Non Domicile rules and exemption from Special Contribution of Defence tax
Introduction of the ‘Domicile concept-effective as from 16.7.2015.
Defence tax is payable on dividends, interest and rental income. Individuals who are considered to be “non-domiciled” in Cyprus (subject to criteria defined in the legislation), would be exempt from payment of SCD tax on dividends, interest and rental income (whether actual or deemed), regardless of whether such income is derived from sources within Cyprus and regardless of whether such income is remitted to a bank account or economically used in Cyprus, even if they are tax residents of Cyprus. Several anti-abuse provisions are also included in the legislation to eliminate cases of tax avoidance.
An individual can be considered as domiciled in Cyprus either (i) by domicile of origin or (ii) by domicile of choice, as defined by the Wills and Succession Law of Cyprus.(i.e. domicile of the father at the time of birth) An individual who has domicile of origin in Cyprus can still be considered not to be “domiciled” in Cyprus for this purpose under certain conditions. For example an individual who has acquired and maintain a domicile of choice outside Cyprus based on the provisions of WSL,in other words by factual concept he or she permanently lives and intends to live in another country ,the he or she is not considered to be domiciled in Cyprus provided that he or she has not been a resident in Cyprus in line with the tax laws of Cyprus for any period of at least 20 consecutive years prior to the relevant tax year.
The similar exemption to above applies for an individual who has not been a resident in Cyprus as defined by the tax laws for a period of at least 20 consecutive years immediately prior to the entry into force of the provisions of this new tax law
Notwithstanding the above, an individual who has been a tax resident of Cyprus for at least 17 out of the last 20 years prior to the relevant tax year will be deemed to be “domiciled in Cyprus” and as such be subject to SDC regardless of his/her domicile of origin.
The rules regarding non-domiciled individuals are effective starting as of 16 July 2015, and are expected to encourage the relocation to Cyprus of high net worth individuals.
Concluding under the ‘non domicile regime ‘Cyprus tax resident individuals that are not domiciled in Cyprus are exempt from SDC on:
2) interest income
3) rental income.
Thus this tax change is expected to result in very attractive and competitive tax schemes via Cyprus, as the holding of investments in assets earning dividends ,interests and rental income ,such as in shares, bonds are not subject to SDC for non Cyprus domicile individuals. It is noted that there is an anti abuse provision in taxation of dividends when these are paid to a company which is beneficially owned indirectly by Cyprus resident and domiciled individuals.
Amendments to the Capital Gains Tax law Capital gains tax exemption till 31.12.2016
- Capital gains from sale of shares in property companies Currently, Capital Gains Tax is charged on disposal of immovable property located in Cyprus or on disposal of shares of companies, which own immovable property located in Cyprus. Under the proposed legislation, gains from the sale of shares in companies which indirectly own immovable property in Cyprus by holding shares in a company, which own immovable property located in Cyprus will also be subject to capital gains tax. This will apply only in case the value of the immovable property represents more than 50% of the value of the company whose shares are sold.
- Exemption from capital gains tax related to properties acquired until 31 December 2016 A full exemption from capital gains tax will be granted for the sale to an independent party, of immovable property ( land, or land with a building or buildings), which will be acquired from an independent party, at market value, from 16 July 2015 until 31/12/2016.
That is, regardless of when the property will be sold, in essence it is enough that it has been bought up until 31/12/2016 and no capital gains tax will be payable. The exemption does not apply to immovable property that was acquired via a donation/gift or by way of an exchange. Amendments to the Land and Serveys Law Transfer Fees –effective as from 16.7.2015 A 50% exemption from transfer fees under the Land and Surveys (Fees) Law will apply to ALL transfer applications effected until 31/12/2016.
Abolition of levy refunds–effective as from 16.7.2015 he amended law has abolished the provisions by which the IRD has refunded after 5 years from the day of transfer the levy amount that was imposed and collected in respect of:
- transfers of immovable property from a partnership to a company, having as sole members the partners of the assignor partnership ,and
- transfers of immovable property to a family company by an individual shareholder of the company or their close relatives such as spouse or up to 3rd degree relatives