Cyprus Domicile Status under SDC Law

Updated 06 July 2021

Introduction

Cyprus Domicile Status under SDC Law  There have been recent amendments to the Cyprus Tax Laws in relation to the Special Defense Contribution (‘SDC’) with the introduction of the term ‘domicile’. Until recently, a Cyrus tax resident on a worldwide basis was subjected to SDC tax as analyzed in more detail below.  However, the Cypriot government in an effort to attract high net worth individuals has amended the law accordingly, establishing that in order for a Cypriot Tax resident to be subjected to the SDC tax, must have domicile in Cyprus.

Pre-amendment of SDC Law

Prior to the amendments of the Cyprus Tax Laws in relation to the Special Defense Contribution which came into effect recently on 16^th July 2015, Cyprus tax residents although with no domicile in Cyprus (non-dom) considered as non-dom individuals were subjected to SDC Law and were required to pay the following:

• SDC of 17% on Dividends income
• SDC of 30% on Interest income on bank deposits
• SDC of 3% on Rental income (on 75% of total income

Post-amendment of SDC Law

After the amendments of the Cyprus Tax Laws it has been established that a Cyprus tax resident who is not domiciled in Cyprus and has obtained a non-dom tax status will not be subjected to Special Defense Contribution on any type of interest and income as stated above.  This applies also to locally derived income, meaning income derived from sources within Cyprus and this is regardless of whether it is remitted to Cyprus, unlike many other Jurisdictions that offer the non-dom tax status also.

Cyprus Domicile Status: Requirements

It is now clear that a Cyprus tax resident with non-dom tax status, will no longer be subject to SDC tax. This rule is subject to exemptions: A person who has been a Cyprus tax resident for a period of at least 17 years out of the last 20 years prior to the tax year in question shall not obtain a non-dom status, and shall be deemed to have domicile in Cyprus. Thus been subject to pay Special Defense Contribution and not being able to benefit from the non-dom tax exemption.

Cyprus Domicile Status: Taxable and Non-Taxable income

Income derived from dividends from local as well as foreign sources and investments are exempted from SDT taxes for the non-dom status, and important to note that in any case dividends are free from income tax. This means that a Cyprus tax resident with non-dom status enjoys zero tax overall on dividends. The same applies to interest income on bank deposits, where again due to the non-dom status as well as exemption from Income Tax allows for the Cyprus resident non-dom to enjoy zero tax on income derived from interest from bank deposits. Rental Income from properties in Cyprus or abroad is also exempted from DST taxes for the non-dom status with income tax applying as usual with normal rates.

‘Domicile’

A person is considered to be Cyprus domicile either by origin or choice per Cypriot Law of Wills and succession. In the case of domicile of origin it applies to the place of birth, and for domicile of choice is the place whereby an individual has decided to make his home permanently or indefinitely. These amendments are welcomed in the area of tax planning making Cyprus an even more attractive jurisdiction and place of residence for high net worth individuals also.