Why non-domiciled individuals from UK relocate to Cyprus

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19 Apr'24

What is Non-Domicile Tax Status?

The concept of non-domicile tax status refers to individuals who reside in a country but are not considered domiciled under the legal and taxation systems of that country. Typically, non-domiciled individuals have their domicile of origin in another country or have chosen a domicile elsewhere by living there and intending to stay permanently. In terms of tax implications, non-domiciled residents often enjoy significant tax advantages because they are taxed differently compared to those who are domiciled in the country.

In Cyprus, for instance, non-domiciled residents who are tax-resident are exempt from certain taxes such as the Special Defense Contribution tax on dividends and interest income. This provision is highly attractive to high-net-worth individuals whose primary revenues often come from such sources. As defined under Cyprus’s Wills and Succession Law, individuals arenon-domiciled if they do not intend Cyprus to be their permanent residence notwithstanding their tax residency status, or if they have not been tax residents for 20 consecutive years among other criteria .

Thus, acquiring non-domicile status in Cyprus allows individuals potentially to enjoy an advantageous tax situation, especially when it involves income from abroad that could otherwise be subject to more significant taxation in their domicile of origin.

What is the Difference Between Non-Resident and Non-Domiciled?

Understanding the distinction between “non-resident” and “non-domiciled” is essential within the context of international tax law. A non-resident is typical of an individual who spends a limited amount of time in a country, usually defined by a numerical threshold like 183 days within a tax year. This minimal physical presence does not make them tax-residents; therefore, they are often taxed only on their income earned within that country.

On the other hand, non-domiciled status refers to an individual’s lack of a permanent home in a country from which their tax status is derived. This can impact how they are taxed, particularly concerning foreign-sourced income. In some jurisdictions, like the UK, non-domiciled residents can opt to be taxed on a remittance basis — meaning they are taxed only on the income brought into the country — which can lead to substantial tax savings depending on their circumstances.

Importantly in Cyprus, the non-domiciled status provides substantial tax privileges. It mainly lets individuals who are tax-residents (by virtue of spending more than 183 days in the country) but non-domiciled in Cyprus (not considering Cyprus their permanent home) avoid taxes like Special Defence Contribution (SDC) which typically applies to dividends and interest. This exemption is particularly enticing to high-net-worth individuals who derive significant income from these sources.

Furthermore, non-domiciled individuals who meet the criteria under Cypriot law — not having been a tax resident for a certain number of consecutive years prior to legislation coming into effect — are eligible for this status and its accompanying benefits.

What Means Non-Domiciled CDL?

The term “Non-Domiciled CDL” could refer to an individual who carries a domiciled status pertinent to tax or residence regulations but with specific conditions linked, such as those under the Cyprus Tax Law. While there isn’t a widely recognized or straightforward definition of “CDL” specifically linked with non-domiciled status, it is likely that it pertains to the treatment of tax and residence status under certain jurisdictions like Cyprus.

In Cyprus, a non-domiciled (non-dom) status offers significant tax advantages intended to attract high-net-worth individuals and investors. For instance, those classified as non-domiciled but tax residents of Cyprus are exempt from taxes on dividends and interest, which are typically subject to Special Defence Contribution tax for domiciled residents. This exemption can drastically reduce the tax liability for non-domiciled individuals whose primary incomes come from such sources.

The term may involve aspects of managing or configuring such statuses or linked qualifications under specific national laws. For example, in Cyprus, tax law adjustments were made to make the country an attractive tax destination by refining and expanding the definitions and benefits of a non-domiciled status. This helps to understand “CDL” more as a characteristic rather than a standalone term within tax terminology focused on residency and tax impact evaluations.

Overall, “Non-Domiciled CDL” could imply a classification or a set of conditions under a specific legal and tax framework that affects an individual’s tax responsibilities differently from conventional domiciled or resident taxpayers.

What is a Domicile Dependent Non-Tax Qualified?

The term “domicile dependent non-tax qualified” typically addresses regulatory and tax statuses that depend specifically on the individual’s domicile, rather than their residence. While specifics may vary depending on local legislation, the general principle revolves around how different tax rules apply to domiciled versus non-domiciled individuals.

In many jurisdictions, being non-tax qualified means that certain tax benefits do not apply because the individual does not meet the criteria related to domicile or residence status. For example, in some countries, tax benefits such as deductions or lower rates might only be available to those who are both resident and domiciled within the country. On the contrary, individuals considered domiciled but not qualifying for these tax benefits under local law are referred to as “non-tax qualified”.

This status can significantly affect tax liabilities, especially in cases where an individual’s income sources are global. In countries like Cyprus, the distinction is crucial because the tax system offers several advantages for non-domiciled individuals which would not typically be available to those non-tax qualified due to their domicile status. Therefore, someone who is domiciled in Cyprus but not tax qualified might miss out on tax incentives provided to non-domiciled tax residents, such as exemptions on worldwide income, dividends, and interest.

Overall, the status of being a domicile dependent non-tax qualified impacts an individual’s tax planning and liabilities, and understanding this classification can help in efficient tax planning and compliance.

How to Become Non-Domiciled in the UK?

Becoming non-domiciled in the UK involves several distinct steps and considerations, largely centered around the domicile concept used in British tax law. Domicile generally refers to the country that a person considers their permanent home, or lives in with the intention to reside indefinitely. However, the UK allows distinct tax treatment for those who reside in the UK but do not consider it their permanent home.

Firstly, a person is automatically non-domiciled in the UK if they were not born in the UK with a UK domicile of origin, meaning their family’s permanent home was not in the UK when they were born. Alternately, a person can acquire a domicile of choice by moving to another country and demonstrating their intention to live there permanently or indefinitely.

To assert non-domiciled status for tax purposes, individuals must prove that they see another country as their permanent home despite their residency in the UK. This involves showing ties to another country like property ownership, business interests or familial connections, and demonstrating the intention to eventually return there. Documenting such ties and intentions is crucial as tax authorities may scrutinize the legitimacy of non-domicile claims to ensure compliance with tax obligations.

It is important for those considering this status to understand that while it can offer significant tax benefits, such as the remittance basis of taxation where non-UK income and gains are only taxed when brought into the UK, it also involves complex statutory residence tests and ongoing proof of foreign domicile status. Proper legal and tax advice is essential to navigate this process successfully and to remain compliant with UK tax laws.

How to Prove Non-Domiciled?

Proving non-domiciled status can be intricate, largely because proving one’s intent and future plans regarding domicile is primarily a subjective determination, but documentation and consistent patterns of behavior can substantiate such claims.

Key documents that help establish non-domicile status include those showing permanent residence or significant ties to another country. These could be foreign property deeds or leases, foreign bank accounts, and records of substantial time spent outside the country of current tax residence. Additionally, showing that one has close family ties in another country, such as dependents or a spouse who lives abroad, can be influential.

Evidence that can significantly impact the proof of a domicile of choice includes wills and legal documents that highlight intentions to return to a different domicile. This might include clauses stating that one’s estate should be handled according to the laws of their home country, not the country where they currently reside.

Employment contracts and statements from employers proving that the individual’s work is based in another country can also assert non-domicile status, indicating a likely return to the supposed domicile upon retirement or end of the contract. Similarly, memberships in home country social or professional organizations support the claim of stronger ties outside the country of residence.

Finally, individuals may need to provide a detailed history of their past residences, showing chronological consistency with their claimed domicile narrative, alongside explanations for any residence changes. This historical perspective aims to establish a pattern that aligns with their stated intentions regarding domicile.

Substantial evidence compiled over time and properly documented is the most effective way to assert and prove non-domiciled status, providing clarity on an individual’s permanent home as perceived under legal terms.

Documents requirements for non-domicile

  1. Cyprus Tax Identification Code (TIC) – Yellow/Pink slip is required
  2. Forms T.D.38 + T.D.38QA (attached) – original signatures are required
    T.D.38QA – Point 1.3 – If the answer is YES,
    • evidence is requested for father’s place of birth, such us
    • birth certificate or
    • Identity card or
    • Passport or
    • Affidavit of his place of birth
  3. Copy of passport / ID
  4. Certificate of registration (form MEU1, yellow/pink slip)
  5. Reason for requesting exemption from SDC. Income from dividends and/or interest?
  6. Shareholder’s certificate, if applicable
  7. Property title of permanent residence or rent agreement (+stamp duties) in Cyprus
  8. Employment contract (+stamp duties), if any
  9. Utility bills showing consumption and Cyprus residence address (full year bills)
  10. Copy of submitted tax return, form T.D.1- if any

Additionally, the Cyprus Tax Department reserves the right to request any additional information in relation to the non-domicile application such as:

  1. Analysis of days spend in and out of Cyprus for the whole year.
  2. Copies of passports with stamps of entry and exit from Cyprus, boarding passes, electronic tickets etc for the whole year, supporting the above analysis.
  3. Yearly bank statements (showing movement in Cyprus)
  4. Monthly pay slips and/or certificate of emoluments (form T.D.63)
  5. Monthly social insurance payments or social insurance contribution statement of the specific year.

How to Get Tax Residency in Cyprus?

To establish tax residency in Cyprus, individuals primarily need to meet the 183-day rule. This rule requires one to spend at least 183 days within Cyprus during a given tax year to qualify as a Cypriot tax resident. This straightforward criterion is the most common pathway for becoming a tax resident in the country and enjoying the associated tax benefits.

An alternative method is the 60-day rule, which can be particularly advantageous for those who may not spend the majority of the year in Cyprus but still wish to secure tax residency. To qualify under this rule, individuals must spend at least 60 days in Cyprus, maintain a permanent home in the country, and must not be tax resident in any other country for more than 183 days within the same tax year. This rule allows flexibility for individuals who have professional or personal obligations that might take them outside Cyprus for significant periods.

Both options have been designed to make Cyprus an attractive destination for individuals from various backgrounds, including entrepreneurs, retirees, or anyone seeking to benefit from the Cypriot tax system. The prospect of becoming tax resident in Cyprus comes with considerable financial incentives, especially with the advantageous tax laws that put a significant emphasis on non-taxation of foreign-source income for non-domiciled tax residents.

Successfully gaining tax residency in Cyprus not only requires adhering to the physical presence rules but also involves proper documentation and registration with local tax authorities to ensure all legalities are thoroughly observed.

First published:18 Apr'24

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