_non-dom: fund and investor taxation in cyprus
Cyprus, as a non-dom country, is tax-free on foreign-earned income. In addition, capital gains such as dividends or interest are not subject to taxation and can be transferred immediately to the domestic account. Furthermore, shares’ sale proceeds always remain tax-free. A detailed overview of the Cyprus taxation system.
What is Non-Dom?
The non-dom taxation has a solid British accent. The four non-dom countries - UK, Malta, Irland and Cyprus – share the same base: the tax rules are reminiscent of the former UK Kingdom. If a person is not of British descent, the person may be a resident in the country but not domiciled. Domiciled people must pay taxes on their world income. Non-doms only pay tax on their resident-source income.
Cyprus Domicile Legislation
There are two kinds of domicile:
- Domicile of origin: received by birth.
- Domicile of choice: acquired by establishing a physical presence in a particular place and intention of permanent residence.
Foreigners who move their tax residency to Cyprus are automatically classified as non-domiciled in Cyprus. Non-domiciled persons will now be completely exempt from the Special Defence Contribution tax (“SDC”).
The non-domiciled status holds for 17 years. After that period, residents will be deemed domiciled in Cyprus regardless of the kind of domicile. Persons with a domicile of origin will nevertheless be considered non-domiciled if the following circumstances apply:
- The person acquired and maintains a domicile of choice outside Cyprus. ( provided that they were not tax residents in Cyprus for any continuous period of at least 20 consecutive years before the tax year in question)
- The person was not a tax resident (Cyprus) for at least 20 consecutive years. The years must be immediately before the entry into non-domicile status (i.e. between the years 1995 and 2014 inclusive).
Fund Taxation In Cyprus
12,5% corporate tax rate, which is one of the lowest in the EU.
Notional Interest Deduction (NID) for new equity may reduce the taxable base for interests received by up to 80% (for company-type funds), reducing the effective tax on interest to 2,5%.
Excluded from tax are dividends received, capital gains arising from the sale of property abroad, capital gain from the sale of shares of foreign property companies.
- Gains from trading securities are tax-exempt.
- No subscription tax on the net assets of the fund.
- Fund management services are not subject to VAT.
Each compartment of an AIF, although legally not treated as a separate entity for tax purposes, is treated as an individual taxpayer.
AIFs having the form of an investment company can take advantage of the vast double tax treaty network of Cyprus.
Depending on the legal form of the fund, an AIF may be transparent for tax purposes.
Based on the current Cyprus tax legislation, no permanent establishment is deemed to arise in Cyprus in the following cases:
- Non-Cyprus resident investors investing in Cyprus tax-transparent investment funds; or
- Non-Cyprus investment funds managed from Cyprus.
Non-Tax Resident’s Investor’s Taxation In Cyprus
No withholding tax on dividends distributions.
The subscription, redemption, conversion or trading of a fund’s units exempt from Cyprus stamp duty.
No capital gains tax on the disposal or redemption of units.
- Provided that the fund does not hold, either directly or indirectly, immovable property located in Cyprus. However, even though it owns immovable property in Cyprus, no capital gains tax arises if the fund is listed on a recognised stock exchange. )
Tax Resident Investors’ Taxation In Cyprus
Withholding tax of 17% on dividends - if the investor is a physical person. Nil (0) if the person is a legal entity or a non-domiciled physical person).
The subscription, redemption, conversion or transfer of a fund’s units is exempt from Cyprus stamp duty.
No capital gains tax on the disposal or redemption of units.
Contact
Do not hesitate to contact us. We advise you personally.
Theo Antoniou, Partner and Lawyer.