20 JULY 2023
As part of the Cyprus government’s wider strategy to attract and retain foreign businesses and talent to the island, there have been new amendments to the Cyprus Income Tax Law (“the Law”) regarding the 50% and 20% tax exemptions for first employment in Cyprus.
As a result, this gives additional incentives for foreign businesses to consider operating from Cyprus by also bringing their key foreign management and staff (something which solidifies their local operational substance), through establishing or relocating their main or regional headquarters in Cyprus.
Specifically, there are two Articles concerning first employment in Cyprus; Article 8(21A) regarding the 20% tax exemption and Article 8(23A) regarding the 50% tax exemption. The amendments are with effect from 1 January 2022.
Older provisions vs new amendments
For first employments which commenced up to 26 July 2022, the old provisions or transitional provisions may apply, subject to conditions. Contact us for more details on this.
No claiming of multiple exemptions
It is now explicitly provided in the Law that eligible persons can only claim either the 50% or the 20% tax exemption in any given year.
New income tax exemptions - post amendments
- Article 8(21A) – new 20% exemption
20% exemption from income tax of the remuneration from first employment in Cyprus commencing after 26 July 2022 (up to a maximum exemption of €8,550 per year) by individuals who, for at least three consecutive years immediately prior to commencement of their employment, were employed outside Cyprus by a non-Cypriot resident employer.
The exemption applies for seven tax years, commencing from the tax year following the year of employment in Cyprus.
In order to benefit from the exemption, the Law does not require the individual to become a Cypriot tax resident nor the employer to be a Cypriot tax resident.
- Article 8(23A) – new 50% exemption
50% exemption from income tax of the remuneration from employment in Cyprus commencing from 1 January 2022 onwards, by individuals who were not tax residents of Cyprus for a period of at least 15 consecutive years (was 10 years, prior to the amendments) immediately prior to the “commencement of first employment in Cyprus” (see below for definition), provided that the remuneration exceeds €55,000 per year.
The exemption is granted once in a lifetime and applies for a maximum of 17 years or until repeal of the provisions of Article 8(23A) (whichever occurs first), commencing from the tax year of first employment in Cyprus.
Similarly to the 20% exemption, in order to benefit from the 50% exemption the Law does not require the individual to become a Cypriot tax resident nor the employer to be a Cypriot tax resident.
Moreover, the exemption is granted for any tax year in which the annual remuneration exceeds €55,000, regardless of whether the said remuneration falls below €55,000 in any tax year, provided that:
- during the first or the second year of employment in Cyprus the annual remuneration exceeded €55,000, and
- the Commissioner is satisfied that the fluctuation in the annual remuneration from employment in Cyprus is not part of an arrangement aiming to benefit from the exemption.
The amendments introduced in the “new” Article 8(23A) in June 2023 are summarised below:
- Increase of the number of minimum years of non-Cyprus tax residency prior to commencement of employment in Cyprus, from 10 to 15 years.
- Change of definition of “commencement of first employment in Cyprus”. Prior to the amendment, the exemption was granted strictly for first employment in Cyprus, with “first employment” taken to mean the exercising of salaried services in Cyprus at any previous point in time (other than the occasional employment for periods not exceeding 120 days during a tax year).
Following the amendments, an individual is now considered to have commenced first employment in Cyprus if, for the first time after a consecutive period of 15 tax years of not exercising any salaried services in Cyprus, the individual begins to exercise salaried services in Cyprus, either to a local or to a foreign employer.
- The period of exemption is now defined as either 17 years from the year of employment, or until repeal of the provisions of Article 8(23A) (whichever occurs first). Previously, the period of exemption was defined as either 17 years or until termination of the first employment. In practice, this meant that individuals who took up first employment in Cyprus and subsequently changed employer were no longer able to benefit from the exemption.
Therefore, it is now possible to change employer after commencement of the first employment and still continue to benefit from the exemption (provided all other conditions are met).
- Prior to the amendments, the 50% exemption was also granted in the tax year of termination of employment in Cyprus, or the tax year during which the 17-year period lapsed, provided that the remuneration from such employment during the last 12 months exceeded €55,000. This provision has now been removed.