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Abolition of the UK’s non-dom regime

Following the Spring Budget and the recent elections in the UK, it was announced that the existing non-domicile (“non-dom”) regime, as it currently exists in the UK, will be abolished as of 6 April 2025.

By way of brief summary, the non-dom regime which existed in the UK until now, meant that individuals who reside in the UK, but whose domicile (being the jurisdiction of an individual’s personal tax status) is outside of the UK, could elect to pay a fixed amount of tax per annum irrespective of the amount of overseas income they earned (i.e. overseas income would not be subject to income tax bands that locally-earned income was subject to). Consequently, a number of high net worth individuals (“HNWI”) (including, according to extensive press coverage, the wife of the former UK prime minister) took advantage of this scheme and therefore generating significant tax savings, by electing non-dom status.

As a result of the proposed abolishment of this scheme in the UK, a number of non-doms currently residing in the UK, may consider relocating to another jurisdiction. The purpose of this article is to explain the reasons why Cyprus is one of the obvious choices.

The general landscape in Cyprus

Cyprus, over the last few years has attracted continues to attract HNWI who are looking to relocate to another country for tax, business or personal reasons. As further explained below, the country offers certain unique features which tend to attract individuals for different reasons.

Non-dom scheme in Cyprus

Under the existing non-dom scheme in Cyprus, an individual may enjoy the benefits of the same, for 17 years, if they have not been a tax resident of Cyprus for a period of 20 years prior to 16/07/2015.

The easiest way to achieve non-dom status in Cyprus, is by meeting the following conditions (these are cumulative conditions):

• stay at least 60 full days in Cyprus, during each calendar year; and
• rent/buy accommodation in Cyprus (house or flat); and
• be able to demonstrate “its economic interest in Cyprus” as the law stipulates; and
• not be a tax resident and/or stay for 183 days or more in any other country.

Benefits

The main benefits non-dom individuals in Cyprus can benefit from are set out below:

• no withholding taxes on dividends and interest paid to non-tax residents. It is worth noting that this benefit applies even if dividends and interest are sourced within Cyprus; and
• rental income is exempt from special defence contribution tax.

In addition to the above benefits, all tax residents in Cyprus (whether non-dom or otherwise), also benefit from the following tax regimes (both on a personal and a corporate level), subject to satisfaction of certain conditions:

• there is no wealth tax, gift tax or inheritance tax in Cyprus;
• there is a 100% exemption from personal income tax for remuneration earned from an employment exercised outside Cyprus for a period of more than 90 days (in aggregate) in a tax year for a non-Cyprus tax resident employer/foreign permanent establishment of a Cyprus tax resident employer;
• there is a 100% exemption on lump sum payments from life insurance schemes or from approved provident funds;
• overseas pensions are exempt from tax up to the amount of €3,420 per annum and taxed at the rate of 5% thereafter. The taxpayer may opt to be taxed in the normal way, where this special mode of taxation of income results in a higher tax liability (this election can be made from year to year);
• there is a tax exemption on profits realised on disposal of securities (i.e. shares, bonds, debentures, founder’s shares and other securities of companies or other legal persons and options over such securities) irrespective of whether the profits and gains are considered to be of a revenue or capital nature (unless upon a sale of shares in companies, the underlying asset is immovable property situated in Cyprus);
• capital gains tax in Cyprus is only applicable on the sale of immovable property situated in Cyprus;
• income tax at the flat rate of 8% (minimum tax of €10.000 per annum) is available to fund managers of specific Cyprus-based funds with regards to earnings from carried interest, provided that certain conditions are met;
• 50% income tax exemption on employment income applies for first employments commencing as of 01/01/2022 exercised in Cyprus with remuneration exceeding EUR55,000 per annum, to individuals who were not residents of Cyprus for a period of at least 15 consecutive tax years immediately prior to the commencement of their employment in Cyprus;
• Cyprus has one of the most attractive tax regimes in Europe (corporate tax rate is 12.5%), fully compliant with EU and OECD regulations;
• profits of a permanent establishment on a Cypriot tax resident company maintained abroad are generally exempt from tax in Cyprus; and
• the new Cyprus IP box allows for a deductible notional expense calculated as 80% x qualifying profits from qualifying Intellectual Property. Only 20% of qualifying IP income (after costs) is taken into account for tax purposes. In conjunction with the corporate tax rate of 12.5%, the effective tax rate is 2.5%.

Notwithstanding the above, it is important to note that dividends, interest income and pension income are subject to 2.65% General Healthcare System Contributions. Having said this, there is a cap as to the maximum annual amount on which contributions will be calculated, being €180,000 and as a result the maximum annual amount of such contributions is €4,770.

Finally, in addition to all tax benefits previously mentioned, Cyprus has recently implemented an action plan, (the “Strategy for Attracting Businesses for Activities and/or Expansion of their Activities in Cyprus”) aiming to attract HNWI and their businesses. As part of this scheme, a large number of companies in the financial services sector (including Financial Technology “FinTech” businesses), have relocated to Cyprus. Accordingly, Cyprus is not only attractive to HNWI from a personal perspective, but from a business perspective as well.

Conclusion

Cyprus benefits from a stable legal system and from all EU law instruments. The legal system is based on the English common law system and legal reforms have been implemented recently which include the adoption of new CP Rules (similar to the English ones) and a 3-tier court system, with a specialist commercial court to hear high-value commercial claims exclusively, all of which would benefit HNWI both from a business as well as a personal perspective.

These factors, together with the unique features the island has to offer, i.e. one of Europe’s lowest crime rates, warm climate with 340 days of sunshine per year, high quality of living standards, being an EU member situated at the crossroads of three continents, with highly skilled and trained labour, and with attractive laws for estate planning, trusts, etc, render the country as a very attractive choice live and conduct business.

Our team would be delighted to answer any queries and assist in any way in connection with the above.