Introducing the concept:
According to the amendment of the law and the non-domicile rules introduced in July 2015, an individual who is a tax resident of Cyprus under the provisions of the income Tax Law, but is considered as not- domiciled in the Republic of Cyprus , will now be exempt from SDC. (Special Contribution for Defence) As a result and given the fact dividends (either domestic or foreign sourced) and passive interest income are also fully exempt from income tax, individuals with tax resident status but not domicile in the Republic will be fully exempt from taxation on these sources of income.
Who is considered as Domiciled in Cyprus
- An individual who has a domicile of origin in the Republic of Cyprus, which it is the domicile of his/her father at the time of birth. This is subject to conditions.
- 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 domicile of origin.
Important points for consideration:
1) An individual cannot be without a domicile at any given time
2) Any individual can only have one domicile at each particular time
3) The existing domicile continues until a new one is acquired
4) Domicile is distinct form nationality , citizenship and residence status
Tax Effect
A Cyprus tax resident individual would be liable only for income Tax Law purposes and would be exempted from Special Defence Contribution (SDC) given that is not considered domiciled in Cyprus. Consequently that individual would be exempt from SDC regarding income from Dividends, interest and rent irrespective if from sources in Cyprus or abroad.Given the exemptions under Income Tax Law too, Dividends and interest received both from Cyprus and worldwide sources would be totally exempt from Tax in Cyprus.
More Tax incentives
1) Employment income from working abroad: 100% exemption of the remuneration income of a Cyprus tax resident individual for salaried services rendered outside Cyprus for more than 90 days in a tax year to a non- Cyprus resident employer or to a foreign permanent establishment of a Cyprus resident employer
2) Pension received by a resident individual in respect of past employment exercised outside Cyprus
3) Pension received in respect of past employment exercised outside Cyprus is taxed in Cyprus at a rate of 5% on amount in excess of €3.420
4) Relief for high paid individuals taking up employment in Cyprus
5) 50% exemption applies to non-residence individual taking up residence in Cyprus for an employment in Cyprus with income exceeded €100.000 per annum for a period of 10 years.
6) Relief for high paid individuals taking up employment in Cyprus: 20% exemption of the remuneration with a maximum amount of €8,550 from any office or employment exercised in Cyprus by an individual who was resident outside Cyprus before commencement of employment. The exemption applies for a period of 5 years but it can only be claimed until the year 2020.
7) 100% exemption of the world amount of any gain arising from disposal of titles such as shares and bonds
8) 100% exemption of any lump sum repayment from life insurance schemes or from approved provident funds
9) No estate duty, wealth tax, inheritance tax or gift taxes
10) No Capital Gains Tax on the sale of immovable property situated outside Cyprus
11) No Capital Gains Tax from the sale of property acquitted between 16 July 2015 and 31 December 2016. No restriction as to the time- frame of sale.
12) Low social insurance contributions at the rate of 7.8% on the employees’ gross income from employment with a maximum level of emoluments €54.396.
