Case Study: Obtaining non-dom status before dividend distribution

In practice, we often encounter situations where owners of Cypriot companies are confident that if they reside in Cyprus for more than 183 days, tax benefits apply automatically. This is especially true with respect to the non-dom tax status and exemption from the Special Defence Contribution (SDC) on dividends, which amounts to 17% in 2025.

In this case study, we explain how the timely registration of non-dom tax status enabled the client to avoid the withholding of 17% SDC on dividends, correctly apply the General Healthcare System contribution (GeSY), and successfully pass bank and audit compliance without risks or delays.

Client Case

The client is a citizen of Ukraine, residing in Cyprus under Temporary Protection status, and a beneficiary of a Cypriot company.

Key facts:

• physical presence in Cyprus for more than 183 days in the current calendar year;
• Cypriot tax residency obtained for the first time;
• the client’s Cypriot company has been operating for more than one year;
• distribution and payment of dividends to the client were planned in the near future.

At first glance, the situation appeared standard. However, it is precisely in such cases that tax mistakes are most often made.

Dividend Taxation in Cyprus

In Cyprus, dividends received by individuals may be subject to:

• Special Defence Contribution (SDC) — rate 17%;
• General Healthcare System (GESY or GHS) — contribution to the national healthcare system at a rate of 2.65%.

If an individual is a tax resident of Cyprus and has confirmed non-domicile status in Cyprus, the following dividend taxation system applies: only the GeSY (GHS) contribution is paid at a rate of 2.65%. This is a key tax advantage of non-dom status for owners of Cypriot companies. If non-dom status is not correctly confirmed, the SDC is automatically withheld upon dividend payments.

Our Objective

Our goal was to:

• ensure lawful exemption from the 17% SDC;
• correctly apply the GHS contribution (2.65%);
• prepare documentation for the accountant, auditor, and bank prior to dividend payment;
• complete all steps before the dividend distribution, as timing was critical.

Why obtaining non-dom status was urgent

1. SDC at 17% is withheld at the moment of payment

If non-dom status is not confirmed in the individual’s tax profile, accountants or banks usually withhold 17% SDC automatically from dividends. Although the tax can formally be refunded, in practice this involves months of waiting, additional confirmations, and inspections.
Our task was to prevent the withholding from the outset, not to reclaim the tax afterward.

2. Temporary Protection ≠ Non-Dom

Temporary Protection status in Cyprus regulates the right of residence but does not determine tax status and does not provide automatic tax benefits. For tax purposes, two separate factors are important:

• whether you are a tax resident of Cyprus (in this case — yes, under the 183-day rule);
• whether you are considered non-domiciled (non-dom) in Cyprus according to the criteria: non-Cypriot origin and absence of residence in Cyprus for 17 out of the last 20 calendar years.

Therefore, the client qualifies for non-dom status, but it must be formally registered.

3. Bank / auditor compliance

Even when the tax logic is correct, it does not work in practice without documentation. Proof of tax residency and justification for non-withholding of SDC are required prior to dividend distribution.

What we did for the client

1. Confirmed Cypriot tax residency under the 183-day rule (travel tracking / collection of evidence of physical presence).
2. Verified domicile: origin — Ukraine; Cypriot domicile not established; far from the 17/20 threshold → non-dom applicable.
3. Submitted an application for non-dom / SDC exemption to the Tax Department before dividend declaration.
4. Notified the accountant / auditor: no SDC withholding + verified GHS at 2.65% within the annual cap.
5. Upon request, issued a Tax Residency Certificate for the bank.
6. Prepared documentation for dividend accrual and distribution; payment instructions for execution of the payments.

Result for the client

As a result, the client received:

• dividends without 17% SDC withholding;
• properly applied non-dom status;
• correctly calculated GHS contribution;
• a full documentation package for the bank and auditor;
• completion of the entire process within a short timeframe.

Who should especially review their non-dom status in Cyprus

Non-dom status in Cyprus is particularly relevant if you:

• own a Cypriot company and plan dividend distributions;
• have recently become a Cypriot tax resident;
• reside in Cyprus under Temporary Protection or a residence permit;
• receive income in the form of dividends or interest.

Feod Group — Your Legal Partner in Cyprus

Feod Group is an international law firm providing services in Cyprus since 2007. Our team of auditors, accountants, and tax specialists in Cyprus offers professional support in tax planning matters. We develop tailored solutions and help clients correctly and efficiently use tax benefits provided under Cypriot law.

If you require tax consultation in Cyprus or assistance in a specific situation, please contact us!

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