Cyprus has become an attractive option for companies and individuals. Advantageous tax incentives exist and Cyprus is popular as both a corporate and residential location, offering a sound infrastructure, and also enviable weather.
Benefits Enjoyed by Tax Residents of Cyprus who are not Domiciled in Cyprus
As a result of pre-existing tax legislation and the exemption from Cyprus’ Special Contribution to Defence Tax (SDC), introduced in 2015 legislation, non-domicilaries benefit from a ZERO rate of tax on the following sources of income:
- Rental income
- Capital gains (other than on the sale of immoveable property in Cyprus – subject to a partial exemption on newly acquired property)
- Capital sums received from a pension, provident or insurance fund
These zero tax benefits are enjoyed, even if the income has a Cyprus source and is remitted to Cyprus.
- In addition there are NO wealth or inheritance taxes in Cyprus.
Other Beneficial Features of the Cyprus Tax System for Individuals
- Income Tax Reduction for New Personal Income Tax Payers
Individuals who were not previously resident in Cyprus and take up residency in Cyprus for work purposes are entitled to the following reduction, as long as their annual salary is greater than €100,000:
- 50% of the salary earned in Cyprus is exempt from income tax for a period of ten years.
- Low Tax Rate: Foreign Pensions
Individuals receiving a pension arising from services provided abroad can elect to pay an income tax rate of 5% on pension income in excess of €3,420.
July 2015 Legislation
On 9 July 2015 the Cyprus House of Representatives approved new tax laws which provide significant benefits to high net worth individuals relocating to Cyprus. It is since this time that Cyprus has operated a non-dom regime.
The main benefits of the new legislation were:
- Special Defence Tax (SDC) exemption for Cypriot non-domiciled tax residents
- Extension of the personal income tax reduction on the salaries of new residents
- Capital gains tax exemption: on newly acquired Cyprus immoveable property
- Reduction in land registry fees
- Corporation tax: notional interest reduction
The Definition of Residence and Non-Domicile in Cyprus for SDC Purposes
- In July 2017, the Cyprus Government voted for an amendment, establishing a new “60 day rule”. This new rule applies to individuals who, in the relevant tax year:
- reside in Cyprus for at least 60 days.
- operate/run a business in Cyprus or are employed in Cyprus or are directors of companies which are taxed in Cyprus. Individuals must also have a residential property which they own or rent.
- are not tax resident in another country.
- do not reside in any other single country for a period exceeding 183 days in aggregate.
If individuals physically reside in Cyprus for more than 183 days in one calendar year, they are considered Cyprus tax resident. This is known as the “183 day rule”.
If the applicant satisfies either the “183 day rule” or the “60 day rule” and becomes tax resident in Cyprus (but not domiciled there), the tax benefits detailed above can be enjoyed.
The non-domicile status in Cyprus offers a number of additional benefits to high net worth individuals, who are not domiciled in Cyprus. The regime offers additional financial incentives for individuals to consider Cyprus as an attractive destination for residence.