The Cyprus Non-Dom Regime After the 2026 Tax Reform: What Actually Changed

Cyprus passed its most significant tax reform in two decades on 22 December 2025, gazetted on 31 December 2025 and effective from 1 January 2026. It touched the Income Tax Law of 2002 (Law 118(I)/2002) and the Special Contribution for the Defence Law of 2002 (Law 117(I)/2002) — the two statutes that between them govern the non-domiciled tax regime. Given the scale of the reform elsewhere — corporate tax up to 15%, stamp duty abolished, the deemed dividend distribution mechanism scrapped entirely — clients relocating to Cyprus or already holding non-dom status are right to ask whether the regime they planned around still stands.

It does. But it is not identical to the one that existed in 2025, and the differences matter for anyone doing the planning now.

What non-dom status actually is

Non-domiciled status is not an immigration category or a separate tax residency test. It is a classification under the Special Contribution for the Defence Law that determines whether an individual who is already a Cyprus tax resident is also liable to Special Defence Contribution (SDC) — a tax distinct from ordinary income tax, levied on dividends, interest, and (historically) rental income.

An individual is treated as non-domiciled if they have not been a Cyprus tax resident for 17 of the last 20 years preceding the relevant tax year, regardless of where their domicile of origin under the Wills and Succession Law (Cap. 195) actually sits. In practice this means most people relocating to Cyprus from abroad qualify from day one, and remain non-domiciled — and therefore outside SDC — for up to 17 consecutive years of Cyprus residency.

Becoming Cyprus tax resident in the first place

Non-dom status is only relevant once someone is a Cyprus tax resident under the Income Tax Law, which offers two routes. The standard test is 183 days of physical presence in Cyprus in a tax year. The more commonly used route for relocating professionals and business owners is the 60-day rule, which requires at least 60 days' presence in Cyprus, a permanent home in Cyprus (owned or rented), and business, employment or directorship ties to a Cyprus tax resident company. The 2026 reform simplified this route by removing the additional requirement that the individual not be tax resident anywhere else in the same year — a condition that had previously created difficulty for people mid-relocation who remained tax resident elsewhere for part of the transition year.

What the exemption still covers — and where the reform narrowed it

Before the reform, non-dom status was valuable across three income types: dividends, interest, and rental income. The 2026 changes altered the comparison for each.

Dividends. Non-dom individuals remain fully exempt from SDC on dividend income, worldwide, regardless of source. The reform reduced the SDC rate for domiciled residents from 17% to 5% on dividends paid from profits earned after 1 January 2026. The non-dom advantage on dividends is therefore real but narrower than it was — a 5-point gap rather than a 17-point one.

Interest. This is now where the sharpest edge sits. Non-dom individuals remain exempt from SDC on interest income entirely. Domiciled residents continue to pay SDC on interest at 17%, with a narrow reduction to 3% for interest on bonds and on certain EU government bond and Health Insurance Fund deposits. For clients with meaningful interest-bearing holdings, non-dom status is materially more valuable on interest than on dividends post-reform.

Rental income. SDC on rental income has been abolished outright for everyone, domiciled and non-domiciled alike, from 1 January 2026. This was previously a non-dom advantage; it no longer is. Rental income remains subject to ordinary income tax regardless of domicile status.

The new extension mechanism

The most consequential change for existing non-dom holders is not a rate change — it is a new option to extend the exemption beyond 17 years. Previously, an individual's non-dom status expired outright once they had been Cyprus tax resident for 17 of the preceding 20 years, after which ordinary SDC applied in full.

Under the reform, an individual reaching that 17-year threshold can elect to extend SDC exemption for up to two further consecutive five-year periods, by paying a fixed lump sum of €250,000 per period (effectively €50,000 a year). This gives a potential maximum of 27 years of SDC exemption on dividend and interest income, in exchange for a known, budgetable cost rather than ordinary SDC exposure on actual income. For clients with substantial passive income where 17% SDC on interest (or even 5% on dividends) would exceed €50,000 a year, the arithmetic on this election is usually straightforward. For clients with more modest passive income, it will not be, and the calculation needs to be run on the numbers rather than assumed.

Evidencing the status

Non-dom status is declared to the Cyprus Tax Department on Form TD 38. This is typically filed at the point the individual first earns SDC-liable income — dividends or interest — which in practice can be months or years after the individual first obtains a Cyprus tax identification number. The Tax Department issues a non-domicile certificate on approval, which Cyprus banks and foreign tax authorities generally accept for account due diligence and double tax treaty relief purposes. Clients who have been Cyprus tax resident for some time without formally filing the TD 38 should not assume the position is automatically protected — the documentation trail matters, particularly given the reform's broader emphasis on strengthened reporting and enforcement powers for the Tax Commissioner.

Practical implications

For individuals actively relocating, the regime remains one of the more straightforward routes in the EU to a genuinely low tax position on passive income, and the 60-day residency route keeps the physical presence requirement low relative to most comparable jurisdictions.

For individuals already holding non-dom status and approaching the 17-year mark, the extension election needs modelling well before the threshold is reached — the €250,000 payment is due for the period ahead, not retrospectively, and the decision should be made against actual dividend and interest income projections rather than the regime's general reputation for tax efficiency.

For business owners structuring Cyprus holding companies, the corporate-level changes — the 15% corporate rate, the abolition of deemed dividend distribution, the narrower SDC gap on dividends — mean the overall structure needs re-modelling as a package rather than assuming the non-dom piece alone still delivers the same net position it did in 2025. It should be noted that the standard 15% rate applies to every Cyprus tax-resident company regardless of size; it is separate from the Pillar Two global minimum tax, which only affects groups with consolidated revenue above €750 million.

This article is provided for general informational purposes only and does not constitute legal advice. Specific legal advice should be sought before taking any action in reliance on the contents of this article.