On 30 June 2023, an amending Law of The Income Tax Law was published in the Official Gazette of the Republic of Cyprus, with respect to the 50% income tax exemption for employment income provided in Article 8(23A).
Below we provide a summary of the main amendments voted:
1) The non-tax residency requirement of the individual has been extended from 10 consecutive years to at least 15 consecutive years immediately before the commencement of the individual’s first employment in Cyprus.
2) New definition of “First Employment”.
The law amendment provides for a new definition of what is considered as “first employment” for the purposes of the new article 8(23A). Per the law amendment, an individual is considered to have commencement of “first employment” in Cyprus when the individual for the first time, after the period of 15 consecutive tax years during which he/she was not performing any salaried services in Cyprus, commences the exercise of employment in Cyprus with a Cyprus or a non-Cyprus employer. It is noted that the previous reference to occasional full or part-time employment in Cyprus was deleted.
3) The provision now applies to remuneration from employment in Cyprus, whereas before it was limited only to the remuneration from first employment in Cyprus. This amendment broadens the scope of the provision and allows individuals to qualify for the exemption even if they change employer within the period of 17 years. Thus, the provision would also apply to any subsequent employments within the period of 17 years.
4) The exemption applies for a period of 17 tax years or until the provisions of this article are abolished, whichever is the earlier, starting from the tax year of commencement of the first employment of the individual in Cyprus.
5) Contrary to what the old article 8(23A) stated, the 50% exemption can no longer be claimed in the tax year of termination of employment, or the tax year during which the 17-year period elapses, even if the remuneration of employee exceeded €55.000 during the 12-month period immediately preceding either of the above dates. On the other hand, and similarly to the old article 8(23A), the exemption can be claimed during the first year of an employee’s employment if, during the first 12-month period following the commencement of the employee’s employment, the remuneration exceeds €55.000.
6) Similarly to the old article 8(23A), the new article 8(23A) provides for transitional rules for years preceding its year of application (i.e. prior to 2022).
Per the law amendment, the transitional rules apply to employees who:
a) Have continues employment in Cyprus from the year of commencement of employment to tax year 2021; and
b) Were not tax resident in Cyprus for a 15-year period immediately prior to the start of their first employment in Cyprus; and
i) Benefited from the exemption provided in article 8(23) of the income tax law (i.e. the 50% exemption for employment income exceeding €100.000); or
ii) Their first employment started between the years 2016-2021 with remuneration exceeding €55.000 p.a.; or
iii) Their employment started between the years 2016-2021 with remuneration which did not exceed €55.000 p.a. and within 6 months period from the date that the previous amendments were published in the Gazette, i.e. as from 26/7/2022, the individual’s remuneration exceeded €55.000 p.a.
7) Employees who are not able to benefit from the provisions of the new article 8(23A) (for example because they do not fulfil the 15-year thresholds stipulated in the new article 8(23A)) but were eligible for the exemption provided in the old article 8(23A) can continue to benefit from the provisions of the old article 8(23A) for as long as the relevant conditions are applicable to them.
The amending law has a retrospective effect as from 1/1/2022.
Our Department of Taxation is at your disposal for any information, clarifications, or assistance you may require.