Cyprus Tax Residency
In Cyprus, the determination of tax residency status depends on various factors such as the duration of stay, purpose of stay, personal and economic ties with Cyprus, and the location of the center of vital interests. Generally, an individual can become a tax resident in Cyprus if he or she meets one of the following conditions:
- Physical presence in Cyprus for at least 183 days: If an individual spends more than 183 days in Cyprus in a tax year (1st January – 31st December), they will be considered a tax resident of Cyprus for that year.
- The 60-day rule: If an individual does not stay in any other country for a period exceeding 183 days, and has personal and economic ties with Cyprus, and is not a tax resident of any other country, then they will be considered a tax resident of Cyprus if they spend more than 60 days in the country in the tax year.
- The permanent residency rule: An individual can also become a tax resident of Cyprus if they obtain a permanent residency permit in Cyprus.
Once an individual becomes a tax resident of Cyprus, they are liable to pay taxes on their worldwide income, which includes income from employment, self-employment, property, and investments. However, Cyprus has a favourable tax regime for individuals, with low income tax rates, generous exemptions, and tax treaties with more than 65 countries.
Non-Domiciled (Non-Dom) Tax Status
In Cyprus, non-domiciled (non-dom) tax status is available to individuals who are tax residents of Cyprus but are not considered to have their permanent domicile in Cyprus. This tax status can offer several advantages to non-doms, including lower tax rates, favorable tax exemptions, and the ability to structure their affairs in a tax-efficient manner.
To understand the non-dom tax status in Cyprus, it’s important to first understand what is meant by “domicile”. In tax terms, domicile refers to the country that an individual considers their permanent home. An individual’s domicile can be determined by a variety of factors, such as where they were born, where they have lived for the majority of their life, and where they have family ties.
Non-dom status can provide a number of tax advantages for individuals who are eligible. Here are some of the key benefits:
- Dividend income: Non-doms who earn dividend income from both local and foreign investments are exempt from the Special Defence Contribution Tax (SDC) at the rate of 17%. Moreover, dividend income is unconditionally exempt from Income Tax.
- Interest income: Non-doms who earn interest income from both local and foreign sources are exempt from SDC at the rate of 30% (as of July 16, 2015). Interest income is also exempt from Income Tax.
- Rental income: Non-doms who earn rental income from properties in Cyprus or abroad are exempt from SDC (as of July 16, 2015). 80% of the rental income declared is subject to Income Tax at the normal rates, with a 20% allowance.
- Capital Gains Tax (CGT): Non-doms who are tax residents are generally only subject to capital gains tax (CGT) on gains arising from the disposal of immovable property situated in Cyprus. This means that if a non-dom sells shares, bonds, or other movable assets, they are not subject to CGT in Cyprus, even if those assets are held in Cyprus.However, there are some exceptions to this general rule. Non-doms may still be subject to CGT in Cyprus if they dispose of shares or securities in companies that own immovable property located in Cyprus. Additionally, if the non-dom is engaged in a trade or business in Cyprus, any gains derived from that trade or business may be subject to CGT.It’s worth noting that even if non-doms are exempt from CGT in Cyprus, they may still be subject to tax on capital gains in their country of domicile or in other jurisdictions where the assets are held or where the transaction takes place.
How to Obtain Non-Dom Status in Cyprus?
To claim non-dom status in Cyprus, the individual must submit a declaration of non-domicile to the local tax authorities and provide evidence to support their claim, such as documentation showing their permanent home is in another country.
What is Special Defence Contribution Tax?
Special Defence Contribution (SDC) is a type of tax in Cyprus that is levied on certain types of income, including dividends, interest, and rental income. The SDC was introduced in 1980 as a temporary measure to help fund the country’s defense efforts. However, it has since become a permanent fixture of the Cyprus tax system.
The SDC applies to both individuals and companies, although the rates and rules may vary depending on the type of taxpayer and the nature of the income. For example, individuals who are tax residents of Cyprus are subject to SDC on their worldwide income, while non-residents are only subject to SDC on their Cyprus-sourced income.
The rates of SDC can also vary depending on the type of income. For example, as of 2021, the SDC rate on interest income is 30%, while the rate on rental income is 3% for the first €15,600 and 5% on the remaining amount. The rate on dividend income is 17%, but non-doms may be exempt from this tax on certain types of foreign-sourced dividends.
It’s important to note that SDC is in addition to other taxes that may be applicable, such as income tax and capital gains tax.
Individual Tax Rate Scales in Cyprus for Tax Year 2023
|Taxable income ||Tax rate |
|0 – €19,500 ||0% |
|€19,501 – €28,000 ||20% |
|€28,001 – €36,300 ||25% |
|€36,301 – €60,000 ||30% |
|Over €60,000 ||35% |
- The first column shows the taxable income bracket for each tax rate.
- The second column shows the corresponding tax rate for that bracket.
For example, if an individual’s taxable income for the year is €25,000, the tax calculation would be as follows:
- The first €19,500 is taxed at 0%, so there is no tax liability on this amount.
- The remaining €5,500 is taxed at 20%, which amounts to €1,100 in tax liability.
It’s important to note that there are some tax exemptions and deductions that can reduce an individual’s taxable income, such as the personal tax credit, social insurance contributions, and certain expenses related to employment or investment income. Additionally, non-domiciled individuals may be eligible for certain tax benefits and exemptions, as discussed in a previous answer.
It’s also worth noting that Cyprus has a progressive tax system, which means that as an individual’s income increases, the tax rate applied to their income also increases. This is reflected in the table above, where higher income brackets are subject to higher tax rates.