Cyprus Tax Residency for Individuals and Non-Domiciled Status: Understanding Taxation and Benefits

Taxation in Cyprus is determined by an individual’s residency status. A Cyprus tax resident is liable to pay taxes on income generated from both domestic and international sources, while a non-tax resident is only taxed on income earned within Cyprus.

Determining Tax Residency

Cyprus follows a residence-based tax system, with two primary rules for establishing tax residency:

A. The 183-day Rule

If an individual spends more than 183 days in Cyprus within a tax year (January 1st to December 31st), they are considered a tax resident. Conversely, if their physical presence in Cyprus is less than 183 days in a tax year, they are deemed a non-tax resident for that year.

B. The 60-day Rule

Since January 1st, 2017, an individual can be considered a tax resident even if they spend less than 183 days in Cyprus, provided they meet the following conditions within the same tax year:

• Do not spend a cumulative total of 183 days or more in any other country.
• Are not tax residents of any other country.
• Spend at least 60 days in Cyprus.
• Maintain a permanent home in Cyprus, either owned or rented.
• Engage in business activities, employment, or hold a directorial position in a company that is a tax resident in Cyprus.
• If the individual terminates their business, employment, or directorial position during the year, they will not be considered a Cyprus tax resident for that year.

Calculation of Days

To determine the number of days spent in Cyprus:

• The day of arrival in Cyprus is considered a day within the country.
• The day of departure from Cyprus is considered a day outside the country.
• Arriving and departing on the same day is counted as a day within Cyprus.
• Departing and arriving on the same day is counted as a day outside Cyprus.

Non-Domiciled Persons Definition

Under the Wills and Succession Law, there are two types of domicile:

1. Domicile of origin: The domicile acquired at birth.
2. Domicile of choice: The domicile acquired by establishing permanent residence in a specific place.

Regardless of their domicile of origin or choice, individuals who have been tax residents in Cyprus for at least 17 out of the last 20 years preceding the current tax year are considered domiciled in Cyprus for SDC Law purposes.

Individuals with a domicile of origin in Cyprus can be considered non-domiciled in the following cases:

• If they have acquired and maintained a domicile of choice outside Cyprus, provided they were not tax residents in Cyprus for a continuous period of at least 20 years prior to the current tax year.
• If they were not tax residents in Cyprus for a period of at least 20 consecutive years before the implementation of non-domicile provisions (prior to July 16, 2015).

Tax Benefits for Non-Domiciled Persons

According to the Cyprus SDC Law, individuals who are tax residents and domiciled in Cyprus are subject to SDC tax rates of 17% and 30% on dividends and bank deposit interest, respectively, regardless of the income source (domestic or foreign). However, non-domiciled tax residents are fully exempt from taxation on dividends and interest received in Cyprus (excluding minimal GeSY contributions). Dividend income became subject to GeSY contributions as of March 1, 2019, at a rate of 1.7% until February 29, 2020, and then increased to 2.65% from March 1, 2020, limited to a maximum of EUR 180,000 annually.

Additional Tax Advantages for Individuals

Irrespective of domicile, foreign individuals who become tax residents of Cyprus enjoy several significant income tax advantages, including:

• Interest and dividends subject to SDC tax instead of income tax (excluding non-Cyprus domiciles, except for minimal GeSY contributions).
• Profit from the sale of shares and qualifying titles is exempt from Cyprus taxation if the underlying assets do not include immovable property within Cyprus.
• The first €19,500 of taxable income is tax exempt, while any excess amount is taxed progressively at rates ranging from 20% to 35% (for incomes exceeding €60,000).
• A 50% exemption on remuneration from employment conducted in Cyprus by individuals who were resident outside Cyprus before their employment, applicable for ten years from the start of employment if the income exceeds €100,000 per year.
• For Cypriot remuneration below €100,000, a 20% exemption is granted, limited to €8,550 or the lower value between the two. For employment starting between 2012 and 2025, the exemption applies for a five-year period from the tax year following the year of employment.
• 100% exemption on remuneration from providing salaried services outside Cyprus to a non-resident employer or a resident employer’s permanent establishment outside Cyprus, for a cumulative period of more than 90 days in the assessment year.
• Cypriot immovable property acquired until December 31, 2016, is exempt from the 20% Capital Gains Tax upon subsequent disposal.
• Pensions received for past employment abroad are subject to a flat tax rate of 5% in Cyprus for amounts exceeding €3,420 per year.
• No inheritance tax, wealth tax, or gift taxation.
• Beneficiaries of Trusts are exempt from tax in Cyprus for interest or dividend income derived from the Trust.

Understanding Cyprus tax residency and non-domiciled status allows individuals to optimize their tax obligations while enjoying various tax benefits available in the country.