New exemption rules for new CY employment for individuals
On 26 July 2022 new amendments have been published in the Government Gazette (relevant publication can be found here) which concern Articles 8(21), 8(21A), 8(23) and 8(23A) of the Income Tax Law, that cover exemptions of the salary of individuals taking up first employment in Cyprus to a resident or non-resident employers.
20% exemption – New Article 8(21A)
As per the new amendment 20% (or €8.550, whichever is lower) of the employment remuneration earned in the hands of employees taking up first employment in Cyprus, should be exempt from Income tax. The below provisions apply:
- The amended 20% exemption should apply for a period of 7 years, starting from the tax year following the year of commencement of employment in Cyprus.
- This exemption should apply for Cyprus employment commencing in the period from 26 July 2022 (date of the publication of the amendment) until the tax year 2027 inclusive.
- This exemption should apply to individuals who were non-Cyprus tax residents for at least 3 consecutive years immediately prior to the commencement of their Cyprus employment and who were employed outside Cyprus by a non-resident employer.
The said 20% exemption cannot be claimed simultaneously with the below-mentioned 50% exemption.
Previous rules – Article 8(21)
Individuals who were/are eligible for the 20% exemption stipulated in the previous/current rules of Article 8(21) until 26 July 2022, shall continue to claim the caped 20% exemption for the remaining of the 5 years stipulated in the said rules.
50% exemption – New Article 8(23A)
As per the new amendment 50% of the employment remuneration exceeding €55.000 earned in the hands of employees taking up first employment in Cyprus, should be exempt from Income tax. The below provisions apply:
- The amended 50% exemption should apply for a period of 17 years, starting from the year of commencement of the employment in Cyprus.
- This exemption should apply for Cyprus employment commencing on or after 01 January 2022.
- This exemption should apply to individuals who were non-Cyprus tax residents for at least 10 consecutive years immediately prior to the commencement of their Cyprus employment.
Other key provisions stipulate the following:
- The new 50% exemption is granted in any tax year in which the employment remuneration is in excess of €55.000 irrespective if in any (other) tax year the remuneration falls below €55.000, provided that during the first or second year of the Cyprus employment the annual remuneration exceeded €55.000.
- The new 50% exemption is granted in the tax year of commencement of the first Cyprus employment provided that the underlying remuneration exceeds €55.000 in the first 12 months of the employment. The same should apply for the last eligible year (year of employment termination or lapse of the 17 years) provided that the underlying remuneration exceeds €55.000 in the last 12 months.
Transitional rules
Individuals whose employment commenced before 01 January 2022 and who were non-Cyprus tax residents for at least 10 consecutive years immediately prior to the commencement of their Cyprus employment may also claim the new 50% exemption of Article 8(23A). This exemption may be claimed:
- for any tax year in which their employment remuneration exceeds €55.000
- as from the tax year 2022 onwards
- for 17 consecutive years from the year of commencement of their Cyprus employment
The exemption should be granted, provided that the individuals meet one of the following conditions:
- they were eligible for the (previous/current) 50% exemption under Article 8(23) (stipulating a conditional 50% for employment remunerations exceeding €100.000 per annum) and maintain continuous Cyprus employment from the year of commencement of the said employment until the tax year 2021, or
- their first employment in Cyprus commenced between 2016 – 2021 with annual remuneration exceeding €55.000, or
- their first employment in Cyprus commenced between 2016 – 2021 with remuneration not exceeding €55.000 but within 6 months from the publication date of the new Article (i.e. 26 July 2022), their remuneration exceeds €55.000.
Notes
- The new 50% exemption under Article 8(23A) cannot be claimed simultaneously with the exemptions under Articles 8(21), 8(21A) or 8(23A).
- The underlying exemption applies once the lifetime of a taxpayer, for the duration stipulated in the legislation.
How can we help
We stand ready to clarify any queries you may have and provide any assistance that you may require with regard to the new provisions.