Since 2016, Cyprus has offered a highly attractive non-domicile (non-dom) tax regime for individuals who qualify as Cyprus tax residents. This framework is based on the Income Tax Law (IT Law), Special Defence Contribution Law (SDC Law), and the Wills and Succession Law (W&S Law).

When used correctly, the non-dom regime can significantly reduce tax liabilities while providing a tax-efficient environment for investors, asset managers, and entrepreneurs. Given that countries like the UK are abolishing their own non-dom systems and others, like Italy, are tightening regulations, Cyprus has emerged as a favorable jurisdiction for individuals seeking tax-efficient residency.

Key Advantages of Cyprus for Non-Doms

• No capital gains tax (except for Cyprus-based real estate).
• No inheritance tax, ensuring wealth is passed on efficiently.
• No Special Defence Contribution (SDC) tax on dividends, interest, or rental income.
• Low-income tax rates, with special tax exemptions available.
• Flexible residency rules (183-day and 60-day tax residency options).

How Does the Cyprus Non-Domicile Regime Work?

Cyprus taxes individuals only on income and specific types of withholding taxes (SDC). However, non-doms—with the right tax structuring—can legally minimize or avoid taxation on much of their earnings, despite being Cyprus tax residents.

Carried Interest & Tax Considerations

One important distinction is that Cyprus considers carried interest (performance-based earnings from funds) as income rather than capital gains. This differs from the UK and other jurisdictions where carried interest is often treated more favorably. However, the IT Law provides tax safe-harbors, allowing certain fund managers to reduce their effective income tax to just 8%.

That said, the non-dom regime remains the most effective way to significantly lower tax liabilities for eligible individuals.

Tax Residency in Cyprus: The 183-Day and 60-Day Rules

1. The 183-Day Rule

An individual is considered a tax resident in Cyprus if they spend at least 183 days in the country within a calendar year.

2. The 60-Day Rule

Individuals who do not meet the 183-day requirement can still qualify for tax residency in Cyprus with just 60 days if they:

• Spend at least 60 days in Cyprus during the tax year.
• Are not tax residents in any other country during the same tax year.
• Do not spend more than 183 days in any other country.
• Have a permanent residence in Cyprus (owned or rented).
• Conduct business, employment, or hold a directorship in a Cyprus company.

💡 Important Note: Income earned from employment in Cyprus is subject to local income tax regardless of domicile status.

Understanding “Domicile” in Cyprus

Cyprus domicile status is determined based on three categories:

1. Domicile of Origin

• A person inherits their domicile at birth from their father.
• If the father is deceased or unknown, the domicile is inherited from the mother.

2. Domicile of Choice

• An individual can acquire domicile in Cyprus by permanently residing there with the intent to stay indefinitely.
• Alternatively, they can establish domicile in another country, overriding their domicile of origin.

3. Deemed Domicile

• If an individual has been a Cyprus tax resident for at least 17 of the last 20 years, they are automatically deemed domiciled in Cyprus.

Tax Savings Under the Non-Dom Regime

Even if an individual originates from Cyprus, they may still qualify as a non-domicile for SDC purposes if:

1. They acquired domicile in another country and have not been a Cyprus tax resident for at least 20 consecutive years before returning.
2. They were not a Cyprus tax resident between 1995 and 2014.

💡 Verifying Non-Dom Status
To officially confirm non-domicile status, individuals must apply for a certificate from the Cyprus Tax Department. This process typically takes around three weeks.

Income Taxation for Non-Doms

Under the Income Tax Law (IT Law), Cyprus tax-resident individuals (both domiciled and non-doms) do not pay income tax on:

✅ Dividends received
✅ Interest income from loans and debt instruments

These exemptions exist because such revenues are taxed under the SDC Law instead.

No Special Defence Contribution (SDC) for Non-Doms

Under the SDC Law, Cyprus tax residents who are domiciled in Cyprus must pay SDC taxes on:

• Dividends (up to 17%)
• Interest income
• Rental income

🚨 Non-Doms Are Exempt!
Cyprus non-doms do not pay any SDC taxes, which leads to significant savings compared to domiciled individuals.

Structuring Considerations for Non-Doms

Income earned by Cyprus non-doms from the following sources is entirely tax-free in Cyprus:
✅ Dividends from global equities
✅ Interest income from loans and investments
✅ Rental income (outside Cyprus)

However, income from Cyprus-based employment is taxable if it exceeds €19,500 per year.

💡 Why Tax Filing Matters
Individuals who earn taxable income in Cyprus must file tax returns to demonstrate ongoing Cyprus tax residency, which is important for global tax compliance.

Final Thoughts: Is Cyprus a Good Choice for Asset Managers & Entrepreneurs?

✅ No inheritance or capital gains tax
✅ Significant tax savings under the non-dom regime
✅ Low tax rates on employment income
✅ Flexible residency rules (183-day and 60-day rules)
✅ Strong legal framework & EU membership

With the UK abolishing its non-dom regime and other countries tightening regulations, Cyprus has positioned itself as a leading destination for global investors and entrepreneurs.

Need More Information?

For personalized advice on Cyprus tax residency and structuring, reach out to our team or your trusted tax advisor.

NOTE: Expected tax reform regulation in 2025.