Cyprus as an alternative tax residency for EU Citizens

Comparison with the tax systems of France and Germany

In recent years, tax pressure in several key European Union countries, including France and Germany, has steadily increased. This applies not only to personal income tax rates, but also to the taxation of capital, investments, and inheritance. As a result, high-net-worth individuals and entrepreneurs are increasingly considering alternative EU jurisdictions that combine legal certainty, transparency, and a more favorable tax regime. One such jurisdiction is Cyprus.

The French Tax System: High Fiscal Burden

France is traditionally considered one of the countries with the highest levels of taxation in the EU. French tax residents are subject to taxation on their worldwide income, regardless of its source.

Key features include:

• a progressive personal income tax scale with a maximum rate of up to 45%;
• additional social contributions on investment income (CSG/CRDS) exceeding 17%;
• a real estate wealth tax (IFI);
• taxation of dividends and capital gains, generally at a flat rate of around 30%;
• strict tax residency rules and extensive automatic exchange of tax information.

Even with international asset structures, French tax residents typically face full taxation of investment income and significant administrative obligations.

The German Tax System: Transparency and High Tax Discipline

Germany also applies the principle of worldwide income taxation for its tax residents. The system is characterized by a high level of formalization and strict supervision by the tax authorities.

Key characteristics include:

• progressive personal income tax with a maximum rate of up to 45%, plus a solidarity surcharge;
• taxation of dividends and interest at an effective rate of approximately 26–28%;
• capital gains tax on the disposal of assets;
• mandatory social security contributions;
• strict criteria for determining tax residency, including the concept of the “center of vital interests.”

For entrepreneurs and investors, Germany is rarely viewed as a jurisdiction for personal tax optimization.

Why Cyprus Is Considered an Alternative to France and Germany

Against the backdrop of high tax rates and complex regulation in France and Germany, Cyprus offers a more flexible and competitive tax framework, while remaining a full member of the European Union.

Cyprus Tax Residency: Key Rules

Cyprus tax residency can be obtained under one of the following two rules:

1. The 183-day rule
   An individual must spend more than 183 days in Cyprus during a calendar year.

OR

2. The 60-day rule
   An individual must spend at least 60 days per year in Cyprusand simultaneously:

• not be a tax resident of any other country;
• maintain residential property in Cyprus (owned or rented under a long-term lease);
• receive income from a company that is a Cyprus tax resident.

Non-Dom Status in Cyprus (Non-Dom CY)

Since 2016, Cyprus has offered a special tax status for individuals — non-domiciled tax residents (Non-Dom CY) — designed to attract international entrepreneurs and investors.

To qualify for Non-Dom status:

• the individual must not have a domicile of origin in Cyprus;
• the individual must not have been a Cyprus tax resident for at least 20 consecutive years.

Benefits of Non-Dom CY Status

Cyprus tax residents with Non-Dom status:

• are exempt from the Special Defence Contribution (SDC) for 17 years from the first year of Cyprus tax residency;
• are not subject to tax on dividends and interest income, regardless of whether such income is sourced in Cyprus or abroad;
• benefit from a predictable and stable tax regime fully compliant with EU legislation.

Additional Tax Advantages of Cyprus

Regardless of Non-Dom status, Cyprus offers:

• capital gains tax only on the sale of real estate located in Cyprus or shares in companies owning such real estate;
• no inheritance tax;
• an extensive network of double tax treaties;
• a favorable investment and business environment.

For citizens of France, Germany, and other EU countries considering a change of tax residency, Cyprus represents one of the most balanced alternatives, combining moderate taxation, flexible residency rules, and a special Non-Dom regime within the framework of European Union law.

Note: The content of this article is relevant at the time of its first publication. It is intended to provide general information on the topic and does not constitute legal advice. We recommend seeking professional advice regarding your specific matter before taking action based on the information presented. For more information or consultation, please contact our tax experts by email at contact@mainpartnertrust.com