Financial freedom is a trending topic. So many people become more aware of their finances, investment options and money management. Financial education is not premium knowledge anymore, it is a fundamental set of information, skills and mindset.
How about taxation of our extra income, on a personal level?
This, as always, depends on our tax residency and tax rules established in the country of our residence. The difference can be significant, depending on the country.
In this post we focus on Cyprus and individuals.
Expat employees in Cyprus benefit from some tax incentives. They can take advantage from 20% and 50% exemption on personal income tax on their salaries (after reaching certain income). Their personal income is tax free up to 19 500 eur. Hopefully they do not forget that they can also advantage of their non-dom status (!) in Cyprus. Establishing the Cyprus tax residency along with the non-dom status is the best possible combination for reaching your financial freedom.
Let’s check how the extra income is taxed (or not) in Cyprus.
- Dividends – exempt from income tax, domiciled residents pay 17% SDC in Cyprus, while non-doms are completely exempt;
- Interest – similar to dividends, is exempt from income tax; domiciled residents pay 17% SDC (reduced now from 30%), while non-doms are completely exempt;
- Capital gains – there is NO capital gains tax when selling ordinary and preference shares, stocks, any other qualified securities: like bonds, EFTS, derivatives. Capital gains tax in Cyprus is only imposed on the sale of immovable property situated in Cyprus as well as on the sale of shares which are directly or indirectly held in companies with an immovable property situated in Cyprus.
- Cryptocurrency profits – despite the myths that such profits are not taxed, the gains from trading cryptocurrency shall not be automatically perceived as securities in Cyprus. In most cases, they do not qualify as capital gains. According to CY tax department profits from trading crypto fall into income tax category, therefore standard income tax rates apply here…. Solutions? There are some, and there will be soon e a post with a few hints.
- Rental income (for properties located in Cyprus) – taxable under income tax, domiciled residents will pay 3% SDC, non-doms are exempt from SDC.
Non-dom status – what it offers?
An individual whose domicile of origin is in a country other than Cyprus, but who is a tax resident of Cyprus, is not subject to SDC: Special Defense Contribution. SDC is a local withholding tax on passive income for domiciled tax residents (Cypriots pay 17% on dividends and interest, 3% on rental income).
Your non-dom status will last for 17 years of continuous residency in Cyprus. As an expat- tax resident in Cyprus you will be considered domiciled in Cyprus and become liable to SDC as from the 18th year of the stay in Cyprus.
If you reside in Cyprus and qualify for the non-dom status: take advantage of the tax to be saved during the 17 years.