On 26 July 2022, an amending Law of The Income Tax Law was published in the Official Gazette of the Republic of Cyprus, with respect to the income tax exemptions for employment income provided in Articles 8(21) and 8(23).
Amendment of Article 8(21)
Article 8(21) of the Income Tax Law provides:
- for the application of the 20% tax exemption or €8.550, whichever is the lower,
- on remuneration from any employment which is exercised in Cyprus
- by an individual who was resident outside Cyprus prior to the commencement of his employment in Cyprus,
- in relation to employment which commenced during or after 2012
- and the maximum period for which the exemption is granted, is 5 years following the year of employment.
Following the amendment, the above article now only applies for employment which commenced up until the date the relevant amendment of article 8(21) was published in the Official Gazette of the Republic of Cyprus, which is 26/7/2022.
Therefore, an individual whose employment in Cyprus commenced up until 26/7/2022, has the right to claim the relevant tax exemption for a period of 5 years.
The amendment of article 8(21) is effective from 26/7/2022.
Introduction of new Article 8(21A)
As from 26/7/2022, the new article 8(21A) of the Income Tax Law provides:
- for the application of the 20% tax exemption or €8.550, whichever is the lower,
- on remuneration from first employment which is exercised in Cyprus
- by an individual who for 3 consecutive years, immediately prior to the commencement of his employment in Cyprus, was employed outside Cyprus for an employer not resident in Cyprus
- the exemption is granted to an individual that his first employment in Cyprus commenced after 26/7/2022 and up until the year 2027 inclusive
- and the tax exemption is granted for a period of 7 years following the year of employment in Cyprus.
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.
The provisions of new article 8(21A) are effective from 26/7/2022.
Amendment of Article 8(23)
Article 8(23) of the Income Tax Law provides:
- for the application of the 50% tax exemption
- for remuneration from any employment which is exercised in Cyprus
- by an individual who was resident outside Cyprus prior to the commencement of his employment in Cyprus.
The exemption applies for a period of 10 years starting from the first year of employment in Cyprus, provided that the income from such employment exceeds €100,000 per annum.
For employment commencing during or after 2015, the 50% exemption would not be granted to an individual who has been a Cypriot tax resident
- for at least 3 out of the last 5 tax years immediately prior to the year of commencement of employment or
- in the tax year immediately prior to the tax year of commencement of employment.
Following the amendment, the above article now only applies for employment which commenced up until the date the relevant amendment of article 8(23) was published in the Official Gazette of the Republic of Cyprus, which is 26/7/2022.
Therefore, an individual who meets the conditions for this exemption and whose employment in Cyprus commenced up until 26/7/2022, has the right to claim the 50% tax exemption 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.
The amendment of article 8(23) is effective from 26/7/2022.
Introduction of new Article 8(23A)
The new article 8(23A) of the Income Tax Law provides:
- for the application of the 50% tax exemption
- for remuneration from first employment which is exercised in Cyprus
- by an individual who was resident outside Cyprus for a period of at least 10 consecutive years immediately prior to the commencement of his employment in Cyprus
- and the first employment in Cyprus commenced after 1/1/2022.
In addition, the following provisions should apply:
- The tax exemption is granted for a period of 17 tax years, commencing as of the year of employment in Cyprus.
- The tax exemption is granted in any year in which the remuneration from employment in the Cyprus exceeds €55.000, irrespective of whether in any tax year the said remuneration falls below €55.000, provided that:
- during the 1st or 2nd year of employment in Cyprus the said remuneration exceeded €55.000 annually, and
- the Commissioner of Taxation is satisfied that the fluctuation in the annual remuneration from employment in Cyprus does not constitute an arrangement aimed at granting the exemption.
- The exemption is granted in the tax year of commencement of first employment, provided that:
- the remuneration from the first employment in Cyprus 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 period of 17 years, provided that the remuneration from employment in the Cyprus during the last 12 months exceeds €55.000.
Similarly with the 20% exemption, it is not required for the individual to become a Cyprus tax resident to benefit from the new 50% exemption, nor the employer to be a Cyprus tax resident employer.
Commencement of first employment in Cyprus is defined as when an individual first performs salaried services in Cyprus, for a resident or non-resident employer in Cyprus, without taking into account occasional full or part-time employment in Cyprus for a period not exceeding a total of 120 days in a tax year.
In addition, the following points are provided in the law:
- Irrespective of the year of commencement of employment in Cyprus, the provisions of article 8(23A) of the Income Tax Law shall apply from 1//1/2022 and until the completion of the period of 17 consecutive tax years, beginning from the tax year in which the employment commenced in Cyprus of an individual, who for a period of at least 10 consecutive years immediately before the commencement of his employment in Cyprus was not a resident in Cyprus and:
- a) benefited from the 50% exemption in accordance with the provisions of article 8(23) of the Income Tax Law and has continuous employment in Cyprus from the year of commencement of his employment up until the tax year 2021, or
- b) whose first employment in Cyprus commenced during the years 2016 to 2021 with a remuneration exceeding €55.000 per year, or
- c) whose first employment in Cyprus commenced during the years 2016 to 2021 with a remuneration that did not exceed €55.000 per annum and within a period of 6 months from 26/7/2022, the said remuneration exceeds €55.000 per annum.
Individuals whose employment commenced before 1/1/2022, may also qualify for the new 50% exemption, as per the below table:
| Date of commencement of first employment in Cyprus |
Exemption eligibility |
Up to 2021
(For existing beneficiaries) |
Existing employees who benefitted from the existing 50% exemption and have continuous employment in Cyprus from the year of commencement of his employment up to and including 2021 |
| 2016 – 2021 |
- Employees whose remuneration at commencement of first employment in Cyprus exceeded €55.000 p.a. or
- Employees whose remuneration at commencement of first employment did not exceed €55.000 p.a., and within 6 months from 26/7/2022 their remuneration exceeds €55.000 p.a.
|
It is also provided in the law that:
- In case the exemption of article 8(23A) of the Income Tax Law is granted, the exemptions of articles 8(21), 8(21A) and 8(23) of the Income Tax Law are not granted.
- The exemption is granted to each person once for life, for those years that the provisions of article 8(23A) of the Income Tax Law apply for.
The provisions of new article 8(23A) are deemed to be effective from 1/1/2022.
Our Department of Taxation is at your disposal for any information, clarifications, or assistance you may require.