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In Cyprus, tax residents can hold either Domicile or Non-Domicile status, each of which has different tax implications. Domicile status means that a person is taxed on their worldwide income, but with consideration for double taxation avoidance agreements. Non-Domicile status offers advantages for foreign nationals, exempting them from taxation on income earned outside Cyprus. To obtain Non-Domicile status, one must meet specific requirements, including residing in Cyprus for a certain number of days per year and demonstrating an intention to establish permanent residence on the island. It is important to consult with experts to fully understand these statuses and their impact on tax obligations.
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Domicile Status
Domicile status in Cyprus is granted to individuals who were born on the island or have lived there for 17 out of the last 20 years. This status offers financial benefits, such as exemption from paying tax on income earned outside Cyprus in a country with a double taxation agreement. Tax exemptions are also available on inheritance and gifts. Additionally, residents with Domicile status may receive tax benefits on investment income within Cyprus. Achieving this status requires meeting specific criteria and may necessitate consultation with specialists.
Non-Domicile Status
Non-Domicile status in Cyprus is a tax status particularly advantageous for those who live and work in Cyprus but are not Cypriot tax residents. The primary benefit of this status is the limited taxation on income earned outside Cyprus at a rate of up to 20%, compared to the possible 35% tax on income within the country. It also offers additional advantages such as exemption from capital gains and inheritance taxes. To qualify, one must spend no more than 183 days per year in Cyprus and not hold Cypriot citizenship.
What Happens After 17 Years with Non-Domicile Status?
After 17 years of residing in Cyprus as a non-domicile tax resident, you will automatically transition to domicile status. This change means you will begin to pay taxes as a regular tax resident of Cyprus. It is important to note that legislation may change over such a long period, so keeping up with current rules and regulations is essential.
Benefits of Non-Domicile Status
As a tax resident of Cyprus, you are required to pay taxes on income earned both within Cyprus and internationally. In contrast, if you are not a Cypriot tax resident, your tax obligations are limited to income earned within the country.
Tax Optimization with Non-Domicile Status
Non-Domicile status in Cyprus offers several tax advantages. It exempts from the Special Defence Contribution (SDC) on passive income, such as dividends, interest, and rental income. For official employment with earnings exceeding €100,000 per year, you can receive a 50% income tax exemption on your salary for the first 10 years. Additionally, there is no income tax on income earned outside Cyprus, and earnings below €19,500 are exempt from income tax. Property owners pay municipal tax, and there are no taxes on capital gains, profits from the sale of securities, inheritance, gifts, or luxury items. Furthermore, personal data confidentiality is maintained.
