Cyprus offers; a warm climate, good infrastructure, convenient geographic location, membership of the EU, tax advantages for companies and incentives for individuals through the Cyprus non-dom regime.
A tax law, approved by the Cyprus House of Representatives in 2015, provides significant benefits to individuals and to companies, relocating to Cyprus.
The Main Benefits
The main benefits of the legislation, in relation to individuals, include:
- Special Defence Tax exemption for Cypriot non-domiciled tax residents;
- Extension of the personal income tax reduction relating to the salaries of new residents.
Tax Exemptions Enjoyed by Tax Residents of Cyprus Who Qualify under the Non- domicile Tax Regime in Cyprus
As a result of previous tax legislation and the exemption from the Cyprus Special Contribution for Defence Tax ("SDC") introduced in July 2015, non-domiciliaries are exempt from taxation in Cyprus on the following sources of income:
- Capital gains (other than on the sale of immoveable property in Cyprus);
- Capital sums received from pensions, provident and insurance funds.
Capital Sums Remitted to Cyprus are Not Subject to Taxation
The tax benefits detailed above, are enjoyed even if the income has a Cyprus source or if it is remitted to Cyprus.
In addition there are NO wealth and NO inheritance taxes in Cyprus.
Other Beneficial Features of the Cyprus Tax System for Individuals
Income Tax Reduction for New Residents in Cyprus
Individuals who were not previously resident in Cyprus, take up residence in Cyprus for work purposes, and earn over €100,000 per annum, are entitled to the following tax benefit:
- 50% of employment income earned in Cyprus is exempt from income tax for a period of 10 years.
Low Tax Rate: Foreign Pensions
The first €3,420 of a pension from employment outside Cyprus is tax free, and individuals can elect to pay only 5% income tax on pension income in excess of this amount.
Cyprus' Standard Income Tax Rates are:
- €0 to €19,500: 0%;
- €19,501to €28,000: 20%;
- €28,001to €36,300: 25%;
- €36,301to €60,000: 30%;
- Greater than €60,000: 35%;
The Definition of Residence and Non-Domicile in Cyprus for "SDC" Purposes
An individual is considered as tax resident in Cyprus if they spend more than 183 days in any one calendar year there. Prior to the introduction of the Non-domicile tax regime, income received by Cyprus tax residents from dividends, rent and interest, was subject to the Special Contribution for Defence Tax (SDC).
This is why the introduction of the "non-domicile" tax status was so important. The law of July 2015 specifies that tax resident individuals, who are non-Cyprus domiciled, are completely exempt from SDC irrespective of where their income is generated or remitted from.
- The Cyprus non-domicile tax regime is therefore particularly interesting for individuals whose main source of income is either dividend or interest income. In addition, individuals can take advantage of the exemption from taxation on capital gains.
The Definition of Domiciled in Cyprus
The term "domiciled in Cyprus" is defined by law as an individual who has a Cypriot domicile of origin, in accordance with the Wills and Succession Law, which is the domicile of his/her father at the time of his/her birth. Or alternatively, an individual who is considered a Cyprus tax resident, as per the Income Tax Law, for a period of at least 17 years out of the last 20 years before the relevant tax year, irrespective of his/her domicile of origin.
Non-domicile status in Cyprus offers a number of tax related benefits.
The regime, introduced in July 2015, offers additional financial incentives for individuals to consider Cyprus as an attractive destination for tax residence, and these incentives continue to be in place.
Originally Published 20 April, 2021
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.