How to avoid being double taxed

Double taxation occurs when two different countries claim the right to tax the same income. For international entrepreneurs and expats, this can lead to an effective tax rate of 50% or more.

Fortunately, Cyprus offers one of the world’s most robust frameworks for tax relief. Following the legislation voted on December 22, 2025, the island has modernized its 65+ treaty network to protect residents from being taxed twice on global earnings.

The Three Pillars of Double Tax Protection

To legally avoid double taxation, you must utilize one of these three primary mechanisms:

1. Double Tax Treaties (DTTs)

Cyprus has signed treaties with over 65 countries (including the USA, UK, Germany, and the UAE). These agreements decide which country has the “primary right” to tax you.

• Dividends & Interest: Treaties usually reduce the withholding tax in the source country to 0–10%.
• Pensions: Often taxed only in the country of residence (Cyprus).

2. The Tax Credit Method

If you pay tax in a foreign country, Cyprus allows you to deduct that amount from your Cyprus tax bill.

• 2026 Rule: If you paid 15% tax on a foreign property sale, Cyprus grants you a credit for that 15%, ensuring you don’t pay more than the 20% Cyprus Capital Gains rate.

3. The Exemption Method (The Non-Dom Advantage)

This is the “Gold Standard.” Under Cyprus domestic law, if you are a Non-Domiciled resident, you are 100% exempt from tax on worldwide dividends and interest. Since Cyprus doesn’t tax this income at all, double taxation is effectively eliminated at the source.

How to Claim Relief: A 3-Step Checklist

1. Obtain a Tax Residency Certificate (TRC): You must prove to foreign authorities that you are a tax resident of Cyprus. Under the 60-day rule, you can secure this without staying in the country for 6 months.
2. Submit Form T.D. 38 (Non-Dom): To enjoy 0% tax on foreign dividends, this form is mandatory. Without it, you may be subject to the 5% SDC rate (voted for 2026).
3. Apply Treaty Rate at Source: Provide your TRC to your foreign bank or employer so they apply the reduced “Treaty Rate” rather than their standard national rate.

Warning: The 2026 “Defensive” Overrides

The December 2025 reform introduced Defensive Measures. If you are sending money to a country on the EU Blacklist, Cyprus will now ignore treaty benefits and impose a 17% Withholding Tax. Double taxation is much harder to avoid if your business involves “Non-Cooperative” jurisdictions.

FAQ: Preventing Double Taxation

Is foreign income taxed in Cyprus?

Yes, residents are taxed on worldwide income. However, through the Tax Credit Method and Non-Dom exemptions, most expats pay 0% tax on their foreign-sourced passive income (dividends and interest).

How does Cyprus avoid double taxation on salaries?

If you work outside Cyprus for more than 90 days in a tax year for a non-resident employer, your salary is 100% exempt from Cyprus tax.

What happens if there is no treaty between Cyprus and my country?

Even without a treaty, Cyprus domestic law often provides Unilateral Relief. This means Cyprus will still give you a credit for foreign taxes paid, preventing you from being penalized by the absence of a formal agreement.