Employment income from Cyprus – 50% exemption from income tax (Article 8(23A)
On 30 June 2023, the amending law with regards to Article 8(23A) of the Cyprus Income Tax Law was published in the Official Gazette of the Republic of Cyprus. The amending law has a retrospective effect, as from 1 January 2022.
Overview of the Article 8(23A)
Individuals who take up first employment in Cyprus as from 1 January 2022 onwards, will be eligible to exempt 50% of their employment income, provided the following conditions are satisfied
- The individual has not been tax resident in Cyprus for at least 15 consecutive years prior to the commencement of the first employment in Cyprus and the individual commenced the provision of salaried services in the Republic either to an employer resident in the Republic or to an employer non-resident in the Republic
- The exemption is available for a maximum period of 17 years (lifetime exemption) or until the repeal of the respective provision of the law (whichever is sooner) starting from the year of the commencement of the first employment in Cyprus
- The 50% exemption can be claimed in any year during the lifetime exemption period in which the income from first employment in Cyprus exceeds €55.000, irrespective of whether in any year the annual employment income is reduced below €55.000, provided that in the first or second year of employment in Cyprus the Income exceeded the threshold of €55.000 per annum and the Tax Commissioner is satisfied that the fluctuation in the annual remuneration is not an arrangement put in place for the purposes of obtaining this exemption.
- The 50% exemption cannot be claimed in any tax year during which the income from first employment in Cyprus is below €55.000.
As per the previous version of the law, an individual must have not been tax resident in the Republic before commencing his/her first employment in the Republic for a period of 10 consecutive years, whereas under the amended provision of the law, this period has been extended to 15 consecutive years. Another amendment is that under the previous version of the law, the 50% exemption was applicable only to employment income with regards to the first employment in Cyprus whereas under the new provisions the individuals are allowed to change employer during the years they are entitled to claim the 50% exemption.
Special provisions introduced for individuals that were eligible for the exemption under the original version of the Article 8(23A)
Individuals that commenced employment in Cyprus prior to the publication of the law amending Article 8(23A) (ie 30/06/2023) and were eligible for this exemption in accordance with the provisions of the previous version of Article 8(23A), can still continue to benefit the exemption, provided that all relevant conditions previously applicable are still in place.
In this case, the individual will continue to claim the 50% employment income exemption as per the provisions of the previous version of the law for the remaining available years as from the commencement of the first employment in Cyprus. The exemption benefit ceases to apply if there is a change of employer.
Irrespective of the year of commencement of the first employment in the Republic, the provisions of the new Article 8(23A) apply as from 1 January 2022 and until the completion of the 17 consecutive tax years or until the provision of the law is revoked (whichever is sooner), starting from the tax year in which the first employment in the Republic commenced, for an individual who has continuous employment in the Republic from the year of commencement of employment up and including the tax year 2021 and who for a period of at least 15 consecutive years, immediately preceding the commencement of first employment in the Republic was not a tax resident of the Republic and
- Benefited from the exemption provided in the Article 8(23) or
- Whose first employment in the Republic commenced between the years 2016 and 2021 with remuneration that exceeded €55.000 per annum or
- Whose first employment in the Republic commenced between the years 2016 and 2021 with remuneration that did not exceed €55.000 per annum and within a time period of 6 months from the date of publication in the Official Gazette of the Republic of the Income Tax (Amending) (No. 6) Law of 2022 (26/07/2022), the remuneration exceeds €55.000.
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