In March 2024, the UK chancellor announced plans to phase out the non-dom tax regime. Following the recent elections, it was announced that this tax regime will be abolished by 06 April 2025.

What exactly is non-dom (Domicile)? Non-dom is a British tax status that has been available since the French Revolution. Domicile comes from the Latin word Domus which means house and refers to a person whose permanent residence is considered (and declared) to be outside of the country.  It allows a person who falls under certain categories to choose a different permanent tax residency.

A non-dom person is only obliged to pay taxes from UK-earned income.  Any income derived outside the UK is not taxable (except for a fixed premium) provided that the prerequisites for becoming a non-domicile person are met.

Who can claim non-dom status?

• Domicile of origin: – The applicant was born outside of the UK or his father comes from a different country.
• Domicile of choice – The applicant is over 16 years of age and chooses to leave the UK and live indefinitely in another country.

Although citizenship, nationality, and resident status may affect non-dom status, it is mainly a tax status that could also have nothing to do with where you come from.

A bright example of how this law has been the subject of manipulation by high-net-worth individuals (HNWI) is the former price minister’s wife, who had claimed non-dom status.

 

How are the rules changing?

People who will move to the UK from April 2025, will be exempt from paying taxes for money made outside the UK only for 4 years. After this period ends (4 years), provided they still reside in the UK, they will start paying taxes as everyone else.

For those already holding a non-dom status, a two-year grace period will be given to encourage them to bring their money to the UK.

 

How can Cyprus benefit from the upcoming changes?

The changes that are bound to happen will create a domino effect and a lot of high-net-worth individuals with non-dom status will seek other options to protect their interests. Having this in mind, let’s examine how the non-dom scheme in Cyprus compares to the UK scheme.

 

Non-dom scheme in Cyprus

Cyprus has one of the most attractive schemes for HNWI and high-skilled personnel. The aim is to provide tax incentives for foreigners to relocate to Cyprus either for work or for investment purposes.

Under the existing scheme, the benefits can be enjoyed for up to 17 years, provided that the individual has not had a tax residency in Cyprus for 20 years, before 16/07/2024.

As per the special defence contribution (SDC) law:

• A domicile of origin (i.e., domicile received at birth)
• A domicile of choice (i.e., the domicile acquired by an individual by establishing a home with the intention of a permanent or indefinite stay).

A person who has a domicile of origin in Cyprus will be treated as “domiciled in Cyprus” for SDC purposes with the exceptions of:

• An individual who has obtained and maintained a domicile of choice outside Cyprus under the provisions of the Wills and Succession Law, provided that this individual was not a Cyprus tax resident for a period of at least 20 consecutive years prior to the tax year in question; or • An individual who was not a Cyprus tax resident for a period of at least 20 consecutive years immediately prior to the entry into force of the introduced provisions (i.e. prior to 16 July 2015).

 

Who can claim a non-dom status in Cyprus?

• Has a residential house or flat in his name (either rental or ownership)
• A person or individual who has stayed in the country for at least 60 days within a calendar year
• Must not have resided and/or be a tax resident in any other country for 183 days or more.
• Must have economic interests in Cyprus and be able to demonstrate these interests.

 

What are the benefits for non-dom individuals residing in Cyprus?

There are many benefits to having a non-dom status in Cyprus such as:

• Taxes on dividends and interest paid to non-tax residents are not withheld even if dividends and interests are sourced within Cyprus
• Income from rent is exempt from Special Defence Contribution (SDC) tax.

 

Provided that the prerequisites are met, both dom and non-dom tax residents have a lot of tax benefits. This applied not only for individuals but also for corporations.

• 100% exception from personal income tax for work earned from employment abroad for a period of 90 days or more within a tax year. The employer must either be a non-Cyprus tax resident or a foreign establishment of a Cypriot tax resident.
• 100% exemption on lump sum payments from life insurance schemes or approved provident funds.
• Cyprus has no inheritance tax.
• No wealth or gift tax.
• Overseas pensions are exempt from tax up to the amount of €3.420 and taxed at the rate of 5% thereafter.
• Tax exemption from profits derived from the disposal of securities ex. shares, bonds, debentures and other securities of companies and/or legal persons irrespective of whether the profits may be considered to be a revenue or capital nature (Except when there is a sale of company shares and the underlying asset is immovable property located in Cyprus.
• Under the Immovable property law, capital gains are applicable on the sale of immovable property in Cyprus. This is the only exception where capital gains tax is applicable.
• For new employment, commencing as of 01/01/2022, with annual wages exceeding €55000, there is a 50% tax exemption provided that the beneficiary was not a resident of the Republic of Cyprus for at least 15 consecutive tax years before the employment date.
• Individuals who take up first employment in Cyprus and do not qualify for the 50% exemption, may be eligible for a 20% or €8,550 exemption (whichever is lower) from their employment income from sources in Cyprus.
• Subject to conditions, their variable employment remuneration (effectively connected to the carried interest of the fund managing entity), may, through an annual election, be separately subject to Cyprus tax at the flat rate of 8%, with a minimum tax liability of €10.000 per annum. This special mode of taxation is available for a period of 10 years.
• The corporate tax rate in Cyprus is just 12.5% which is among the lowest rates in the European Union.
• Any profits derived from a permanent establishment located outside of the Republic of Cyprus, are exempt from tax in Cyprus.
• IP Box Regime – a corporate tax regime used to incentivize research and development activities deriving from licenses, royalties, patents, sale or transfer of qualified IP assets offering lower taxes compared to other commercial revenues. In a nutshell, only 20% of qualifying IP income (after costs) is taxable at the rate of 12.5% which means 2.5% (i.e., 20% X 12.5%) is the end amount you will pay for corporate tax for the amount that falls within this regime!

 

Cyprus is the obvious choice

Cyprus follows the English common law of the 1960s, the date at which Cyprus was no longer a British colony, and was declared an independent Republic. A lot of legal reforms have been made since then to synchronize the ancient laws.

A vibrant yet relaxed lifestyle, with sunny days almost all year round, one of the safest places to live, nice food, beautiful beaches, highly skilled personnel, and a lot of tech giants who decided to establish their base in Cyprus for all these reasons.

The UK will offer (with the revised plan) up to 4 years of exception for non-dom persons with a premium, Cyprus 17 years of exception, lower corporate and income tax, and a lot of tax regimes that will be beneficiary for High-Net-Worth individuals.

Cyprus is the obvious choice for non-domicile persons in the UK, but also for any investors, individuals, or corporations who want to make the best possible tax choices.