On 14 July 2022, the House of Representatives approved a bill for the amendment of Tax Law, proposed as part of a Government strategy to attract foreign employees and specialised Cypriots with a high standard of living, permanently residing abroad for a number of years.
The Law Amendment was published in the Cyprus Government Gazette on 26 July 2022 (the “Publication date”), on which date the Amendment entered into force.
The Law Amendment differentiates the existing 20%/50% exemptions from taxable income, for first employment in the Republic and implements the following:
For new taxpayers
- 50% income tax exemption on remuneration from employment exercised in Cyprus, earning at least €55,000 (reduced from €100,000 currently in effect) for any individual, who prior to the commencement of first employment exercised in Cyprus, was abroad for at least 10 consecutive tax years and whose first employment in the Republic begins from 1 January 2022 onwards;
- The exemption will apply for 17 years from commencement of employment (extended from 10 years currently in effect);
- The exemption is granted in any tax year during which the remuneration from employment in the Republic exceeds €55,000, regardless of whether in any tax year the remuneration in question falls below €55,000, provided that during the first or second year of employment in the Republic the said remuneration exceeded €55,000 per year, and the Commissioner is satisfied that the fluctuation in the annual remuneration from employment in the Republic is not an arrangement intended for the purpose of granting the exemption;
- Regardless of the above paragraph, the exemption is granted during the year in which the employment commenced, given that the remuneration from the first employment in the Republic during the first 12 months exceeds €55,000, and also during the last year of employment (or expiry of the 17 years mentioned above), provided that during the last 12 months, the remuneration exceeded €55,000.
- 20% exemption on remuneration (up to a maximum exemption of €8.550 per annum), for any individual who immediately prior to the commencement of first employment exercised in Cyprus was abroad for a period of at least 3 consecutive tax years and was employed outside of Cyprus, by a non-Cyprus-tax-resident employer and whose first employment in the Republic begins after the Publication Date.
- The exemption will apply for a period of 7 years, starting from the tax year following the tax year of commencement of employment.
- Individuals granted the 50% exemption, will not be eligible for the 20% exemption.
For existing taxpayers
- Any existing tax payers, who were not tax residents in the Republic for at least 10 consecutive years prior to the commencement of first employment exercised in Cyprus, will be eligible for the exemption of 50%, for any tax year in which their remuneration from employment in the Republic exceeds €55,000, starting from tax year 2022 for a total of 17 years from commencement of employment, provided that:
- They were beneficiaries of the existing 50% tax exemption with continuous employment in the Republic from the commencement of first employment exercised in Cyprus up to tax year 2021 or
- Their first employment exercised in Cyprus commenced between 2016 and 2021 with remuneration per annum exceeding €55,000 or
- Their first employment exercised in Cyprus commenced between 2016 and 2021 with remuneration per annum not exceeding €55,000 and within 6 months of the Publication date, their remuneration per annum exceeds €55,000.
- Individuals who do not meet the conditions to transition into the new 50% exemption, but who nevertheless are eligible for the existing 50% exemption on employment remuneration, will continue to benefit from the existing exemption for a total period of 10 years.
- Similarly, for individuals who do not meet the conditions to transition into the new 50% exemption, but are eligible for the existing tax deduction of 20% on remuneration from employment exercised in Cyprus, with a maximum of €8,550 whose employment commenced from 2012 and until the date of publication of this Law amendment, will continue to benefit from the existing exemption for a total period of 5 years.
- The existing 20% and 50% exemptions will no longer be available for employment commencing after the Publication Date.
The definition of “Commencement of first employment exercised in Cyprus” is when an individual first performs salaried services in the Republic, either for a resident or non-resident employer, not taking into account occasional full-time or part-time employment in the Republic for a period not exceeding a total of 120 days in a tax year.
The strategy to attract business and talent, is among the most competitive programs in the EU, aiming to the development of a one-stop-shop. It has already created wide interest from international businesses and especially high-tech companies which in recent years seem to choose Cyprus for headquarter establishment and relocation.