Cyprus Tax Residency and Non-Domiciled Status: Your Guide to Tax Efficiency

Cyprus tax residents are subject to taxation on their worldwide income, while non-tax residents are taxed only on income from sources within Cyprus. The Cyprus taxation system is based on residency, with two main criteria for determining tax residency: the 183 days rule and the 60 days rule.

183 Days Rule

Individuals who spend more than 183 days in Cyprus within a tax year (January 1st to December 31st) are considered tax residents. Conversely, if an individual spends fewer than 183 days in Cyprus, they are classified as non-tax residents for that tax year.

60 Days Rule

Alternatively, individuals can achieve tax residency in Cyprus by meeting the following conditions:

• Spend at least 60 days in Cyprus within a tax year.
• Not spend more than 183 days in any other country.
• Not be a tax resident of any other country.
• Maintain a permanent home in Cyprus, either owned or rented.
• Conduct business, be employed, or hold an office in a Cyprus tax-resident entity at any time during the tax year. If these activities cease during the year, tax residency status will be lost.

Tax Benefits for Cyprus Tax Residents

Individuals who incorporate a Cyprus company and become its shareholders can benefit from favorable tax treatment. The corporate tax rate is 12.5%, and shareholders are exempt from the 17% Special Defence Contribution (SDC) on dividends.

Non-domiciled Cyprus tax residents enjoy several tax exemptions, including:

• Dividend Income: Exempt from tax, except for General Health System (GeSY) contributions (1.7% until February 2020, then 2.65% capped at EUR 180,000 annually).
• Interest Income: Exempt from tax.
• Rental Income: Exempt from SDC.

Calculation of Days

For both the 183 days and 60 days rules, days in and out of Cyprus are calculated as follows:

• Day of arrival in Cyprus counts as a day in Cyprus.
• Day of departure from Cyprus counts as a day outside Cyprus.
• Arrival and departure on the same day counts as a day in Cyprus.
• Departure and arrival on the same day counts as a day outside Cyprus.

If an individual stays in Cyprus for only 60 days per year, their Cyprus company must have actual substance in Cyprus. The tax authorities will examine whether the majority of the board of directors reside in Cyprus to determine the company’s tax residency.

Non-Domiciled Persons

Under Cyprus Wills and Succession Law, domicile is categorized as:

• Domicile of Origin: Acquired at birth.
• Domicile of Choice: Established by living in a place with the intention of permanent residence.

Foreigners moving their tax residency to Cyprus are considered non-domiciled for up to 17 years, exempting them from SDC. Individuals with a domicile of origin in Cyprus are non-domiciled if they have a domicile of choice outside Cyprus and have not been tax residents in Cyprus for at least 20 consecutive years.

Tax Benefits for Non-Domiciled Persons

• 100% Tax-Free Dividends: Only subject to GeSY contributions.
• 100% Tax-Free Passive Interest Income: Exempt from SDC.
• No SDC on Rental Income.

Additional Tax Advantages

• Interest and Dividends: Exempt from Cyprus income tax for non-domiciled residents.
• Capital Gains: Profit from the sale of shares and other qualifying titles is exempt from Cyprus tax, provided the assets do not include Cyprus immovable property.
• Taxable Income: First €19,500 is tax-exempt, with progressive rates applied thereafter.
• Employment Income: Various exemptions for income from employment outside Cyprus or for individuals relocating to Cyprus for work.
• Immovable Property: No Capital Gains Tax on the sale of property acquired before December 31, 2016.
• Pensions and Lump Sum Payments: Favorable tax rates for pensions from abroad and exemptions for lump-sum payments from insurance or provident funds.
• No Inheritance, Wealth, or Gift Taxes: Cyprus does not impose these taxes.
• Trusts: Beneficiaries of trusts may enjoy tax exemptions on income derived from interest or dividends.