Further Improvement of Income Tax exemptions for Persons who Move to Cyprus for Employment

29/07/2022

Further to our previous newsfeeds on this, an amending law was published in the Official Gazette of the Republic of Cyprus with respect to the income tax exemptions for employment income, in relation to persons moving to Cyprus for employment. Through the amendments significant improvement of existing incentives are introduced, aiming at attracting foreign companies and highly skilled staff to Cyprus, and at repatriating Cypriot professionals who are currently living and working abroad.

The amendments are introduced in the form of cessation of existing provisions as from 26 July 2022, which is the effective date of the amending law, and the introduction of related incentives with enhanced terms. They are presented in more detail below.

Existing Exemptions which will cease to apply as from 26 July 2022

The below existing exemptions will cease to apply for employments commencing after 26 July 2022:

•           20% Exemption

The exemption involves 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. 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 26 July 2022 will continue to benefit for the relevant five year period.

•           50% Exemption

The exemption is calculated as 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. 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 exemption does not apply for an individual who has been a tax resident of Cyprus for at least three out of the last five tax years immediately prior to the year of commencement of employment or for an individual who has been a tax resident of Cyprus in the tax year immediately prior to the tax year of commencement of employment.

Persons who qualify for this exemption before 26 July 2022 (date at which it will be terminated) will continue to benefit for the relevant 10 year period, unless they also qualify for the new 50% exemption (see below). In such a case these persons will benefit for an extended period of 17 years.

New Exemptions Introduced as from 26 July 2022

The new exemptions are covered below. As was the case so far, only one of the two exemptions is available to the same individual (i.e. he/she can not benefit from both).

As before, the exemption involves 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. First employment in Cyprus should start from 26 July 2022 onwards. The exemption from Income Tax is for a period of 7 years, instead of 5 years which was the case before. The following conditions must be met immediately before commencement of employment in Cyprus:

• the individual should not be resident of Cyprus for a period of at least three consecutive tax years; and
• the individual should be employed outside Cyprus by a non-resident employer.

As was the case so far, the exemption will start in the tax year following the year of commencement of employment.

There is no requirement for the individual and/or the employer to be or become a tax resident of Cyprus in order to benefit from this exemption.

•           50% Exemption

The exemption is calculated as 50% of the remuneration from any employment exercised in Cyprus, for persons whose first employment in Cyprus began from 1 January 2022 onwards. The exemption applies for a period of 17 years instead of 10 years which was the case before, starting from the year of commencement of  first employment in Cyprus. Furthermore, annual remuneration should exceed the amount of €55,000, instead of €100,000, which was the threshold so far. Qualifying persons should not be residents of the Republic for a period of at least 10 consecutive years immediately before the commencement of their employment in Cyprus.

First employment in Cyprus must have commenced from 1 January 2022 onwards. Persons whose employment commenced before 1 January 2022, may also qualify for the new 50% exemption, as long as for a period of at least ten consecutive years immediately before the commencement of their employment in Cyprus they were not residents of the country, as follows:

For each individual the exemption will apply once in their lifetime.

Τhe exemption is granted for any year in which remuneration from employment in Cyprus exceeds €55,000, irrespective of whether in any tax year the remuneration is reduced below €55,000, provided that in the first or second year of employment in Cyprus remuneration exceeded €55,000 and the Tax Authorities are satisfied that the fluctuation in the annual remuneration is not the result of an arrangement for obtaining the exemption.

The exemption is granted in the tax year of commencement of first employment, provided that the remuneration from that employment in the first 12 months exceeds €55,000. The exemption is also provided in the tax year of termination of employment in Cyprus or the termination of the period of 17 years, as long as the remuneration from that employment during the last 12 months exceeds €55,000.

As with the 20% exemption, there is no requirement for the individual and/or the employer to be or become a tax resident of Cyprus in order to benefit from this exemption.

As always, we are at your disposal for any further information or clarification and for discussing any specific enquiries, concerns and thoughts you may have.