Foreign pensions at 5%. Dividends and interest at 0% for 17 years. Here's the fine print.

Cyprus is one of the most retiree-friendly tax codes in the EU, and the January 2026 tax reform made it slightly better. But the headline numbers come with elections, exemptions, and a US filing obligation that doesn't go away. Here's how it actually works.

The 5% pension election, precisely

Cyprus lets tax residents choose, every year, how their foreign-source pension income is taxed:

• Option A — the flat rate: the first €5,000 is exempt; everything above is taxed at 5%. (The exempt amount was €3,420 until the 2026 reform raised it.)
• Option B — normal bands: the pension joins your other income and is taxed at progressive rates — attractive if your total income sits under the €22,000 tax-free band.

You pick whichever is lower, each tax year. "Foreign pension" covers employment-related pensions from abroad — US Social Security, employer pensions, CPP, OAS and similar periodic retirement payments; how a specific IRA or RRIF withdrawal is characterised is one for your adviser.

*Illustrative: pension as only income, 2026 bands, no deductions. USD at €1 = $1.14 (July 1, 2026). Add the GHS contribution of 2.65% on top in each case.

Non-dom: 17 years of 0% on dividends and interest

Cyprus levies a Special Defence Contribution (SDC) on passive income — but only on residents who are domiciled in Cyprus. Move from the US or Canada and you're a classic "non-dom": Cyprus tax resident, foreign domicile of origin. For your first 17 years of Cyprus tax residence you pay:

• 0% SDC on dividends (domiciled residents pay 5% on post-2026 profits, down from 17%)
• 0% SDC on interest (domiciled residents pay 17%)
• No SDC on rental income for anyone — abolished by the 2026 reform; rents are now income-tax only

New in the 2026 reform: after year 17, you can extend non-dom treatment by two further 5-year blocks at a lump sum of €250,000 each — a maximum of 27 years. At that price it only makes sense for large portfolios.

Becoming tax resident: 183 days — or 60

You're Cyprus tax resident if you spend more than 183 days there in a calendar year. Cyprus also has a 60-day rule: spend 60+ days in Cyprus, don't spend 183+ days in any other single country, aren't tax resident anywhere else, and maintain ties (a home you own or rent, plus a Cyprus business, employment or directorship). For most retirees the 183-day route is the natural one.

What Americans and Canadians still owe back home

What Cyprus doesn't tax

• Inheritance and estates: no tax — abolished in 2001. (US estate tax and Canadian deemed-disposition-at-death rules still reach you from home.)
• Wealth: no wealth tax.
• Property, annually: no national immovable property tax (abolished 2017); only small municipal charges.
• Capital gains: Cyprus charges 20% only on gains from Cyprus-situated real estate. Gains on your US/Canadian portfolio are outside Cypriot capital gains tax — though the IRS still taxes Americans' gains.
• Stamp duty: abolished January 1, 2026.

Worked example: a US couple on $60,000

A couple, both 67, Cyprus tax residents, non-dom. Income: $48,000 in Social Security and pensions (≈ €42,100) split between them, plus $12,000 (≈ €10,500) in dividends and interest.

• Pensions: roughly €21,050 each. Here the progressive option wins: each sits under the €22,000 tax-free band, so income tax is €0. (The 5% flat election would cost ~€800 each — this is why the election is annual and per person.)
• Dividends and interest: €0 SDC (non-dom) and €0 income tax.
• GHS: 2.65% on the lot — ~€1,390 for the household.
• Cyprus total: roughly €1,400/year (~$1,600) — before the US return, where foreign tax credits and standard rules settle the final bill.

Illustrative only — real outcomes depend on how each income stream is characterised. Model yours with a cross-border professional before you move, not after.