The benefits of Non-Domiciled Tax Residency status in Cyprus
In Blog Cyprus
It’s never too late to improve your quality of life and you can find all the quality you need by relocating to Cyprus. With an idyllic lifestyle, a rich culture, 340 days of sunshine a year and a convenient position in the Eastern Mediterranean, Cyprus combines a high standard with a low cost of living in a modern and well-functioning environment.
Until 2017, an individual was considered a tax resident only if physically present in Cyprus for more than 183 days in a year of assessment. Consequently, if an individual was physically present in Cyprus for less than 183 days in a tax year, they were not considered to be tax resident. This is known as the ‘183-day rule’.
As of 1 January 2017, however, Cyprus amended its tax Income Tax Law (ITL) to provide that an individual who is physically present in Cyprus for more than 60 days in a year of assessment can elect to be tax resident in Cyprus in that tax year if certain conditions are met.
The ’60-day rule’ for Cyprus tax residency is satisfied for individuals who, cumulatively, in the relevant tax year do not reside in any other single state for a period exceeding 183 days in aggregate and are not considered tax resident by any other state. They must also reside in Cyprus for at least 60 days, and have other defined ties with Cyprus, as follows:
- The individual must carry out any business in Cyprus, be employed in Cyprus or hold an office (director) in a company that is tax resident in Cyprus at any time in the tax year provided that the arrangement is not terminated during the tax year.
- The individual must either own or rent a permanent residential property in Cyprus in the tax year.
Individuals who are tax resident of Cyprus under the provisions of the ITL – under both the ‘183-day rule’ or the ’60-day rule’ – can enjoy the stability afforded by full EU membership status, first-class healthcare, no inheritance tax, no gift tax no wealth tax and the potential benefit of Non-Domiciled Tax Residency status under which they will be exempt from the Special Defence Contribution (SDC) for 17 out of 20 years.
This SDC exemption means no tax on worldwide dividend, interest and rental income for non-domiciled individuals. Capital gains tax in Cyprus is only imposed on the sale of immovable property situated in Cyprus, as well as the sale of shares, directly or indirectly held, in companies in which the underlying asset is immovable property situated in Cyprus.
Additional benefits of Non-Domiciled Tax Residency include a special tax regime for foreign pension income, which is exempt from tax up to €3,420 per year and taxed at only 5% above that threshold, and the ‘50% exemption rule’ for individuals who take up employment in Cyprus with an annual income of more than €100,000 per year. This exempts 50% of their income from tax for a period of ten years.
In other words, Non-Domiciled Tax Residency status in Cyprus offers a much greater array of benefits than the better-known and highly popular Non-Habitual Resident (NHR) regime in Portugal – and for longer because the NHR regime applies only for ten tax years. That is why many residents of Portugal whose benefits under the NHR are now coming to an end are looking to move to Cyprus.
Cyprus offers a good stock of residential properties for sale or rent –¬ from townhouses and apartments to villas, cottages and sea-side bungalows ¬– and in a wide range of modern and traditional styles. With three quarters of the population concentrated into its five main cities – Nicosia, Limassol, Larnaca, Paphos and Famagusta – Cyprus offers its residents the choice to enjoy a dynamic urban lifestyle or to embrace a more relaxing way of life in the countryside villages.
Cyprus has the second highest percentage of foreign citizens in the EU, with 13% of the total population originating from other EU member states and around 7% from non-EU countries. The biggest group of expats living in Cyprus consists of British nationals, but there are also large numbers of expats from the US and Eastern European countries.
As a popular holiday destination, Cyprus is well connected to Europe’s main cities, as well as to Asia and the Middle East. Flights from mainland Europe are fast, efficient and increasingly economical. By air, Cyprus is five hours from London, four hours from Frankfurt, 1.5 hours from Athens and 3.5 hours from Dubai.
EU/EEA citizens can purchase property and reside in Cyprus with no restrictions. Non-EU/EEA nationals are permitted to buy and hold the freehold in one property in Cyprus. The property can be either an apartment, house, villa on a building site or plot of land limited to no more than 4,014m2. Owning real estate in Cyprus entitles the owner to obtain a multiple-entry national visa. There is also a ‘fast track’ permanent residence permit for those who purchase real estate valued above €300,000.