Employment Tax Incentives-New income tax exemptions for first employment in Cyprus

Alert , 2022-07-14

The Cyprus Tax Laws have been amended with regard to the taxation of individuals working in the Fund Industry and incur carried interest and to further clarify the existing tax framework for Alternative Investments Funds (AIFs) and Undertakings for Collective Investments in Cyprus (UCITs).

On 14 July 2022, the House of Representatives voted amendments to Articles 8(21) and 8(23) of the Income Tax Law (ITL) related to the income tax exemptions granted to employees who take up first employment in Cyprus. The amended provisions of the Law have been published in the Government Gazette on 26 July 2022.

These amendments form part of a wider strategy of the Cyprus Government for attracting both international investments and diversified talent. Moreover, such amendments complement the recent changes in the migration rules which simplify and expedite the relocation of staff and their families from EU and non-EU countries.

The new 50% exemption (Article 8(23A))

The provisions of the new Article 8(23A) of the ITL apply as from 1 January 2022 for individuals who take up first employment in Cyprus commencing on or after 1 January 2022 provided that the following conditions are satisfied:

 

  • The individuals were not tax resident of Cyprus for a period of at least 10 consecutive years prior to the commencement of their employment in Cyprus; and
  • Their annual remuneration from exercising their employment in Cyprus exceeds the threshold of €55.000.

 

The exemption is granted in any tax year where the €55.000 threshold is satisfied. The exemption can also be granted (subject to special rules) in the first and final tax year as well as in cases where the annual remuneration fluctuates below the annual threshold of €55.000.

 

The exemption is available once in a lifetime for a maximum period of 17 years starting from the tax year of taking up first employment in Cyprus.

 

It should be noted that this exemption does not require the individuals to become Cyprus tax residents.

 

Moreover, individuals claiming this exemption cannot also claim the existing 50% exemption (Article 8(23)), the existing 20% exemption (Article 8(21)) or the new 20% exemption (Article 8(21A)).

 

Transitional provisions

 

Moreover, individuals who took up employment in Cyprus prior to January 2022, may also be eligible to transition themselves and claim an exemption as per the new Article 8(23A) as shown below:

 

Year of commencement of 1st employment

Eligible persons

 

Prior to 2022

Individuals who benefited from the existing 50% exemption (Article 8(23)) and continuously exercised their employment in Cyprus up to and including 2021

 

 

Between 2016 and 2021

Individuals whose annual remuneration from first employment in Cyprus exceeded €55.000

Individuals whose annual remuneration from first employment in Cyprus did not exceed €55.000 and within 6 months, starting from 26th July 2022, their remuneration will exceed the €55.000 threshold

 

Individuals currently benefiting under the existing 50% exemption (Article 8(23)) and do not fall within any of the cases mentioned above will continue to benefit from the existing 50% exemption up until the completion of the 10 year period. It should be noted that the provisions of Article 8(23) apply for individuals taking up first employment in Cyprus up until 26th July 2022.

 

The new 20% exemption (Article 8(21A))

Under the provisions of Article8 (21A), which are applicable as from 26th July 2022, individuals who take up first employment in Cyprus after 26th July 2022 are eligible to claim a 20% exemption on their annual remuneration (capped at €8.550) for a maximum period of 7 years.

 

Individuals claiming the new 20% exemption should have been non-Cyprus tax residents for at least 3 consecutive years prior to the commencement of first employment in Cyprus and must have been employed outside of Cyprus by a non- resident employer.

 

The exemption can be claimed in the tax year following the tax year of commencement of first employment in Cyprus (i.e. if first employment commences in 2022, the 20% exemption is granted from tax year 2023 up until tax year 2029).

 

Individuals already benefiting from the 50% exemption will not be eligible to additionally claim the 20% exemption.

 

Individuals who are currently eligible under the existing 20% exemption (Article 8(21)), and who are not eligible for the transitional provisions (mentioned above) will continue to benefit from the existing 20% exemption up until the completion of the 10 year period.

All content prepared by KPMG Cyprus.