Cyprus has become a popular destination for individuals seeking to optimise their tax obligations, particularly through the acquisition of Non-Domicile (Non-Dom) status.
This status provides significant tax advantages and is an attractive option for expatriates and foreign investors. Foreigners benefit from a favourable tax regime that exempts them from the Special Defence Contribution (SDC) tax on certain types of passive income for up to 17 years when relocating personal tax residency to Cyprus.
In this article, you’ll receive a detailed overview of the steps necessary to obtain Non-Dom status in Cyprus, as well as the associated benefits.
Understanding Non-Dom Status in Cyprus
Non-Dom status is a tax designation available to individuals who establish their tax residency in Cyprus but are not domiciled in the country. The key benefit of this status is the exemption from the Special Defence Contribution (SDC) tax, which is typically levied on passive income such as dividends, interest, and rental income.
Under the Non-Dom regime, these forms of income are largely exempt from Cypriot taxation, making it a highly advantageous status for many expatriates and international investors.
Steps to Confirm Your Non-Dom Status
To qualify for Non-Dom status, an individual must first become a tax resident of Cyprus. A person becomes a tax resident if they spend more than 183 days in Cyprus within a tax year or meet the criteria of the “60-day rule”. The 60-day rule stipulates that an individual can be a tax resident if they:
- Reside in Cyprus for at least 60 days within the tax year.
- Do not reside in any other single country for more than 183 days.
- Are not considered a tax resident in another country.
- Have a business or employment in Cyprus, hold an office with a Cypriot tax resident company, or maintain a permanent residence in Cyprus.
Once tax residency is established, the individual can apply for Non-Dom status. This involves submitting an application to the Cypriot Tax Authorities, along with the required documentation, which typically includes proof of residence, employment contracts, and any other relevant personal and financial information. The processing time for the application is approximately three weeks.
Key Benefits of Non-Dom Status
The benefits of obtaining Non-Dom status in Cyprus extend beyond mere tax exemptions. Here are some of the key advantages specifically related to the Non-Dom status itself:
Tax Exemptions on Passive Income
One of the primary advantages of Non-Dom status is the exemption from the Special Defence Contribution (SDC) tax on various forms of passive income:
Dividend Income: Non-Doms are exempt from the 17% Special Defence Contribution (SDC) tax on dividends, which allows individuals to retain more of their investment returns. Instead, they contribute only 2.65% towards the General Health System (GeSY), capped at 4,770 EUR.
Interest Income: Interest earned by Non-Doms is exempt from the 30% SDC tax. This is particularly beneficial for those with significant interest-bearing investments or savings.
Rental Income: While rental income is subject to normal income tax rates, Non-Doms benefit from an 80% taxable basis and are exempt from the SDC on this income, significantly reducing the tax burden on property investments.
Extended Duration of Benefits
The Non-Dom status in Cyprus is granted for a period of up to 17 years. This extended duration provides long-term financial stability and predictability, allowing individuals to plan their finances with confidence over nearly two decades.
No Wealth and Inheritance Taxes
Cyprus does not impose wealth or inheritance taxes, which is a significant advantage for Non-Doms concerned about estate planning and the transfer of wealth.
This ensures that accumulated wealth can be passed onto future generations without incurring additional tax liabilities, facilitating efficient intergenerational wealth transfer.
Favourable Personal Tax Rates
In addition to the specific exemptions on passive income, Non-Doms benefit from Cyprus’s overall favourable tax rates. The personal income tax rates are progressive, with a maximum rate of 35% for income exceeding EUR 60,000.
However, various deductions and allowances can further reduce taxable income, making the effective tax rate lower for many individuals. For more information on taxation in Cyprus, read our article: An in-depth view of Taxation in Cyprus.
Business and Employment Flexibility
Cyprus offers a conducive environment for business and employment. Non-Doms who establish businesses in Cyprus benefit from the low corporate tax rate of 12.5%, one of the lowest in the EU. Additionally, the island’s strategic location, robust legal system, and business-friendly policies provide an excellent foundation for international operations and entrepreneurship.
Access to EU Markets
As an EU member state, Cyprus provides Non-Doms with direct access to the European single market. This access is particularly beneficial for individuals engaged in trade, investment, and business activities across Europe, offering seamless operations and fewer barriers within the EU.
Financial Privacy
Cyprus has robust laws protecting financial privacy, which is an attractive feature for high-net-worth individuals. The country adheres to international standards on transparency and anti-money laundering but also respects the privacy of its residents, ensuring a balanced approach.
Lifestyle and Cultural Benefits
While the primary focus of Non-Dom status is on tax benefits, the high quality of life in Cyprus is an added advantage. The country offers a pleasant climate, rich cultural heritage, excellent healthcare, and a safe environment. These lifestyle benefits complement the financial advantages, making Cyprus a desirable place to reside and enjoy a comfortable life.
Practical Considerations
When considering a move to Cyprus to obtain Non-Dom status, it is essential to engage with a qualified tax advisor who can provide guidance on the specific requirements and ensure compliance with local tax laws.
Conclusion
Obtaining Non-Dom status in Cyprus offers a range of significant benefits, particularly in terms of tax efficiency and wealth management.
The exemption from the Special Defence Contribution (SDC) tax on dividends, interest, and rental income provides substantial savings, making Cyprus an attractive destination for expatriates and international investors.
Additionally, the high quality of life, strategic location, and favourable tax rates further enhance the appeal of establishing tax residency in Cyprus.
By following the detailed steps outlined in this article, individuals can effectively secure Non-Dom status and enjoy the numerous advantages it brings. Engaging with a professional tax advisor is recommended to ensure a smooth and compliant transition to this advantageous tax regime.
