Cyprus Non-Dom regime

ConstantinosCyprus tax, Special Defence Contribution0 Comments

On 9 July 2015, the Cypriot House of Representatives enacted certain important tax amendments aiming to further improve the competitiveness of the Cyprus tax system (see post here). One of those amendments was the introduction of the Non-Dom regime under Cyprus laws.

As of 17 July 2015, Cyprus tax resident individuals non-domiciled in Cyprus shall be exempt from Cyprus Special Defence Contribution (SDC) which applies on dividends, interest and rents (i.e. passive income).

Currently, an individual who spends more than 183 days in Cyprus during the calendar year is considered to be tax resident in Cyprus and subject to both Income and SDC tax. Income tax is generally applied on employment, business income and rents on progressive rates. Special Defence Contribution is applied on passive income at the following rates:

  • Dividends: 17% on gross dividends received from Cyprus or foreign companies.
  • Deemed Dividends: 17% on deemed dividend distributions from Cyprus resident companies.
  • Interest: 30% on gross interest from any source
  • Rents: 2,25% on rental income from any source.

Dividends and interest of a passive nature are completely exempt from Income Tax.

Under the new provisions, Cyprus tax resident individuals which are not domiciled in Cyprus shall be completely exempt from Special Defence Contribution.

The term “domiciled in Cyprus” is defined in the law as an individual who has a domicile of origin in Cyprus but it does not include:

  • An individual who acquired and maintained a domicile of choice outside Cyprus, provided such person has not been a tax resident of Cyprus for a period of 20 consecutive years preceding the tax year; or
  • An individual who has not been a tax resident of Cyprus for a period of 20 consecutive years prior to the introduction of the law.

Irrespective of the above, an individual who has been tax resident of Cyprus for at least 17 years out of the last 20 years prior to the tax year, shall be considered to be domiciled in Cyprus irrespective of his domicile of origin. In other words, foreign born persons will be considered domiciled in Cyprus if they remain tax resident in Cyprus for 17 tax years out of the previous 20.

The rules have specifically been introduced in order to attract highly paid executives and encourage high-net-worth individuals to take up residency in Cyprus.