Exempt from German Capital Gains Tax: Cyprus Non-Dom Status for Investors – Manage Dividends and Interest Tax-Free

I see it every day: Entrepreneurs reach out to me with the same frustration. The German capital gains tax eats up 26.375% of their dividends and interest. It hurts.

Especially when you know there are better ways.

Today, I’ll take you to Cyprus. More precisely: to Non-Dom status, which can free your investment income from German taxation.

But a word of caution: I’m not going to paint a rosy picture for you. The Non-Dom status isn’t right for everyone. There are pitfalls no one tells you about.

That’s why I’ll explain everything today – honestly and without sugarcoating.

Ready for the truth about Cyprus’s tax advantages?

What is Non-Dom Status in Cyprus?

Let me start with a simple explanation: The Non-Dom status (Non-Domiciled Status) is a special Cypriot tax program aimed at foreigners.

The concept is brilliantly simple: You live in Cyprus, pay taxes there – but only on income generated in Cyprus.

Your foreign investment income? Completely tax-free.

How Non-Dom Status Changes Your Tax Burden

Imagine this: You receive dividends from German stocks. Normally, the German authorities take 26.375% as capital gains tax. With Non-Dom status? Zero percent.

The same applies for:

• Interest from international bonds
• Dividends from foreign companies
• Capital gains from securities sales
• Income from international real estate funds

Sounds too good to be true? It isn’t. Cyprus intentionally designed this program to attract wealthy foreigners.

Understanding the Legal Framework

Non-Dom status is anchored in Cyprus’s Income Tax Law. Specifically: Section 8 of the Income Tax Law states that Non-Domiciled Residents pay no tax on foreign-sourced investment income.

This isn’t a grey area. This has been Cypriot law since 2015.

Important: You still must become a Cyprus resident. That means living at least 183 days a year on the island.

German Capital Gains Tax vs. Cyprus Non-Dom: A Direct Comparison

Numbers don’t lie. That’s why I’ll show you exactly what Non-Dom status can do for you.

Example Calculation: €100,000 in Dividend Income

So, you save €26,375 – on €100,000 investment income. That is a tax saving of over 26%.

Long-Term Perspective: What Does It Mean for Your Wealth?

Let’s say you generate €50,000 a year in investment income. Over ten years, your tax savings add up to more than €130,000.

That’s not just money you keep. That’s money you can reinvest. Compounding returns on top of dividends and interest.

The compound effect makes the difference even more dramatic.

But Wait: What Does Non-Dom Status Cost?

This is where it gets interesting. Of course, relocating to Cyprus incurs costs:

• Living expenses in Cyprus
• Consultancy fees for the application
• Potential double taxation on other income streams

Still, if your investment income is substantial, the benefits clearly outweigh the costs.

Dividends and Interest Tax-Free: How It Works in Practice

Theory is great. But how does it actually work when you want to collect your investment income tax-free?

Step 1: Moving Your Brokerage Account to Cyprus

You don’t necessarily have to close your German brokerage account. However, you should transfer it to Cyprus or open a new Cypriot account.

Why? German banks automatically deduct capital gains tax. That’s what you want to avoid.

Cypriot banks or international brokers based in Cyprus don’t deduct German capital gains tax. That’s your advantage.

Step 2: Tax Certificate from the Cypriot Tax Authorities

You need an official confirmation proving your Non-Dom status. You submit this certificate to your German bank.

Result: The bank no longer deducts capital gains tax.

Step 3: Completing Your German Tax Return Correctly

This is where it gets tricky: You still have to declare your investment income in Germany. But you invoke the double taxation agreement between Germany and Cyprus.

Specifically, you need to include:

• Supplement KAP: Your investment income
• Supplement AUS: Certificate of Cyprus residency
• Reference to Germany-Cyprus DTA

The German tax office can no longer tax it. You are tax-resident in Cyprus – and there, you’re exempt.

Practical Example: DAX Dividends Tax-Free

You own 10,000 Siemens shares. The dividend is €4.70 per share, equaling a gross dividend of €47,000.

If you are a German taxpayer, you pay €12,396 in tax. As a Cyprus Non-Dom? Zero euro.

You keep the full €47,000.

Requirements for Non-Dom Status: What You Have to Fulfill

Now for the crucial question: Can you actually become a Non-Dom? The requirements are clearly defined but not everyone qualifies.

Basic Requirement 1: Cyprus Residency

You must spend at least 183 days per year in Cyprus. This is non-negotiable.

Every commenced day counts. If you fly out at 11:50 pm, that day still counts as a Cyprus day.

My tip: Plan for 190-200 days. That builds in a buffer for unexpected trips.

Basic Requirement 2: No Domicile in Cyprus

This sounds paradoxical but is key: You live in Cyprus, but your “domicile” (for tax purposes, your main center of life) isn’t in Cyprus.

In practice, this means:

• You must never become a Cypriot citizen
• You must not have lived in Cyprus for more than 17 years before 2015
• Your true center of life must objectively be outside Cyprus

Practical Requirements for Residency

To become a Cyprus resident, you need:

1. Property in Cyprus: Bought or rented, minimum value €300,000 if purchased
2. Sufficient funds: At least €30,000 annual foreign income
3. Health insurance: Private or public, full coverage for Cyprus
4. Clean criminal record: Certificate from Germany

Special Rules for Entrepreneurs

As an entrepreneur, you have extra options. You can set up a Cypriot company and pay yourself a salary.

Advantage: The salary fulfills the minimum income requirement. And you can optimize your corporate taxation.

But beware: German CFC rules may apply if you manage your company from Germany.

Costs and Effort: What Non-Dom Status Really Costs

Let’s be honest: Non-Dom status isn’t free. But it can be well worth it. Here’s the complete costs breakdown:

One-Time Application Costs

Ongoing Annual Costs

Yearly expenses vary greatly depending on lifestyle:

• Property: €1,500 – €4,000/month (depending on location and quality)
• Living expenses: €1,200 – €2,500/month (generally lower than in Germany)
• Tax consultancy: €2,000 – €5,000/year
• Health insurance: €2,000 – €4,000/year

All in, you should budget for €35,000 – €60,000 additional annual costs.

Break-Even Analysis: When Does It Make Sense?

Let’s crunch the numbers: At 26.375% German capital gains tax, you need at least €133,000 annual investment income just to break even.

That’s equivalent to a portfolio of about €2.7 million (at 5% yield).

Have less than that? Then Non-Dom status probably isn’t for you.

Hidden Costs No One Tells You About

In my experience, several extra expenses often crop up:

• Frequent flights to Germany (€2,000 – €5,000/year)
• Maintaining two households if your family stays in Germany
• Higher prices for German goods/services in Cyprus
• Currency risk with euro–Cyprus pound fluctuations

Legal Certainty and Pitfalls: What You Need to Watch Out For

Now it gets serious. Non-Dom status carries legal risks no one talks about upfront.

Pitfall 1: German Exit Tax

Do you own more than 1% in a German corporation? Then exit taxation applies.

Specifically: Germany taxes all hidden reserves as if you had sold your shares. If your business is worth €10 million, that can quickly mean €1–2 million in tax.

The good news: There are ways to defer payment. But you have to provide collateral.

Pitfall 2: The 183-Day Rule Is Strictly Enforced

The German tax office will scrutinize your Cyprus stays. Flight tickets, hotel bills, credit card statements – everything is analyzed.

My advice: Keep a detailed travel log. Keep every receipt. Take regular photos in front of Cypriot landmarks.

Pitfall 3: Incorrect Double Taxation Agreement Application

The Germany–Cyprus DTA is complex. Not all types of income are automatically taxed in Cyprus.

Example: Rental income from German real estate is still taxed in Germany. Only investment income benefits from Non-Dom status.

Legal Certainty Through Professional Support

I strongly recommend getting expert advice – both in Germany and Cyprus.

Why? A single mistake can cost you dearly years later. Back taxes plus interest can easily reach six figures.

EU Law Security vs. National Legislation

The big plus: As an EU member, Cyprus is subject to EU law. That provides some security.

However, national laws can change. Non-Dom status exists since 2015, but there are no guarantees.

My tip: Always have a “Plan B.” If the law changes, you need alternatives.

Applying for Non-Dom Status: Step-by-Step Guide

Made your decision? Here’s the practical path to Non-Dom status.

Phase 1: Preparation in Germany (2–3 months)

1. Hire a tax advisor: Have your situation evaluated. Is Non-Dom status really worth it?
2. Prepare documents: Police record, proof of income, proof of assets
3. Find property in Cyprus: Buy or rent a suitable property
4. Hire a Cyprus lawyer: Find a specialist lawyer locally

Phase 2: Applying for Residency (1–2 months)

1. Enter Cyprus: As an EU citizen, you do not need a visa
2. Apply for a Temporary Residence Card: At the Immigration Department
3. Register for tax purposes: With the Cypriot tax office
4. Apply for Non-Dom status: Official application with all documents attached

Phase 3: Deregistration in Germany and DTA Application

1. De-register for German tax purposes: At your local tax office
2. Request Certificate of Residency: From Cyprus
3. Declare DTA application: In future German tax returns
4. Transfer brokerage account: To a Cypriot or international bank

Common Pitfalls When Applying

These are mistakes I see all the time:

• Incomplete documentation: The authorities are picky. One missing paper and everything is delayed by weeks
• Wrong property: Not every property qualifies for residency
• Too late deregistration in Germany: You can end up double-taxed for months in transition
• Language barrier: All official documents must be translated into Greek

Plan Your Timeline Realistically

Allow 6–9 months from start to full implementation. Sometimes it’s faster, but authorities move at their own pace.

Important: Don’t start in the middle of the year. January is optimal, so you spend the full tax year in Cyprus.

The Cyprus Non-Dom status is a powerful tool for wealthy investors – but it isn’t automatic.

You need proper planning, professional support and realistic expectations. But then, you can permanently free your investment income from German tax.

My advice: Don’t let the costs scare you off. For significant wealth, the effort is quickly recouped.

But never forget: Legal certainty matters more than tax savings. Poorly implemented Non-Dom status can end up costing you more than German capital gains tax.

Do you have questions about your individual situation? Then speak to an expert—they can make all the difference.

Yours, RMS