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A law amending the income tax exemptions for employment income specified in Articles 8(21) and 8(23) of the Income Tax Law was published in the Gazette on July 26, 2022.
The Council of Ministers approved the framework for the amending law in October 2021, and it was passed as part of the government's strategy to bring and keep talent from abroad to Cyprus.
Current exemptions from income tax for employment
For jobs starting after July 26, 2022, the following exemptions will no longer be valid:
• Article 8 (21)
An individual who was a resident of another country prior to beginning employment in Cyprus is exempt from paying taxes on 20% of the compensation or €8,550 (whichever is less) from any employment performed in Cyprus. The exemption is available to qualifying individuals commencing employment in Cyprus between 2012 and 2025 and is provided for five years, starting from the tax year following the year of employment.
People who qualify for this exemption before it expires (on July 26, 2022) will continue to receive benefits for the applicable five years.
• Article 8 (23)
An individual who was a resident of another country prior to beginning employment in Cyprus is entitled to a tax exemption on 50% of the compensation from any employment they perform there. If the annual income from such employment exceeds €100,000, the exemption is valid for ten years beginning with the first year of employment in Cyprus.
A person who has been a Cypriot tax resident for at least three of the five tax years immediately prior to the year of employment or a person who has been a Cypriot tax resident in the tax year immediately prior to the tax year of employment would not be eligible for the 50% exemption.
Before its termination on July 26, 2022, individuals who meet the requirements for this exemption will continue to receive benefits for the ensuing 10 years, unless they are also eligible for the new 50% exemption. In this scenario, the person will benefit for an additional 17 years.
New income tax exemptions for income deriving from employment
The following benefits are provided by the new exemptions:
• New article 8(21A)
As of July 26, 2022, employees whose first employment in Cyprus began on that date are exempt from income tax for a period of seven years on the condition that they met the following criteria:
- were not residents of Cyprus for at least three consecutive tax years prior to the start of their employment in Cyprus;
As of July 26, 2022, employees whose first employment in Cyprus began on that date are exempt from income tax for a period of seven years on the condition that they met the following criteria:
The exemption will be made available for the first time in the tax year that follows the year the employment began.
It is crucial to remember that neither the employee nor the employer must be Cyprus tax residents in order to take advantage of the new 20 percent exemption provided by the law.
If a person receives the 50% exemption mentioned below, they will not be eligible for this exemption.
• New article 8(23A)
For a period of 17 years beginning on January 1, 2022, employees whose first employment in Cyprus began after that date are exempt from income tax on 50% of their remuneration as long as their annual salary exceeds €55,000 and they were not Republic residents for at least 10 years prior to the start of their employment in Cyprus.
The first employment in the Republic begins on January 1, 2022, and the 17-year period begins on the first day of employment in Cyprus.
According to the table below, people whose employment started before January 1, 2022, may also be eligible for the new 50 percent exemption:
Commencement of 1st employment in Cyprus | Exemption eligibility |
2016-2021 | • Employees whose annual salary at the commencement of their 1st employment in Cyprus was greater than €55.000, or • Employees whose annual salary did not exceed €55.000 at the commencement of their 1st employment but did so within six months of the 26th of July, 2022. |
Up to 2021 (for individuals already benefiting from current tax exemptions) | • Employees who are currently covered by the current 50% exemption and have a continuous employment relationship with Cyprus through at least 2021 |
Clarifications made in accordance with the amending law:
• The term "commencement of first employment exercised in Cyprus" refers to the first time a person performs salaried services in Cyprus (for a resident or non-resident employer), without taking into account sporadic full- or part-time employment in Cyprus for a period not exceeding a total of 120 days in a tax year.• Starting with the tax year that their first employment in Cyprus began, each person will be eligible for the exemption just once during their lifetime, for a period of 17 years.
• The exemption is given for any year in which the salary from employment in Cyprus exceeds €55,000, regardless of whether the salary is reduced below €55,000 in any tax year, provided that the salary exceeded €55,000 per year in the first or second year of employment in Cyprus and the Commissioner is satisfied that the fluctuation in the salary is not a plan put in place to obtain the exemption.
• The exemption is given in the tax year of the beginning of the first employment, if the compensation from the first employment in Cyprus in the first 12 months exceeds €55,000, as well as in the tax year of the termination of the employment in Cyprus or the end of the 17-year period, if the compensation from the employment in Cyprus during the last 12 months exceeds €55,000.
• Like the 20% exemption, the new 50% exemption does not require either the employee to become a Cyprus tax resident or the employer to be a Cyprus tax resident employer in order for the employee to be eligible.
• Those who are given this exemption are not eligible for the exemptions mentioned in articles 8(21), 8(21A), or 8(23), respectively.
We anticipate that the Cyprus Tax Authorities will release additional guidance to clarify how the aforementioned exemptions should actually be used.
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Mrs Daniella May / Head of Business Development
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