The Non-Domicile Rules in Cyprus
By: ASC Law Firm
The Non-Domicile (Non-Dom) Tax Status
The 183 Days Rule
As a general rule, as per the Income Tax Legislation, an individual may be considered a tax resident in Cyprus if he/she is physically present in Cyprus for a period exceeding in aggregate 183 days during a tax calendar year (1st of January until 31st of December).
The 60 days Rule
As of 1st of January 2017, the tax residency rules have been amended to also provide that if an individual does not reside in any other country for a period exceeding 183 days in aggregate in the same year and is not a tax resident for the same year in any other country is deemed to be classified as a tax resident in Cyprus provided that all the conditions below are met:
- The Individual stays in Cyprus for a period of 60 Days
- Exercises a business and/or is employed by a Cyprus Company and/or holds an office in Cyprus with a tax resident Cyprus Company for the same calendar year.
- Maintains a permanent residence in Cyprus either owned or rented
Further to the above, it is further clarified that where an individual meets all of the above conditions may be treated as non-tax resident if during that year the exercise of any business or employment or holding of an office, is terminated.
According to the Income Tax Provisions an individual who satisfies the above and is treated as a non-domicile tax resident either under the 183 days or 60 days rules above, will be exempt from Special Defense Contribution Tax (SDC).
Special Defense Contribution tax is imposed on dividends and interest income earned by individuals who are tax residents in Cyprus, at the rates of 17% and 30% respectively. Rental Income is also subject to taxation at the rate of 3% on the 75% of the gross rental income. Non-domiciled tax residents are also exempt from SDC Tax on rental income.
The provisions of the legislation define domicile in accordance with the Wills and Succession Legislation as:
- Domicile of Origin (received at birth)
- Domicile of Choice (domicile acquired by an individual as a permanent home for an indefinite stay)
Additionally, a person who has a domicile of origin in Cyprus will be treated as domiciled resident for the purposes of SDC with the exception of:
- An individual who has obtained and maintained a domicile of choice out of the Republic, provided that this individual was not a tax resident In the Republic for a period of at least 20 consecutive years prior to the tax year in question; or
- An individual who was not a Cyprus Tax resident for a period of at least 20 consecutive years immediately prior to the entry into force of the introduced provisions (i.e. prior to 16th of July 2015).
Irrespective of the domicile of origin, an individual who remains a tax resident of Cyprus for a period of at least 17 years out of the last 20 years prior to the tax year in question, shall be deemed as domiciled for SDC purposes.
Further exemptions to Expatriates regarding employment income
Individuals who are based overseas and who were not Cyprus Tax-Residents before the commencement of their employment in Cyprus, may be entitled to of the one following exemptions below:
The 50% exemption rule
Individuals who take up employment in Cyprus with an annual income of EUR100.000 will be eligible for an exemption from income taxation of 50% of their income for a period of 10 years, starting from the year of employment.
The 20% exemption rule
Individuals who take up employment in Cyprus and were not tax residents in Cyprus prior to commencing such employment, will be eligible for an exemption from taxation of 20% on their income or EUR8.550 (whichever is lower) from any employment which is exercised in Cyprus. This exemption applies for a period of 5 years commencing from 1st of January of the following year of commencement of such employment.
Overseas pensions are exempt from tax up to EUR3.420 and taxed at 5% flat rate thereafter. The taxpayer has the option to opt to be taxed under the normal income tax rates, where this special mode of taxation of income results to a higher tax liability.