Tax Exemption for first employment in Cyprus
On 26 July 2022, an amending law was published in the Gazette with respect to the income tax exemptions for employment income, provided in Articles 8(21) and 8(23) of the Income Tax Law. The amending law (provided in Articles 8(21A) and 8(23A)) was voted in the context of the Government’s strategy to attract and retain foreign talent to Cyprus, as the framework was approved by the Council of Ministers in October 2021.
The existing exemptions will cease to be available for employments commencing after 26 July 2022:
• Article 8(21)
20% of the remuneration or €8,550 (whichever is the lower) from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/her employment in Cyprus is exempt from tax. 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.
Individuals who meet the conditions for this exemption before its termination date (i.e. 26 July 2022) will continue to benefit for the relevant five year period.
• New article 8(21A)
As from 26 July 2022, 20% of the remuneration of employees (up to a maximum amount of exemption of €8.550 per annum), whose first employment in Cyprus commenced from 26 July 2022 onwards, is exempt from income tax for a period of seven years and up to year 2027, provided the employees, immediately before the commencement of their employment in Cyprus: – were employed for a period of at least three consecutive tax years, outside Cyprus by a non-resident employer. The exemption will be first granted in the tax year following the tax year of commencement of employment.
It is important to note that the law does not require the individual to become a Cyprus tax resident to benefit from the new 20% exemption, nor the employer to be a Cyprus tax resident employer. Individuals will not be granted this exemption, if they are granted the 50% exemption mentioned below.
• Article 8(23)
50% of the remuneration from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the commencement of his/ her employment in Cyprus is exempt from tax. The exemption applies for a period of ten years starting from the first year of employment in Cyprus, provided that the income from such employment exceeds €100,000 per annum.
The 50% exemption would not be granted to an individual who has been a Cypriot tax resident for at least three out of the last five tax years immediately prior to the year of commencement of employment or to an individual who has been a Cypriot tax resident in the tax year immediately prior to the tax year of commencement of employment.
Individuals who meet the conditions for this exemption before its termination date (i.e. 26 July 2022) will continue to benefit for the relevant 10 year period, unless the individual also qualifies for the new 50% exemption. In such a case the individual will benefit for a longer period of 17 years.
• New article 8(23A)
As from 1 January 2022, 50% of the remuneration of employees, whose first employment in Cyprus began from 1 January 2022 onwards, is exempt from income tax for a period of 17 years, provided that their remuneration per year exceeds €55.000,00 and the employees were not tax residents of the Republic for a period of at least 10 consecutive years immediately before the commencement of their employment in Cyprus. The first employment in the Republic starts from 1 January 2022 onwards and the period of 17 years starts from the month of employment in Cyprus.
The 50% exemption will be granted in any tax year in which the remuneration from employment in Cyprus exceeds the amount of €55.000,00 irrespective of whether in any tax year the said remuneration falls below the amount of €55.000,00 provided that during the first or second year of employment the remuneration exceeded the amount of €55.000,00 p.a. and subject to the provision that the Commissioner of Income Tax is satisfied that a variation in the annual remuneration from employment in the Republic does not constitute an arrangement aimed at obtaining the exemption.
The exemption is granted in the tax year of commencement of first employment provided that the remuneration from first employment in the Republic during the first twelve months exceeds the amount of €55.000,00. Same applies in the tax of termination of employment in the Republic or in the end of period of seventeen years, provided the remuneration from employment in the Republic during the last twelve months exceeds the amount of €55.000,00.
Individuals whose employment commenced before 1 January 2022, may also qualify for the new 50% exemption, as per the below table:
|Date of commencement of 1st employment in Cyprus||Eligibility of exemption|
|During 2016-2021||• the salary is in excess of €55.000 p.a; or
• if it did not exceed €55.000 p.a., within 6 months from 26 July 2022 their remuneration will exceed €55.000 p.a.
|Up to 2021||Existing employees who benefitted from the existing 50% exemption and have continuous employment in Cyprus up to and including year 2021.|
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
Apserou Shiaka & Co Ltd can advice and assist you with your tax obligations in Cyprus. You can contact us at [email protected] or call at 00357 22 424 096.