Non-Dom Regime in the UK and Its Proposed Abolition vs Cyprus Perspectives

The UK’s Non-Dom Regime (non-domiciled tax status) has long been a significant tax-saving opportunity for wealthy individuals (often referred to as High Net-Worth Individuals, or HNWIs). This regime allowed people living in the UK to be taxed on their UK income and gains only, while foreign income and assets could be kept outside the scope of UK tax, provided certain conditions were met. Importantly, individuals could choose to pay a flat annual charge instead of being taxed on their worldwide income.

However, this tax status is set to be abolished by April 6, 2025, as part of the UK government’s budgetary changes following recent elections. As a result, many non-doms who have benefited from these tax advantages are looking for alternative jurisdictions where they can maintain favorable tax status. One country that stands out as an attractive destination is Cyprus.

Why Cyprus?

Cyprus has positioned itself as a prime destination for HNWIs seeking to relocate and retain favorable tax regimes. It offers a robust tax framework designed to attract wealthy individuals and businesses, alongside the benefits of being in the EU.

The Non-Dom Regime in Cyprus

Cyprus operates its own Non-Dom Tax Regime, which allows qualifying individuals to enjoy substantial tax advantages. To benefit from the regime, an individual must:

1. Prove economic interest in Cyprus (e.g., through employment, business, or ownership of property).
2. Reside in Cyprus for at least 60 days per year.
3. Not be a tax resident of another country for more than 183 days per year.

Importantly, the non-dom tax status in Cyprus can be granted for up to 17 years, as long as the individual was not a tax resident of Cyprus for 20 years before July 16, 2015.

Key Benefits of Cyprus’ Non-Dom Regime

Tax Exemptions on Foreign Income:

1. • Dividends and interest are exempt from withholding tax in Cyprus, even if the income comes from Cyprus-based companies.
   • Rental income is exempt from the special defense contribution tax.

Furthermore, Cyprus offers additional tax benefits as follows:

1. No Wealth, Gift, or Inheritance Tax:
   1. Cyprus has no wealth tax, gift tax, or inheritance tax, making it a highly attractive jurisdiction for individuals with significant wealth.
2. Favorable Treatment of Pensions:
   1. Overseas pensions up to €3,420 are exempt from tax. Amounts above this threshold are taxed at a 5% rate.
3. Tax Exemption on Profits from Securities:
   1. Cyprus provides a tax exemption on profits from the sale of securities (e.g., shares, bonds, debentures) unless the sale relates to immovable property situated in Cyprus.
4. Capital Gains Tax:
   1. Cyprus imposes capital gains tax only on the sale of real estate located in Cyprus. Sale of other assets is free from this tax.
5. Tax-Free Lump Sum Payments:
   1. Non-resident employers and foreign permanent establishments of Cypriot employers are 100% exempt from income tax on lump sum payments from approved provident funds or life insurance plans for work done outside Cyprus (for more than 90 days in a tax year).
6. Attractive Corporate Tax Environment:
   1. Cyprus has a corporate tax rate of 12.5%, one of the lowest in the EU.
   2. Cyprus offers an IP box regime where 80% of profits from qualifying intellectual property are exempt from tax, resulting in an effective tax rate as low as 2.5% on qualifying income.
7. Employment Income Tax Exemptions:
   1. A 50% tax exemption applies to new employees earning over €55,000 annually and who were not residents of Cyprus for the preceding 15 years. This applies to high-income earners working in Cyprus for the first time.

The Cyprus Advantage Beyond Taxes

In addition to the tax benefits, Cyprus offers a host of advantages that make it an attractive destination for HNWIs and their families:

• EU Member State: As part of the EU, Cyprus provides access to the single market, offering business-friendly legal protections, including adherence to EU and OECD regulations.
• Stable Legal Framework: Cyprus uses a common law legal system, based on English law, and has recently reformed its commercial laws to make it even more business-friendly, including a dedicated commercial court.
• Low Crime Rate and High Quality of Life: Cyprus is one of the safest countries in Europe, with a low crime rate. The island also boasts a high standard of living, with world-class healthcare, education, and leisure facilities.
• Climate and Location: Cyprus enjoys 340 days of sunshine per year, a temperate Mediterranean climate, and a strategic location at the crossroads of Europe, Asia, and Africa, making it a hub for international business.
• Cost of Living: While not the cheapest country in Europe, Cyprus offers a relatively affordable cost of living compared to other EU jurisdictions, particularly in comparison to cities like London, Paris, or Geneva.

Conclusion: Cyprus as a Post-Non-Dom Destination

As the UK phases out its non-dom regime, Cyprus emerges as a prime alternative for HNWIs seeking tax efficiency, a favorable regulatory environment, and a high quality of life. The country offers a range of tax exemptions on foreign income, a stable legal system, and a welcoming environment for international businesses.

In addition, Cyprus’ Non-Dom Regime provides significant tax advantages that can help individuals maintain their wealth while enjoying the lifestyle benefits that come with living in a Mediterranean island nation with a cosmopolitan feel.

For those looking to make the move, Cyprus represents a compelling option that combines tax benefits, lifestyle, and strategic business opportunities—making it one of the top destinations for HNWIs in the post-UK non-dom landscape.