency:
- 183-Day Rule: An individual is considered a tax resident if they spend more than 183 days in Cyprus during a tax year.
- 60-Day Rule: Introduced to offer flexibility, this rule applies if an individual:
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- Spends at least 60 days in Cyprus within the tax year;
- Is not a tax resident in any other country;
- Engages in business activities, employment, or holds an office in a Cyprus tax-resident company during the tax year;
- Maintains a permanent home in Cyprus, either owned or rented.
It’s important to note that if the individual ceases their business or employment activities in Cyprus during the tax year, they will not be considered a tax resident under the 60-day rule.
Non-Domicile (“Non-Dom”) Rules
Cyprus provides significant tax advantages to individuals who are tax residents but not domiciled in Cyprus. Such individuals are exempt from the Special Defence Contribution (SDC) tax on dividend, interest, and rental income, regardless of whether the income is sourced from within or outside Cyprus.
Domicile status is determined as follows:
- Domicile of Origin: Typically acquired at birth, usually from the individual’s father.
- Domicile of Choice: Established by residing in a country with the intention of permanent or indefinite stay.
An individual with a domicile of origin in Cyprus is considered domiciled for SDC purposes unless:
- They have acquired a domicile of choice outside Cyprus and have not been a tax resident of Cyprus for at least 20 consecutive years prior to the tax year in question; or
- They were not a tax resident of Cyprus for at least 20 consecutive years immediately before July 16, 2015.
Additionally, individuals who have been tax residents of Cyprus for at least 17 out of the last 20 years are deemed domiciled in Cyprus for SDC purposes, regardless of their domicile of origin.
Benefits of Non-Dom Status
Non-domiciled tax residents in Cyprus enjoy several tax exemptions, including:
- Dividend Income: Exempt from the 17% SDC tax.
- Interest Income: Exempt from the 17% SDC tax.
- Rental Income: Exempt from the 3% SDC tax on 75% of gross rental income.
These exemptions make Cyprus an attractive destination for individuals seeking efficient tax planning opportunities.
Conclusion
Cyprus’s tax residency and non-dom rules offer substantial benefits for individuals aiming to optimize their tax obligations. By understanding and leveraging these provisions, one can effectively plan their residency and financial affairs in Cyprus.
Frequently Asked Questions (FAQ)
Tax Residency in Cyprus
1. How can I become a tax resident of Cyprus?
You can become a tax resident of Cyprus through either the 183-day rule (spending more than 183 days in Cyprus within a calendar year) or the 60-day rule, which applies if you meet specific conditions such as maintaining a permanent home in Cyprus and engaging in business or employment.
2. What is the 60-day tax residency rule?
The 60-day rule allows individuals to obtain tax residency in Cyprus if they:
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- Stay in Cyprus for at least 60 days in a tax year
- Are not tax residents of any other country
- Conduct business activities, employment, or hold an office in a Cyprus tax-resident company
- Maintain a permanent home in Cyprus (owned or rented)
3. Can I lose my tax residency under the 60-day rule?
Yes. If you cease business or employment activities in Cyprus during the tax year, you will not qualify as a tax resident under the 60-day rule.
4. If I qualify for tax residency, do I have to pay tax on my worldwide income?
Yes, Cyprus tax residents are subject to taxation on their worldwide income. However, there are significant exemptions and double tax treaties that may reduce overall tax liability.
Non-Domicile (“Non-Dom”) Rules
5. What is the Cyprus non-domicile (non-dom) status?
Cyprus offers a non-dom tax status for individuals who are tax residents but not domiciled in Cyprus. This status exempts them from Special Defence Contribution (SDC) tax on dividends, interest, and rental income, regardless of whether the income is from Cyprus or abroad.
6. How do I qualify as a non-domiciled tax resident?
To qualify, you must be a tax resident of Cyprus but not have a domicile of origin in Cyprus, or you must have lived outside Cyprus for at least 20 consecutive years before becoming a Cyprus tax resident.
7. What is the difference between domicile of origin and domicile of choice?
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- Domicile of Origin: Typically inherited from your father at birth.
- Domicile of Choice: Acquired by establishing permanent residence in another country with the intention of staying indefinitely.
8. Can I lose my non-dom status?
Yes. If you become a Cyprus tax resident for 17 out of 20 consecutive years, you will be considered domiciled for tax purposes and lose the non-dom benefits.
Tax Benefits & Exemptions
9. What are the key tax exemptions for non-domiciled residents?
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- Dividend Income: 0% SDC tax (normally 17%)
- Interest Income: 0% SDC tax (normally 30%)
- Rental Income: 0% SDC tax (normally 3% on 75% of rental income)
10. Do non-domiciled residents pay income tax in Cyprus?
Yes. The non-dom status only exempts individuals from SDC tax, not income tax. However, Cyprus has a relatively low income tax rate, and the first €19,500 of annual income is tax-free.
11. Is foreign income taxable in Cyprus for non-domiciled residents?
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- Employment Income: Taxable if earned in Cyprus, but exemptions exist for high-earning expatriates.
- Dividends & Interest from Abroad: Not taxed in Cyprus under the non-dom regime.
Practical Considerations
12. Do I need to register to claim non-dom benefits?
Yes, you must formally apply for non-dom status with the Cyprus tax authorities. It is recommended to seek professional assistance for proper filing.
13. Can I have Cyprus tax residency while being a resident in another country?
You cannot be a tax resident in any other country if you wish to qualify under the 60-day rule. However, you can be a dual tax resident under certain conditions, subject to tax treaties.
14. Is Cyprus tax residency suitable for digital nomads and remote workers?
Yes! The 60-day rule and non-dom benefits make Cyprus an attractive option for remote workers, freelancers, and entrepreneurs looking for a low-tax jurisdiction.
