Extension of the Cyprus Non-Dom Regime

The Cyprus tax reform introduces a new mechanism allowing certain individuals to extend the period during which they may continue to benefit from the Cyprus non-dom regime for purposes of Special Defence Contribution (SDC).

Under the previous framework, an individual generally ceased to qualify for the non-dom exemption once the individual had been Cyprus tax resident for at least 17 out of the previous 20 tax years.

The reform now introduces the possibility of extending the exemption period under specific conditions.

Existing Non-Dom Framework

The Cyprus non-dom regime exempts qualifying Cyprus tax resident individuals from SDC on:

• dividend income,
• most interest income, and
• certain other passive income streams.

The regime has formed an important part of the Cyprus international tax framework and has been widely used by internationally mobile individuals and entrepreneurs relocating to Cyprus.

Prior to the reform, individuals generally became domiciled for SDC purposes once they satisfied the 17-out-of-20-year Cyprus tax residency test.

New Five-Year Extension Mechanism

The reform introduces a special mechanism allowing eligible individuals to extend their non-dom treatment for additional periods.

The extension applies to individuals:

• whose domicile of origin is outside Cyprus; and
• who would otherwise lose their non-dom status under the existing rules.

Under the revised framework, eligible individuals may apply for up to two additional five-year extension periods.

Upfront Contribution of €250,000

In order to benefit from each five-year extension period, the individual must make an upfront payment of €250,000.

The payment operates as a special contribution allowing the continued application of the non-dom exemption during the relevant extension period.

Accordingly, an upfront contribution of €250,000 is required for each five-year extension period. An individual applying for both extension periods may therefore be required to pay a total amount of €500,000.

Interaction with Dividend and Interest Income

The reform remains particularly relevant for individuals receiving:

• dividend income, and
• interest income

that would otherwise become subject to Cyprus SDC after the loss of non-dom status.

Under the revised tax framework:

• dividend income of Cyprus tax resident individuals is generally subject to SDC at 5%; while
• passive interest income, such as bank deposit or investment interest, generally continues to be subject to SDC at 17%.

The extension mechanism may therefore be particularly relevant for individuals with significant investment or passive income streams.

Retention of Cyprus Domicile Status

The legislation also clarifies that once an individual becomes domiciled in Cyprus for purposes of the SDC legislation, the domicile status continues to apply unless the individual remains non-Cyprus tax resident for a continuous period of 20 years.

Practical Impact of the Reform

The introduction of the extension mechanism enhances the flexibility of the Cyprus non-dom regime for long-term Cyprus tax residents.

The reform is expected to be particularly relevant for:

• high-net-worth individuals,
• entrepreneurs,
• investment structures, and
• internationally mobile individuals

who have maintained Cyprus tax residency for an extended period.

At the same time, the upfront contribution requirement means that the extension mechanism is likely to be most attractive in cases involving substantial dividend or investment income.

Commentary

The Cyprus non-dom regime has been one of the most internationally recognised features of the Cyprus tax system in recent years.

The introduction of a paid extension mechanism reflects an attempt to balance:

• the long-term retention of internationally mobile taxpayers in Cyprus; and
• the gradual expansion of the Cyprus SDC framework for long-term residents.

The reform preserves the attractiveness of Cyprus as an international relocation and investment jurisdiction while introducing an additional contribution mechanism for individuals wishing to extend their non-dom treatment beyond the traditional 17-year period.

The practical value of the extension mechanism will depend largely on the level of dividend and investment income generated by the individual during the relevant extension periods.

Contact Rightax

For further information or professional assistance regarding the Cyprus tax reform, international tax matters or Cyprus corporate structures, please contact the Rightax tax advisory team.

+357 99 108 510

[email protected]

The above information is provided for general guidance only. It does not constitute legal or tax advice. Always consult a qualified professional for advice tailored to your specific circumstances