New Domicile Law In Cyprus And Your Liability To Defence Contributions

21.08.15

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Interest earnings and dividends are exempt from income tax in Cyprus and instead liable to “defence contributions”. Now, under a new law, non-Cyprus domiciles do not have to pay this tax.

Interest earnings and dividends are exempt from income tax in Cyprus and instead liable to the “Special Contribution for Defence”. Four years ago we only paid 10% defence contributions on bank interest, which along with the taxation of foreign pensions was one of the financial attractions of living here.

Today the rate is 30% on interest, 17% on dividends and also 3% on 75% of rental income.

On 9th July 2015 the Cyprus parliament passed a new law designed to attract high net worth individuals to live in Cyprus. It came into effect on 16th July 2015.

Under this law, residents who are non-Cyprus domiciled do not have to pay defence contribution on any of the income listed above. This is regardless of whether the income is actual or deemed and of whether the income is earned in Cyprus or overseas.

Domicile in Cyprus is determined by its Wills and Succession Law.

You are domiciled, or deemed domiciled, if:

  • You have a Cyprus domicile of origin (and have not acquired a domicile of choice outside Cyprus or been non resident of Cyprus for the past 20 years)
  • You have acquired a domicile of choice in Cyprus
  • You have been resident here for 17 out of the 20 Cyprus tax years prior to the relevant year.
  • So, if you do not have a Cyprus domicile of origin or choice, and have not lived here for 17 out of the last 20 years, you are no longer liable to defence contributions on interest, dividends and rents (until/unless your situation changes).

UK nationals need to consider how being non-Cyprus domiciled could impact their UK inheritance tax position. Specialist advice is needed here.

This new law is very welcome news for expatriates living in Cyprus. It is however worth noting that regardless of this change, arrangements are available in Cyprus which offer significant tax advantages, such as the tax free withdrawals and roll up of growth. Take personalised advice.

Click here for personalised advice.

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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