Cyprus Non-Dom Tax Regime: A Competitive Solution for UK Investors

As per the recent announcement by the UK Government, the current non-dom tax regime will be abolished and replaced by a residence-based scheme. Under the new framework, which will take effect from April 2025, UK tax residents will be subject to taxation on their worldwide income and gains within four years of arriving in the UK. Moreover, after 10 years of UK residence, their global assets will become subject to UK inheritance tax, which can be as high as 40%. These significant changes are prompting many UK-based high-net-worth individuals and international investors to consider alternative jurisdictions offering more tax-efficient structures. Cyprus stands out as one of the most attractive options, offering a stable, transparent, and highly advantageous Non-Domicile (Non-Dom) Tax Regime.

The Cyprus Non-Dom Regime at a Glance

The Cyprus non-dom status is available to individuals who become tax residents of Cyprus but are not domiciled there. To qualify, one must show that their domicile of origin or choice is not Cyprus or have not lived in Cyprus in the last 17 years. Individuals are considered tax residents of Cyprus if they are physically present in a tax year for at least 183 days (183 days rule) or may be considered a tax resident in Cyprus where they are resident for only 60 days in a given tax year but not physically present in any other country for 183 days. Moreover , to qualify for non-dom tax residence, one must have a Cypriot business or employment or directorship and maintain a permanent home in Cyprus.

Once granted, this status unlocks a range of notable tax benefits, including:

• Exemption from Special Defence Contribution (SDC) tax on: – Dividends (both local and foreign) – Interest income (both local and foreign) – Rental income (subject to minimal exceptions)
• No Wealth Tax or Inheritance Tax or Gift Tax
• Exemption from sale of security tax
• Exemption from Capital Gains Tax, except for gains arising from: – Immovable property located in Cyprus – Shares in companies that directly or indirectly own such property

Additional Advantages of the Cyprus Non-Dom Regime

• 17-Year Duration: The non-dom tax status is valid for up to 17 consecutive years, allowing for long-term tax planning and stability.
• No Remittance Basis: Unlike the UK, Cyprus does not impose tax on foreign income remitted to Cyprus. Non-doms can freely use their overseas income in Cyprus without triggering taxation.
• Low Personal Income Tax Rates: Cyprus applies a progressive income tax system, with a top marginal rate of 35% on annual income exceeding €60,000. However, effective tax rates are often far lower due to generous exemptions:

– 50% exemption on income over €55,000 per annum for individuals relocating to Cyprus (valid for 17 years).

– 20% exemption (or €8,550, whichever is lower) on lower income for the first 7 years of employment.

• Favorable Taxation on Pensions: Foreign pensions are taxed at a flat rate of 5% for annual amounts exceeding €3,420.
• Extensive Double Tax Treaty Network: Cyprus has over 65 double taxation treaties, providing reduced withholding tax rates and efficient cross-border tax planning options.

Conclusion

Cyprus offers a robust, modern, and internationally compliant tax framework, making it an excellent jurisdiction for those seeking tax efficiency, legal certainty, and a high quality of life in the EU. In light of the UK’s upcoming reforms, the Cyprus Non-Dom Tax Regime presents a compelling solution for UK investors, entrepreneurs, and expatriates seeking to preserve and grow their wealth in a secure and tax-friendly environment.