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17/03/2016

The Non Domicile Rule under the Special Contribution for Defense Law, (117 /2002)

The Special Contribution for Defense Law (117/ 2002) ("SCD Law") has been amended thereby invoking the concept of Non Domicile. Under the Non Domicile rule, a Cyprus tax resident individual who is not domiciled in Cyprus will effectively not be subject special defense contribution tax in Cyprus on any interest, dividends and rents received 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.

The term Domicile in Cyprus is defined in the SCD Law, is defined as an individual who has a Cypriot domicile of origin in accordance with the Wills and Successions Law ("WSL") and it is acquired at birth. As a rule, it is the same as the domicile of the father and in exceptional cases, the mother at the time birth.

It does not include:

  • an individual who has obtained and maintained a domicile of choice outside Cyprus in accordance with the WS, provided that such an individual has not been a tax resident in Cyprus for a period of 20 consecutive years; or
  • an individual who has not been a tax resident of Cyprus for a period of 20 continuous years prior to the introduction of the SDC Law. Notwithstanding this provision, an individual who has been a tax resident of Cyprus for the last 17 years out of the last 20 years will be considered to be domiciled in Cyprus and be subject to special defense contribution irrespective if his/her domicile origin.  

A Cyprus tax resident who spends 183 days in the Republic of Cyprus would be subject to income tax in accordance with the provisions of the Income Tax Law and would be exempt from Special Defense Contribution given that he is not considered to be domiciled in Cyprus. As a result, such an individual would be exempt from special defense tax on any income derived from dividends, interest and rent irrespective of where this income was derived.

Given the exemptions under the Income Tax Law, dividends and interest received from Cyprus and worldwide would be totally exempt from tax in Cyprus.