How To Optimise Taxes In Cyprus With Non-Domiciled status
The beautiful Mediterranean island of Cyprus with its enviable location within reach of three continents – Europe, Asia and the Middle East – enjoys a higher status worldwide than its size would suggest. Not only it is a huge draw for tourists from around the globe with its warm climate and beautiful natural areas, but its high standards of living, education and healthcare and its advantageous tax rates for foreign investors and business people ensure that it is an attractive and very popular destination for entrepreneurs, businesses, and people on high incomes.
The country provides an attractive business environment, low income tax for individuals and companies, and flexibility of rules for becoming a tax resident.
Additionally Cyprus offers beneficial tax arrangements for foreign residents who are considered to be non-domiciled, exempting them from certain taxes and contributions paid by domiciled residents.
Tax Residency Criteria For Residents
There are two criteria for tax for foreign nationals who become resident in Cyprus – the 183-day rule and the 60-day rule. Under the 183-day rule a person who stays in Cyprus for more than 183 days per year in total is considered to be a resident for tax purposes. Under the 60-day rule, an individual who stays in Cyprus for more than 60 days in a year is considered to be a tax resident providing they are not a tax resident of another country, they do not reside for more than 183 days in another country, they can prove economic ties to the island such as owning or renting a residence, and they carry out work or business activities in Cyprus or act as a Director of a Cypriot tax resident company during the year being taxed.
Becoming a tax resident of Cyprus offers the advantage of low income-tax rates, low social insurance contributions and favourable corporation tax rates.
Non-Domiciled Tax Status
These advantages are further enhanced for residents qualifying for non-domiciled status in Cyprus, who can enjoy further discounts and exemptions from taxes that domiciled residents will have to pay.
Who Qualifies As Non-Domiciled?
The Wills and Succession Law states that there are two kinds of domicile:
- Domicile of origin (generally considered to be the domicile received at birth, usually taken through the father’s line);
- Domicile of choice (ie a domicile chosen by an individual and acquired by establishing a physical presence, demonstrating the intent to reside there permanently).
An individual can qualify as Non-Domiciled if they have been living in Cyprus for less than 17 years but they spend more than 60 days per year in Cyprus. This is irrespective of whether their home in Cyprus is of origin or of choice.
For persons who have a domicile of origin in Cyprus, they can still be considered non-domiciled if:
- they have not been a Cyprus tax resident for at least the 20 years preceding the tax year in issue, such as someone who has secured and maintained a domicile of choice outside of Cyprus;
- they have not been a Cypriot tax resident for at least 20 continuous years preceding the implementation of the new rules (16 July 2015)
The non-domiciled person may not reside in any other country for more than 183 days in any tax year and must not have a tax residency in any other country. They must reside in Cyprus for at least 60 days per year and prove other ties to the country such as an employment contract, ownership of a business or Directorship of a Cyprus registered company.
What Are The Tax Advantages Of Non-Domiciled Status?
There are a number of advantages enjoyed by people who have non-domiciled status:
- Exemption from the SDC Non-Doms are exempt from the SDC (Special Defence Contributions) payments on income tax, dividends, interest and rental income;
- No tax on dividends Non-Doms who earn interest from a domestic or foreign investment are exempt from tax on the dividends;
- No tax on interest Non-Doms with a fiscal Cyprus residence are exempt from income tax on their interest. This is applicable both to individuals and to companies registered in Cyprus and applies whether the interest is on income from a foreign or domestic source;
- No tax on income deriving from abroad Non-Dom residents can take advantage from generous tax exemptions on their income whether it is on income derived from Cyprus or from abroad;
- No tax on salary income Non-Doms earning below €19,500 per annum are exempt from income tax entirely;
- No remittance-based taxation This allows the individual to hold, distribute or move capital earnings internationally without restriction;
- No tax on capital gains Non-Doms are exempt from Capital Gains Tax, except on the sale of immoveable property in Cyprus;
- No tax on capital sums These include capital sums received from pensions, provident and insurance funds;
- No tax on profits from the sale of the following: securities such as bonds, shares and debentures;
- Low social insurance contributions;
- 50% reduction of tax on remuneration for employment, for the first ten years of Non-Dom status This applies provided that the remuneration is over €100,000, and applies to individuals who were not tax residents prior to the employment;
- No income tax for individuals employed abroad This applies to Non-Doms employed outside Cyprus by a Cyprus employer who is a tax resident, and who work abroad for more than 90 days in total per tax year;
- Long-term tax benefits The Non-Dom tax benefits are guaranteed for 17 years, offering security to individuals and companies to aid their long-term planning;
- Privacy of personal documents guaranteed Non-Dom residents can be assured that the details of their bank accounts and tax arrangements are kept private;
- Minimal requirement to be physically present The individual need only reside in Cyprus for 60 days per year to be able to take advantage of the Non-Dom tax system;
- Access to healthcare and Social Security enjoyed by residents The Non-Dom tax payer receives equal access to healthcare and Social Security across the EU as enjoyed by domiciled Cyprus residents;
- There is also no gift tax, wealth tax, estate duty or inheritance tax.
The Cyprus government’s aim in introducing enhanced tax benefits for non-domiciled residents was to offer an attractive tax system that would encourage inward investment from entrepreneurs, business people and high-income individuals who would relocate their businesses, investments and themselves to Cyprus to benefit the economy. This has clearly been a success and the country is now home to a thriving economy offering a very high standard of living both to native Cypriots and to foreigners who contribute to the local economy while being able to maximise their personal financial affairs.
Cyprus is a beautiful place in which to livd and its sympathetic tax regime, the most generous in Europe, particularly for non-domiciled residents, is beneficial to all.