A non-domiciled tax resident is a phrase frequently used amongst tax and legal professionals, when they're presenting options to clients as regards their personal taxation. As far back as 1858, Lord Cranworth VC in Whicker v Hume, candidly explained that "by 'domicile' we mean home, the permanent home; and if you do not understand your permanent home, I am afraid that no illustration drawn from foreign writers or foreign languages will very much help you to it." Several centuries and tax regimes later, domicile is still associated with permanence, at least for 20 years or so.
Who is a non-dom under Cyprus tax laws:
Domicile is determined by the Cypriot Wills and Succession laws, as that of 'origin' i.e. a person's place of birth, or that of 'choice' which is where an individual chooses to permanently live, indefinitely. An individual who was not born in Cyprus and/or was not a Cypriot tax resident the preceding 20 years from the tax year in question, but chooses to live in Cyprus permanently, can be deemed a Cypriot non-domiciled tax resident.
According to the provisions of the Cyprus Income Tax laws, an individual who is a tax resident of Cyprus (either under the 183 days rule or the 60 days rule) but is regarded as "non domiciled" in the Republic of Cyprus, will be exempt from the provisions of the Special Defence Contribution (SDC) Law.
Why should one acquire a Cypriot non-dom status?
Prudent tax planning tends to be high in the agenda of high-net-worth individuals and digital entrepreneurs. Cyprus's non-domicile tax status grants significant tax benefits, including tax exemptions from dividends and interest income. A few added benefits include:
- Profit from the sale of shares and other qualifying titles (securities) is specifically exempt from Cyprus taxation, provided that the underlying assets do not include immovable property located in Cyprus.
- Up to, €19,500 of taxable income is tax-exempt. Any taxable personal income in excess of this amount is taxed at progressive rates ranging from 20% to 35% (for incomes over €60,000).
- 50% exemption for remuneration from employment in Cyprus by persons who were resident outside Cyprus before commencement of their employment. The exemption applies for a period of 10 years commencing from the year of employment if such income exceeds €100,000 per year.
- In case of Cypriot remuneration less than €100,000, a 20% exemption is granted or €8,550—whichever is lower. For employment commencing between 2012 and 2025, the exemption applies for a period of 5 years starting from the tax year following the year of employment.
- 100% exemption on remuneration from the rendering of salaried services outside Cyprus to a non-resident employer or a permanent establishment outside the Republic of a resident employer, for an aggregate period in the year of assessment of more than 90 days.
- Cypriot immovable property acquired up to 31 December 2016, profit from subsequent future disposal of such property will be exempt from the 20% Capital Gains Tax ("CGT").
- Sale of immovable property situated out of Cyprus is exempt from Cyprus CGT.
- Pensions received in respect of past employment abroad are taxed in Cyprus at a flat rate of 5% for amounts exceeding €3,420 per year.
- No inheritance tax, no wealth tax, no gift taxation.
What about distributions from Trusts?
Contrary to what will apply in the UK from 6 of April 2025 onwards as regards distributions from Trusts, in Cyprus, non-domiciled individuals who are beneficiaries to a Trust, would be exempt from tax in Cyprus, to the extent that the income at/from the Trust would be in the form of interest or dividends. Unlike the Cypriot regime, the new foreign income and gains ("FIG") regime in the UK, will have the effect of removing the protections from non-UK resident trusts on FIG arising from 6 April 2025. FIG that has arisen pre-6 April 2025 in protected non-UK resident trusts will not be taxed unless distributions or benefits are made to UK resident individuals who are not subject to the new 4-year FIG regime. From 6 April 2025, FIG arising in offshore trust structures which are settlor-interested will be taxed on UK resident settlors on an arising basis unless they qualify for the 4-year FIG regime. Where a settlor and/or a beneficiary receives a benefit from an offshore trust and makes a claim under the 4-year FIG regime, any income or gains arising in the structure will continue to accumulate in the relevant pools. The benefit received will not be matched against the available pools.
What changed as regards the non-dom status in the UK?
From 6 April 2025, the non-dom regime in the UK (where the individual could elect domicile) will be abolished and replaced with a new tax regime based on residence, a decision by the current labour administration, affecting over 74,000 UK non-doms. The new regime will provide 100% tax relief on FIG for non-doms in their first 4 years of tax residence, provided these individuals have not been UK tax resident in any of the preceding 10 consecutive years.
What are the next steps for persons affected by the abolition?
For a UK non-domiciled HNWI or entrepreneur interested in exploring available options as regards tax residency, they should consider the 183-day rule and the conditions of the 60-day rule, and the possibility of a 17-year non-dom status offered by the Cypriot tax regime, a generous regime by international standards.
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.
