So far, most of the advantages of Cypriot tax regime were directed and enjoyed by non-residents. However, this has now changed.
Up to now, to fully benefit from all the advantages of its tax incentives, one could not reside in Cyprus. That is, there was a double taxation system: one for Cypriots, and another for non-resident international investors. This is actually common practice and occurs in greater or lesser degree in almost all countries. Obviously, the ultimate goal is to attract foreign investment through tax incentives.
Throughout the years, the Cypriot authorities have realized that many investors initially attracted by tax benefits, finally decided to take up residence in Cyprus, due to its good climate and pleasant lifestyle.
The law states that anyone residing for more than 183 days within a tax year in Cyprus automatically becomes a tax resident, and must provide the same as other Cypriots. Specifically, there is a Law of Special Defence Contribution, by which residents, whether Cypriots or not, pay a 17% tax on dividends, 30% on interest from bank deposits, and 3% on rental income. For most foreigners who decide to take up residence in Cyprus these are still reasonably acceptable fees.
However, in a bid to enhance its appeal to attract high net worth individuals, the Cypriot authorities have decided to include in the new amendments to the Law of Special Defence Contribution, passed last July, the legal category of “resident’s domicile.”
It is not a new legal concept in the Cypriot law, as it was already covered in its’ Wills and Succession Act. The domicile here is already a determining factor when deciding under which jurisdiction inheritance and succession subjects fall into.
In the case of inheritance, a number of laws are already been affected by the concepts of domicile of origin (place of birth of a person) and domicile of choice ( where the person has chosen to make their home). Neither are to be confused with citizenship or residence, which remain distinct concepts.
Thus, the new amendments to the Tax Act for Special Defence Contribution state that only those whose domicile of origin is Cyprus must pay these taxes. In addition, it also poses that individuals whose domicile of choice is not Cyprus, are not obliged to contribute to this tax either. However this does not apply to people who have been resident in Cyprus for the past 20 years under the 183 days law.
The new amendment will have important effects in regard to tax planning, making Cyprus perhaps one of the best places in the world for high net worth individuals to take up residence.