The Cyprus House of Representatives voted on the 15th July 2022 certain amendments to the Cyprus Income Tax Law (“the Law”) regarding the 50% and 20% tax exemptions for first employment in Cyprus. The amendments, which were published in the Official Gazette on the 26th July 2022, are part of the Cyprus Government’s wider strategy aiming to attract and retain talented individuals from abroad.
Article 8(23) - 50% exemption
Prior to the amendments, Article 8(23) of the Law provided for a 50% tax exemption for remuneration from any office or employment exercised in Cyprus by an individual who was resident outside of Cyprus prior to commencement of employment, where the remuneration from such employment exceeded €100,000 per year. The exemption applied for 10 years starting from the year of employment.
Further to the amendment of the Law, Article 8(23) will now only apply for employment which commenced up to the date of publication of the amendment in the Official Gazette (i.e. 26th July 2022).
In addition, new Article 8(23A) has been introduced in the Law and provides for a 50% tax exemption on remuneration from first employment exercised in Cyprus(*) for individuals with annual remuneration exceeding €55,000 who were not residents of Cyprus for at least 10 consecutive years prior to commencement of employment, where the first employment in Cyprus commences from 1st January 2022 and onwards.
(*) An individual is considered to have “commenced first employment in Cyprus” when, for the first time, the said individual exercises salaried services in Cyprus, either for a Cypriot or a non-Cypriot resident employer, without taking into account occasional or part-time employment in Cyprus for a period not exceeding 120 days within a tax year.
The aforementioned tax exemption is granted once in a lifetime, applies for 17 tax years commencing from the year of employment in Cyprus, and 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 exemption is granted in the tax year of commencement of first employment in Cyprus, provided that the remuneration from such employment during the first 12 months exceeds €55,000, as well as in the tax year of termination of employment in Cyprus (or the end of the 17-year period), provided that the remuneration from such employment during the last 12 months exceeds €55,000.
Irrespective of the year of commencement of employment in Cyprus, the provisions of Article 8(23A) of the Law shall apply from 1st January 2022 and up to the completion of 17 consecutive tax years beginning from the tax year in which the employment in Cyprus commenced, for persons who were not Cyprus residents for at least 10 consecutive years immediately prior to commencement of employment in Cyprus, and:
- were already benefitting from the 50% tax exemption and had continuous employment in Cyprus from the year of commencement of employment and up to year 2021; or
- whose first employment in Cyprus commenced between years 2016 and 2021 with annual remuneration exceeding €55,000; or
- whose first employment in Cyprus commenced between years 2016 and 2021 with annual remuneration below €55,000 and, within 6 months from the date of publication of the amendment in the Official Gazette (i.e. from 26th July 2022) the said remuneration exceeds €55,000 per year
- Finally, it is noted that in cases where the 50% exemption prescribed in Article 8(23A) is granted, the exemptions of Article 8(21), 8(21A) and 8(23) are not granted.
Article 8(21) – 20% exemption
Prior to the amendments, Article 8(21) of the Law provided for a 20% tax exemption (with a maximum cap of €8,550) on remuneration from employment exercised in Cyprus for individuals who were resident outside Cyprus prior to the commencement of employment and were not eligible for the 50% exemption (i.e. their annual remuneration was below €100,000). The exemption applied for 5 years commencing from 1st January following the year of employment for qualifying individuals commencing employment during or after year 2012.
Further to the amendment of the Law, Article 8(21) will now only apply for employment which commenced up to the date of publication of the amendment in the Official Gazette (26th July 2022).
In addition, new Article 8(21A) has been introduced in the Law and provides that a 20% tax exemption (or €8,550, whichever is the lower) will apply for individuals commencing first employment in Cyprus after 26th July 2022 and up to year 2027 and who are not eligible for the 50% exemption (annual remuneration below €55,000). The individuals should not have been Cypriot tax residents for at least 3 consecutive years immediately prior to commencement of first employment in Cyprus and must have been employed outside of Cyprus by a non-resident employer.
The exemption is granted for 7 tax years, starting from the tax year following the year of commencement of employment in Cyprus.
