Cyprus Tax Residency for Individuals and Non-Domiciled Status
Imposition of Tax
A Cyprus tax resident, is taxed on income accruing or arising from sources both within and outside the Republic of Cyprus, whereas a non-Tax resident of Cyprus is only taxed on income accruing or arising from sources within the Republic.
Cyprus taxation scheme is based on the principle of residence and there are two main rules someone can choose to become a Cyprus Tax resident.
A. The 183-day rule
An individual is considered a tax resident of Cyprus if he spends more than 183 days in the Republic in a tax year (1st of January to 31st of December). Consequently, if the individual is physically present in Cyprus for less than 183 days in a tax year, he will be considered to be a non-Cyprus tax resident in that tax year.
B. The 60 days rule
As of 1st January 2017, an individual can be considered as a tax resident of the Republic even if he spends less than 183 days provide, he meets all of the following conditions within the same tax year (1st of January to 31st of December):
- Does not stay in any other country, for one or more periods exceeding in aggregate 183 days;
- Is not a tax resident of any other country;
- Spends at least 60 days in Cyprus;
- Maintains a permanent home in Cyprus either owned or rented;
- Carries out business activities in Cyprus and/or is employed in Cyprus and/or holds be a director in a company that is tax resident in Cyprus;
If during the year the business, employment or holding of an office is terminated, then the individual shall not be treated as a Cyprus tax resident for that tax year.
Calculation of days
To calculate the days of presence in Cyprus
- The day of arrival in Cyprus is deemed to be a day in the Republic
- The day of departure from Cyprus is deemed to be a day outside of the Republic
- The arrival into the Republic and departure from the Republic on the same day is considered as a day in the Republic
- The departure from the Republic and the arrival in the Republic on the same day is considered as a day out of the Republic
Definition Of Non-Domiciled Persons
In accordance with the provisions of the Wills and Succession Law, there are two kinds of domicile:
- Domicile of origin: i.e. the domicile received by an individual at birth; or
- Domicile of choice: i.e. the domicile acquired by an individual by establishing physical presence in a particular place with the intention to make it the place of permanent residence
Irrespective of the domicile of origin or choice, individuals who have been tax residents in Cyprus for at least 17 out of the last 20 years prior to the tax year in question, will be deemed to be domiciled in Cyprus for the purposes of the SDC Law.
In the case of persons who have their domicile of origin in Cyprus, they will nevertheless be considered as non-domicile in the following cases:
- If they have acquired and maintained a domicile of choice outside Cyprus, provided that they were not tax residents in Cyprus for any continuous period of at least 20 consecutive years prior to the tax year in question; or
- If they were not tax residents in Cyprus for a period of at least 20 consecutive years immediately prior to the entry into force of the non-domicile provisions (i.e prior to 16/07/2015).
Tax Benefits Of Non-Domiciled Persons
As per the provisions of the Cyprus SDC Law, dividends and bank deposit interest earned by individuals who are tax residents in Cyprus are subject to SDC tax at the rate of 17% and 30% respectively, regardless of the source of the income (i.e. from Cyprus or from abroad). SDC tax applies only for individuals who are both Cypriot tax residents and domiciled in Cyprus.
Therefore, non-domiciled tax residents will be completely tax exempt from any dividends and interest received in Cyprus (except for minimal GeSY contributions), Since 1 March 2019, Dividend income is subject to GeSY contributions, (at the rate of 1.7% from 1 March 2019 until the 29 February 2020, then increased to 2.65% from March 1, 2020), restricted to a maximum of EUR180,000 income annually.
Further tax advantages for individuals
Furthermore, irrespective of domicility, foreigners who become Cypriot tax residents enjoy a range of other significant income tax advantages with the main ones being the following:
- Interest and dividends are liable to SDC instead of income tax, but non-Cyprus domiciles are exempt (except for minimal GeSY contributions).
- Profit from sale of shares and other qualifying titles is specifically exempt from Cyprus taxation, provided that the underlying assets do not include immovable property located in Cyprus.
- First €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 exercised 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, which is 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.
- In case of Cypriot immovable property acquired up to 31st December 2016, profit from subsequent future disposal of such property will be exempt from the 20% Capital Gains Tax.
- Pension received in respect of past employment abroad is taxed in Cyprus at the flat rate of 5% for amounts exceeding €3,420 per year.
- No inheritance tax, no wealth tax, no gift taxation.
- In case of individuals who are beneficiaries to a Trust, such individuals 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.
*This guide contains information for general guidance and does not substitute professional advice which must be sought before taking any actions.