In Cyprus, the non-domicile status (commonly referred to as non-dom status) is a tax status available to individuals who are tax residents of Cyprus but do not have a domicile in Cyprus. This status offers significant tax exemptions on certain types of income, making Cyprus an attractive destination for expatriates, high-net-worth individuals, and investors.
Here’s a detailed explanation of the non-domicile status for tax purposes in Cyprus:
1. Who Can Qualify for Non-Domicile Status?
- Tax Residence: To qualify for non-domicile status, you must first be a tax resident of Cyprus. A person is considered a tax resident if they meet one of the following criteria:
- Spend at least 183 days in Cyprus during the tax year, or
- Spend at least 60 days in Cyprus, provided they meet additional conditions (e.g., maintaining a permanent home in Cyprus, working in Cyprus, and not being a tax resident elsewhere).
- Non-Domiciled: You must not be domiciled in Cyprus. Domicile in Cyprus is generally determined by the individual’s family background (whether the person’s father was Cypriot at birth) and their long-term intentions regarding where they consider their permanent home to be.
2. Key Benefits of Non-Domicile Status
The non-domicile status offers various tax exemptions on foreign income, making Cyprus an attractive place for individuals to establish residence. Here are the main tax benefits:
A. Exemption from Special Defence Contribution (SDC)
- Dividends: Non-domiciled individuals are exempt from paying SDC on dividend income, whether the dividends are received from Cyprus or foreign companies. For regular tax residents, dividends are subject to a 17% SDC tax.
- Interest: Interest income, both from Cyprus and foreign sources, is typically subject to SDC tax of 30% for regular residents. However, non-domiciled individuals are exempt from this tax.
- Rental Income: Rental income from Cyprus property is generally subject to SDC, but non-domiciled individuals are exempt from this SDC on rental income.
B. Capital Gains Tax (CGT) Exemption
- Cyprus imposes a Capital Gains Tax (CGT) on the sale of real estate situated in Cyprus. However, non-domiciled individuals are exempt from CGT on the sale of shares in companies (even if those companies own property in Cyprus).
- This exemption is particularly beneficial for investors or entrepreneurs who want to sell shares in Cyprus or foreign companies without facing capital gains taxes.
C. No Inheritance Tax
- Cyprus does not impose inheritance tax or estate duties, making it a favorable jurisdiction for wealth planning and passing on assets to heirs.
D. Foreign Income Tax Treatment
- Non-domiciled individuals enjoy favorable tax treatment on foreign income, meaning they are generally not taxed on foreign dividends, interest, or capital gains.
3. Taxable Income for Non-Domicile Individuals
While non-domiciled individuals enjoy significant exemptions from certain taxes, they are still subject to Cyprus’ regular income tax rates on income earned within Cyprus. The key points are:
- Cyprus Salary: Salary income received from working in Cyprus is subject to progressive income tax rates, which range from 20% to 35% on income over €60,000.
- Business Income: Business income earned from activities in Cyprus is also taxed under the same income tax regime.
4. Duration of Non-Domicile Status
- Non-domicile status is granted for a period of 17 consecutive years. After 17 years, the individual may lose the non-domicile status and will be taxed like any other tax resident of Cyprus.
5. How to Apply for Non-Domicile Status
To qualify for non-domicile status, an individual needs to:
- Be a tax resident of Cyprus (spending either 183 days or 60 days per year in Cyprus).
- Prove that they are not domiciled in Cyprus, which is generally based on the person’s family background (i.e., whether their father was a Cypriot national) and their long-term intentions regarding residence.
There is no formal application process to apply for non-domicile status. However, it is necessary to register with the Cyprus tax authorities as a tax resident and claim the status.
6. Why Cyprus Offers Non-Domicile Status
Cyprus provides this tax incentive to attract wealthy individuals, international investors, and business owners who can benefit from the tax exemptions on foreign income, dividends, interest, and capital gains. It is part of Cyprus’s broader effort to position itself as a business-friendly jurisdiction with a competitive tax regime.
