Cyprus Non-Dom tax status as a possible alternative to the UK Non-Dom statusCyprus Non-Dom as a Worthy Alternative to Non-Dom UK

The UK is one of the few countries that offered a special tax status — Non-Domiciled Resident (Non-Dom UK). This status first appeared in the United Kingdom in 1799 and will exist until 2025.

On October 30, 2024, following the approval of the latest UK budget, the UK Government announced a series of measures, including the abolition of the Non-Dom UK regime as of April 6, 2025. Thus, after 226 years of existence, the concept of domicile and the Non-Domiciled Resident status will become a history.

From April 6, 2025, the concept of domicile in tax legislation will be replaced by a system based on tax residency. Under the new rules, all UK tax residents will be taxed on the basis of actual income received. A new regime for foreign income and capital gains (FIG) will be available to individuals for the first four years of tax residency following a 10-year period of non-residency. Individuals who apply for the new four-year FIG regime will not pay tax on income and capital gains received during these four years. Starting from the fifth year of tax residency, the individual will be required to pay income tax and capital gains tax on a general basis. Thus, the taxation of a new UK tax resident after five years of residence in the country will be similar to that of local residents.

Significant changes to the UK tax system have forced wealthy individuals to search for potential relocation alternatives. Among the frequently considered countries for relocation are Cyprus, Switzerland, Italy, Monaco, and the UAE. Each country has its own specific rules that must be followed to obtain a tax residency. Today, we will examine Cyprus as a viable alternative to the UK tax regime.

Why are wealthy individuals from the UK considering Cyprus as an alternative for obtaining tax residency?

Let us remind you that the special Non-Domiciled Resident status in Cyprus (Non-Dom CY) was introduced in Cyprus in 2016. The basic principles were based on the UK Non-Dom status, but fortunately, with fewer nuances.

To obtain tax residency in Cyprus, one of two rules can be applied:

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 in Cyprus during a calendar year and simultaneously meet the following additional conditions:

•      The individual does not spend more than 183 days during the calendar year in any other country, i.e., is not a tax resident of another jurisdiction;
•      The individual has an address in Cyprus, i.e., owns property or has a long-term rental agreement;
•      The individual earns income from a Cyprus tax-resident company.

To obtain Non-Dom CY status, one of the following conditions must be met:

1.    The individual does not have domicile of origin in Cyprus, meaning their parents, in particular the father, are not Cypriots.

2.    The individual does not have domicile by choice in Cyprus, meaning they were not a tax resident of Cyprus for at least 20 consecutive years preceding the tax year and during the 20 consecutive years prior to the law coming into effect (i.e., before 2015).

Non-Domiciled tax residents of Cyprus are exempt from the obligation to pay the special Cypriot tax — the Defense Contribution — for 17 years from the first year of tax residency in Cyprus.

Advantages of Non-Dom CY Status

According to the provisions of Cyprus tax legislation, individuals with Non-Dom CY status may be fully exempt from taxation on passive income from investment activities, in particular, dividends and interest, regardless of whether they are earned in Cyprus or abroad.

The Cypriot tax system offers several advantages for tax residents in general, regardless of domicile status. For example, capital gains tax is charged only on the sale of real estate located in Cyprus and on the sale of shares of companies owning real estate in Cyprus.

 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 Elena Tsukanova and Alena Sakharova by email at contact@mainpartnertrust.com

The United Kingdom is one of the few countries that offered a special tax status known as the Non-Domiciled Resident (Non-Dom UK). This status was first introduced in the United Kingdom in 1799 and will remain in effect until 2025.

On October 30, 2024, following the adoption of the next UK budget, the UK Government announced several measures, including the abolition of the Non-Dom UK regime starting April 6, 2025. Thus, after 226 years of existence, the concept of domicile and the status of a non-domiciled resident will become a thing of the past.

Starting April 6, 2025, the concept of domicile in tax legislation will be replaced by a system based on tax residency. Under the new rules, all UK tax residents will be taxed based on their actual income. The new regime for foreign income and capital gains (FIG) will be available to individuals during the first four years of tax residency after a 10-year period of non-residency. Those applying for the new four-year FIG regime will not pay taxes on income and capital gains received during this period. Starting from the fifth year of tax residency, individuals will be required to pay income and capital gains taxes on a general basis. Thus, the taxation of a new UK tax resident after five years of residence will be equivalent to that of local residents.

The significant changes in the UK tax system have predictably prompted wealthy individuals to explore alternative relocation options. Among frequently considered countries for relocation are Cyprus, Switzerland, Italy, Monaco, and the UAE. Each country has its own specific requirements and rules for obtaining tax residency. Today, we will examine Cyprus as a viable alternative to the UK tax regime.

Why do wealthy individuals from the UK consider Cyprus as an alternative for obtaining tax residency?

It is worth reminding that, the special non-domiciled resident tax status of Cyprus (Non-Dom CY) was introduced in 2016. It was based on the core principles of the Non-Dom UK status but, fortunately, with fewer complexities.

To acquire tax residency in Cyprus, one of two rules can be applied:

• The 183-day rule: An individual must spend more than 183 days in Cyprus during a calendar year;
  OR
• The 60-day rule: An individual must spend at least 60 days in Cyprus during a calendar year and simultaneously meet the following additional criteria:
  • The individual does not spend more than 183 days in any other country during the calendar year, i.e., he is not a tax resident of another jurisdiction.
  • The individual has an address in Cyprus, either owning property or holding a long-term rental agreement.
  • The individual receives income from a company that is a tax resident of Cyprus.

To obtain Non-Dom CY status, one of the following conditions must be also met:

• The individual does not have a domicile of origin in Cyprus, meaning their parents, particularly the father, are not Cypriots.
• The individual does not have a domicile of choice in Cyprus, meaning they have not been a tax resident of Cyprus for at least 20 consecutive years preceding the tax year and the 20 years before the law came into effect (i.e. before 2015).

Non-domiciled tax residents of Cyprus are exempt from paying the special Cypriot tax, the Defense Contribution, for 17 years from the first year of tax residency in Cyprus.

Benefits of Non-Dom CY status

Under the provisions of Cypriot tax law, individuals with Non-Dom CY status can be entirely exempt from taxation on passive income from investment activities, such as dividends and interest, regardless of whether they are earned in Cyprus or abroad.

Cyprus tax system offers several advantages to tax residents in general, regardless of their domicile status. For instance, capital gains tax is only charged on the sale of property located in Cyprus or on the sale of shares of companies owning property in Cyprus.

Remark : The content of this article was accurate at the time of the first publication. It provides general information on the subject matter and is not intended as legal advice. For specific advice on your situation, we recommend seeking professional counsel. If you have any questions or need further information, please address Elena Tsukanova or Aljona Sakharova or contact us at contact@mainpartner.com