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The UK budget announcement on 30^th October 2024 confirmed that the existing tax treatment for UK resident non-domiciled individuals (non-doms) will be discontinued as of 6^th April 2025 resulting in many high-net-worth individuals to now explore new ways to safeguard their wealth, optimize taxes, and protect their assets. For these individuals, Cyprus presents an ideal solution, offering two key options:

• the Cyprus non-dom tax regime and
• Cyprus International Trusts (CITs).

Both provide substantial tax benefits, asset protection, and a degree of flexibility that could serve as a suitable alternative to the UK’s non-dom status.

This article explores the advantages of Cyprus’s non-dom regime and CITs, and how each can be leveraged by UK non-doms seeking new options.

 

The End of UK Non-Dom Status and Its Implications

The UK’s non-dom status has long allowed foreign nationals and UK residents who are not domiciled in the UK to benefit from tax exemptions on foreign income, provided that income is not brought into the UK. However, the abolition of the non-dom regime will remove significant tax relief on income, capital gains, and inheritance for non-doms. Faced with the loss of these benefits, many are seeking new jurisdictions that can offer similar advantages – and Cyprus has emerged as one of the most attractive alternatives.

 

Cyprus Non-Dom Tax Regime

Cyprus’s non-dom tax regime is specifically designed to attract high-net-worth individuals seeking residency with tax-efficient incentives. For former UK non-doms, this regime offers several benefits:

1. Dividend and Interest Income Exemption

• No Tax on Dividends or Interest: Cyprus non-doms are entirely exempt from paying taxes on dividends and interest, whether they are derived from Cypriot or foreign sources. This is particularly advantageous for those with investment portfolios generating significant passive income.

2. Inheritance Tax Relief

• No Estate or Inheritance Tax: Cyprus does not impose any inheritance or estate taxes. This lack of taxation on asset transfers makes Cyprus ideal for succession planning and intergenerational wealth management.

3. Lower Personal Income Tax Rates

• Competitive Rates: Cyprus has a staggered income tax rate, with the maximum being 35% for annual incomes over €60,000. This compares favourably to the UK and is especially attractive to individuals with high salaries or director positions.

4. Capital Gains Tax Exemption

• Exempt on Foreign Assets: Cyprus only applies capital gains tax on immovable property located in Cyprus. This means that gains on foreign investments are not subject to tax, providing further tax relief for individuals with diverse asset holdings abroad.

5. Protection of Foreign Income

• Territorial Tax System: Cyprus non-doms are taxed only on Cyprus-sourced income, allowing them to keep foreign-sourced income and gains entirely tax-free. This territorial approach is particularly useful for non-doms with income streams and investments outside of Cyprus.

 

Obtaining Cyprus Non-Dom Status

1. Establish Cyprus Tax Residency: Spend at least 183 days per year in Cyprus or qualify under the 60-day residency rule (under certain conditions, such as owning a business in Cyprus and not residing in any other country for 183 days).
2. Apply for Non-Dom Status: Complete the necessary filings with Cypriot tax authorities, declaring your intent to claim non-dom status.
3. Hold Local Assets or Accounts: Many Cyprus non-doms establish bank accounts or make property investments, strengthening their ties to Cyprus and signalling commitment.

 

Cyprus International Trust (CIT)

For those seeking a secure, legally robust option for asset protection and tax planning, Cyprus International Trusts offer an excellent solution. Key benefits include:

1. Comprehensive Asset Protection

• Credit Shielding: Assets transferred to a CIT are protected from creditor claims after a two-year period and from forced heirship claims.

2. Tax Advantages

• No Tax on Foreign Assets: A CIT structured as a non-resident entity is not subject to Cypriot taxes on foreign income, capital gains, or assets. The CIT can conduct global operations tax-free, with no Cyprus tax liability on its foreign income.
• Flexible Structuring Options: With careful structuring, a CIT can allow the settlor to defer capital gains and potentially reduce inheritance tax liabilities, depending on the structure and jurisdiction where the settlor is domiciled.

3. Ideal for Estate and Succession Planning

• Intergenerational Wealth Transfer: CITs can exist indefinitely, holding assets for multiple generations. This long-term structure is ideal for individuals with high-value assets seeking to ensure smooth inheritance.
• Probate-Free Asset Transfers: Assets within the trust do not pass through probate and are distributed directly to beneficiaries per the trust deed, providing seamless succession.

4. Global Asset Flexibility

• A CIT can own assets worldwide, including property, shares, and intellectual property. Moreover, the trust itself can hold shares in companies both in Cyprus and internationally, opening a broad range of investment possibilities.

5. High Level of Confidentiality

• Strict Privacy Protections: Although Cyprus requires all trusts to be registered with its national trust registry, it does not publicly disclose trustees, settlors, beneficiaries, or trust assets, providing a high degree of privacy for individuals who prefer discretion in their financial affairs.

 

Setting Up a CIT

1. Appoint a Trustee: Work with a Cyprus-based trustee, who will manage the trust assets according to the trust deed.
2. Draft the Trust Deed: Define the objectives, beneficiaries, asset management rules, and trust duration. Cypriot trusts can continue indefinitely, providing lasting protection.
3. Fund the Trust: Transfer assets into the CIT, establishing a legal and financial separation between personal and trust-held assets.
4. Ensure Ongoing Compliance: A Cypriot legal advisor or trustee can help ensure the CIT complies with local trust regulations and reporting requirements.

 

Conclusion: The Cyprus Advantage

As the UK abolishes its non-dom regime, high-net-worth individuals and foreign nationals are reassessing their tax and estate planning strategies. Cyprus provides two robust alternatives: the Cyprus non-dom regime for tax-efficient residency and Cyprus International Trusts for asset protection and intergenerational wealth transfer.

By choosing Cyprus, former UK non-doms can benefit from favourable tax treatment, privacy, and comprehensive asset protection. With guidance from Cypriot legal and tax advisors, individuals can tailor either of these options to align with their financial and personal goals, making Cyprus a compelling choice in the wake of the UK’s changing tax landscape.

At BLegal – Panayiotou Shamma LLC, we are equipped to provide comprehensive guidance on the full range of options available under Cyprus’s favourable tax and trust laws. Our team of experienced legal and tax advisors can assist with the setup of Cyprus International Trusts (CITs), tailored non-dom status applications, and structuring that aligns with both Cyprus and international tax standards. We take a strategic, personalized approach to support each client’s transition from the UK’s changing tax environment, ensuring all aspects of tax efficiency, asset protection, and compliance are covered. Contact us today to discuss how we can facilitate a smooth shift to the Cyprus alternative, providing clarity and confidence in your international tax planning.