Using the Cyprus Non-Dom scheme for beneficial tax planning
In an attempt to improve and simplify the Cyprus tax system as well as to remain a highly compliant and attractive jurisdiction, the introduction of the non-domicile (shortened to Non-Dom) scheme aims to give Cyprus a competitive edge over other jurisdictions.
This incentive will make the island a popular choice for both EU citizens and third country nationals looking to move their personal tax residency status to overseas destinations. The non-dom notion in Cyprus offers significant tax benefits and already allows individuals to enjoy dynamic and lucrative business options.
How Does it Affect You?
Non-Cyprus nationals who decide to move their personal tax residency to Cyprus, will automatically be considered as non-domiciled in Cyprus for a maximum period of 17 years. After they reside in Cyprus for at least 17 of 20 consecutive years, non-Cyprus nationals will be considered as domiciled in Cyprus. For tax purposes, non-domicile persons who become Cyprus tax residents will now be excused from having to pay Special Defense Contribution tax (SDC).
Special Defense Contribution is usually chargeable on shares, interest payments and rent. As Cyprus tax residents who are classed as being non-dom in Cyprus are not charged SDC, all income derived from dividends or interest will now be completely tax exempt in Cyprus. It is worth noting that that the main income of high net worth individuals is generally dividends and interest. Please keep in mind, however, that rental income of non-dom individuals who are Cyprus tax residents will be subject to income tax in Cyprus while being exempt from SDC.
Tax Benefits of Non-Domiciled Individuals
As per the provisions of Cyprus Special Defense Contribution legislation:
- Any dividends and bank deposit interest or rent earned by individuals who are tax resident in Cyprus are subject to SDC tax at the corresponding rate of 17%, 30%,and 3% on the amount of gross rents reduced by 25%, regardless of the source of the income (i.e. from Cyprus or from abroad).
- Regardless of domicile status, foreigners becoming Cyprus tax residents enjoy many other tax benefits. Read more about them here.
- SDC tax is only applicable for individuals who are classified as both Cyprus tax resident and domiciled in Cyprus.
- Therefore, non-domiciled tax residents will have dividend and interest completely tax exempt, whereas rental income of such individuals will be subject to income tax in Cyprus.
The amendments to the Cyprus tax legislation provide both individual and corporate investors a broader scope of options for structuring their investments within Cyprus. Nonetheless, investors should conduct a thorough review of their existing arrangements in order to ensure their conformity with relevant amendments. Companies should consequently reassess their structures in an effort to look at the available options and consider taking any actions.
Example of tax calculation for a Non-Domiciled individual earning €110,000 PA
|Allowance for salary: 50%||(€55,000)|
|Social insurance (max figure)||(€4,243)|
Example income tax thereafter:
|On €19,500 @ 0%||€0|
|On €8,500 @ 20%||€1,700|
|On €8.300 @ 25%||€2,075|
|On €14.157 @ 30%||€4,247|
|Income Tax payable||
Total amount deductable from the employee:
|Total payable per year:||€12.265|
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