Cyprus: Cyprus Tax Law: New Non Domiciled Rules And Notional Interest Deduction

This summer brought some very significant amendments to the Cyprus tax laws, further enhancing Cyprus' favourable tax regime. On 17 July 2015, the following laws were amended:

  1. The Special Defense for Contribution law No. 117(I) of 2002 as amended;
  2. The Income Tax Law No 118(I) of 2002 as amended; and
  3. The Capital Gains Tax Law No. 119(I) of 2002 as amended.

New Non Domiciled Rules

The new non domiciled rules were introduced to further entice corporate executives and high net worth individuals (currently entitled to a 50 per cent tax exemption of personal income tax for a five year1 period where income exceeds €100.000) to take up residency in Cyprus.

The Special Contribution for Defense Law (the SDC Law) imposes tax on income (dividends, interest, rental income) received from within or outside of Cyprus by individuals who are considered to be tax residents of Cyprus. An individual is considered to be a tax resident of Cyprus if he/she physically spends at least 184 days in Cyprus during the tax year.

The SDC Law has now been amended to incorporate the non domiciled rules exempting the income (whether actual or deemed) of persons who are not considered to be domiciled in Cyprus from payment of special contribution for defense tax, even if they are considered to be tax residents of Cyprus.

An individual can be considered as domiciled in Cyprus either (i) by domicile of origin; or (ii) by domicile of choice. In order to understand the concept of "domiciled in Cyprus" one must look to the Wills and Succession Law Cap. 195.
In accordance with the Wills and Succession Law:

  • A person at any time can have either the domicile which he/she acquired at birth (domicile or origin) or the domicile which he/she acquired or maintained as a result of actions taken by him/her (domicile of choice).
  • For a legitimate child, which was born when the father was alive, the domicile of origin of the child is the domicile of origin of the father, at the time the child was born.
  • For a legitimate child, which was born after the father died or in the case of an illegitimate child, the domicile of origin in the domicile of origin of the mother, at the time the child was born.
  • A person may acquire a domicile of choice with his establishment in any country outside Cyprus with the intention of the permanent or indefinite residence in such a country.
  • A domicile of choice is maintained until abandoned in which case a new domicile of choice is acquired or the domicile of origin is reinstated.

For the purposes of the SDC Law only, an individual who has a domicile of origin in Cyprus as described above may still be considered not to be domiciled in Cyprus if:

  • He/she had the domicile of origin in Cyprus on the basis of the Wills and Succession Law but has obtained a domicile of choice in another country, provided he was not a tax resident of Cyprus for at least 20 years before the tax year in which he became a tax resident of Cyprus.
  • He/she has not been a tax resident of Cyprus for a period of 20 years prior to the introduction of the amendment to the SDC Law.

Notwithstanding the above, an individual who has been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the tax year will be considered to be "domiciled in Cyprus" and as such will be subject to special contribution for defence from the 18th year.

Notional Interest Deductions

The House of Representatives introduced a Notional Interest Deduction (NID) regime on corporate equity in an effort to encourage the injection of new equity capital into corporate structures rather than interest bearing and interest free loans (currently entitled to a tax deduction), effectively deleveraging the economy.

NID is allowed on new equity funds introduced into a Cyprus tax resident company and which are used for the operations of the company. The NID will be calculated on the basis of a "reference interest rate" which is equal to the yield on the ten year government bond of the country where the new funds are invested, plus three per cent with the minimum rate being the yield on the ten year government bond of Cyprus (currently around five per cent) plus three per cent.

It is important to understand the meaning of "new equity" in this context. New equity means any equity introduced into the business after 1 January 2015 including both share capital and share premium to the extent that it has been fully paid but does not include capitalisation of reserves resulting from the revaluation of movable and immovable property.

In order for NID to apply, the subscription price paid for the issue of shares must either be by cash or in kind. If consideration is in kind it cannot exceed the market value of the assets contributed with the valuation being subject to the satisfaction of the Director of Inland Revenue.

It should be noted that NID granted on new equity cannot exceed 80 per cent of the taxable profit of the company for the year preceding the deduction. If the company has made a loss, then the NID will not be available.

The Income Tax Law includes a number of anti-avoidance provisions aiming to:

  • Restrict the re-characterisation of old equity into new equity which would lead to claiming notional interest twice on the same funds through the use of multiple companies or arrangements lacking valid economic or commercial reasons.
  • Restrict claims of NID in case where the amounts of new capital of a business carried out by a company resident of Cyprus is derived directly or indirectly from amounts of new equity of another business carried out by a company resident of Cyprus so as to ensure that the deduction is granted only to one of these companies. 
  • Reduce claims of NID in the event that amounts of new equity are derived directly or indirectly from loans for which a discount regarding interest has been granted, so that the amount of interest deduction on the new equity is reduced by the amount of the interest deduction granted to the other company.
  • Ensure that the NID is calculated as if no company re-organisation has taken place.
  • Limit claims for NID from equity that existed prior to 1 January 2015 which are presented as new equity.

Capital Gains Tax Law

The Capital Gains Tax Law has been amended, exempting any capital gains from the disposal of immovable property purchased between 17 July 2015 and 31 December 2016 from tax. This exemption covers both land and buildings but does not cover property acquired as a result of a settlement of debt.


1 It should be noted that this is expected to be increased from five years to ten years. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.