The introduction in 2015 of the concept of domicile in the tax system and the resulting special regime for persons not domiciled in Cyprus, commonly known as “Non-Dom” regime, is perceived as one of the most important provisions introduced in to Cyprus tax legislation.
The details
Let’s first delve in to the details of the regime introduced.
The first point to make is that the Non-Dom regime concerns only Special Contribution for Defense and not any other tax applicable on individuals in Cyprus, such as Income Tax and Capital Gains Tax. Special Contribution for Defense is payable only by tax residents of Cyprus (as defined in the income tax laws), which, in the case of individuals, means persons who spend at least 184 days in Cyprus in a tax year (or 60 days for the people qualifying for the 60 Days Tax Residency Scheme, but these will be, by default, non-doms). The tax is charged on dividends, interest and rental income.
At the same time, it should be noted that dividend and interest income earned by tax residents of Cyprus is subject only to Special Contribution for Defense, gains on sale of shares and other securities are exempt from all taxes and Capital Gains Tax is only charged on gains on sale of immovable property situated in Cyprus. So, while the regime is applicable only to Special Contribution for Defense, it actually extinguishes the only tax applicable to the most popular sources of passive income.
The law was amended on 16 July 2015 so that individuals who are tax residents of Cyprus but are not considered to be “domiciled” in Cyprus are exempt from payment of Special Contribution for Defense on related income.
An individual can be considered as domiciled in Cyprus either (i) by domicile of origin or (ii) by domicile of choice, as defined by the Wills and Succession Law of Cyprus. An individual who has a domicile of origin in Cyprus can still be considered not to be “domiciled” in Cyprus for this purpose under certain conditions. An individual, who, during at least 17 out of the last 20 years has been a tax resident of Cyprus, will be considered as domiciled in Cyprus and become liable to Special Contribution for Defense as from the 18th year onwards. This means that an individual who will move to Cyprus and become a Cyprus tax resident now, will be exempt from payment of Special Contribution for Defense for the next 17 years.
Perfect Match
The huge wave of international tax developments, based on which it is now imperative that taxable income should go hand in hand with the actual activity which produces that income, is considered as the driving force behind the surge of new entrants to Cyprus. Yet, this wouldn’t be enough of a good reason if Cyprus was not also making sense in terms of operating costs, location, availability of qualified personnel, business-friendly tax, legal and other regulatory environment, quality of life, good weather and a plethora of many other factors.
Indeed, this was the main purpose behind the introduction of the Non-Dom regime, as more and more high net worth individuals, entrepreneurs, scientists/researchers (engaged in projects which eventually lead to the creation of invaluable Intellectual Property assets), managers and many other persons have relocated or are in the process of relocating to Cyprus.
The amendment makes a perfect match with other incentives in place for attracting people to relocate to Cyprus and use the country as their actual base of operations and for obtaining a Cyprus citizenship or residency, such as:
It is reminded that the first EUR19,500 of taxable income per year are exempt from Income Tax and the maximum rate is 35% for taxable income exceeding EUR60,000.
We are here to assist
From basic checking whether a person qualifies for the regime, to assisting in relocating and setting up in Cyprus and applying for a residency, if needed and applicable, we are here to assist both at the beginning and on an ongoing basis, with services such as accounting, tax and VAT compliance, payroll, company administration and many other. You can find more about our services on our website.
