Recently the House of Representatives in Cyprus voted amendments regarding individuals who start their employment for the first time in Cyprus. The amendments have been published to the Official Gazette of Cyprus on 26th July 2022.
In accordance with the new provisions of the Income Tax Law, a 50% exemption is now provided for the income in relation to the first employment in Cyprus for individuals with an annual income more than €55,000. Before the latest amendments, the exemption was granted for individuals with annual remuneration exceeding €100,000. The 50% exemption is granted for a period of 17 years.
In addition, individuals who do not qualify for the 50% exemption, shall be eligible to claim a 20% tax exemption on gross earnings or €8,550 (whichever is lower). The 20% exemption is available for a period of 7 years.
It is understood that a person can claim only one of the above exemptions in a tax year.
A. The 50% exemption in accordance with Article 8(23A) of the Income Tax Law:
Individuals whose first employment in Cyprus started on or after the 1st January 2022, will be entitled to a 50% tax exemption on their gross remuneration from their employment provided that the following condition are met:
- The individual has not been a tax resident of Cyprus for a period of at least 10 consecutive years prior the commencement of his/her employment in Cyprus;
- His/her annual gross remuneration from the employment in Cyprus exceeds the amount of €55,000 (provided that the annual salary limit of €55,000 can be reached during the first or second year of the employment in Cyprus).
The 50% exception will be available for a maximum period of 17 years starting from the commencement day of the employment and will be granted in any year in which the remuneration exceeds the amount of €55,000. In case in any year the gross salary is reduced below €55,000, if during the first or second employment year the annual remuneration exceeded the amount of €55,000 and given that the Commissioner of Taxation is satisfied that the fluctuation in the annual remuneration is not an arrangement intended to grant the exemption, the exemption shall be granted.
Regardless of the above provisions, the exemption is granted during the first employment year in Cyprus provided that the remuneration from the first employment during the first 12 months, exceeds the amount of €55,000. The same applies for the tax year of the termination of the employment or at the end of the 17-year period provided that the remuneration during the last 12 months exceeds the €55,000 limit.
It should be noted that for the purposes of Article 8(23A) of the Income Tax Law, the term “commencement of first employment in Cyprus” means an individual who performs salaried services in Cyprus for the first time, either for an employer who is a resident in Cyprus or for a non-Cyprus resident taking into account occasional full or part-time employment in Cyprus for a period not exceeding a total of 120 days in a tax year.
It is further provided that, regardless of the year of commencement of employment in Cyprus, the new provisions are applicable as of 1st January 2022 and upon the completion of 17 consecutive years, staring from the commencement of the tax year of the employment and for a period of at least 10 consecutive years immediately prior to the year of commencing the employment in Cyprus, provided that the below are met:
- Persons who previously benefited from the provisions of Article 8(23A) (the provisions before the said amendment) and have continuous employment in Cyprus from the year of the commencement of their employment until the tax year 2021; or
- Persons whose first employment started during the years 2016-2021, with remuneration exceeding the amount of €55,000/year; or
- Individuals who starter their employment in Cyprus the years 2016-2021 with their annual remuneration not exceeding the amount of €55,000/year and within 6 months from the date of the publication of the amended legislation (that is from 26th July 2022), this annual income will exceed the limit of 55,000/year.
B. The 20% exemption in accordance with Article 8(21A) of the Income Tax Law:
Individuals with an annual salary less than €55,000 and whose first employment in Cyprus commenced after 26th July 2022 and until the year 2027, are eligible to obtain the 20% tax exemption or €8,550 (whichever is lower).
In order for a person to be able to claim the 20% tax exemption, must have been employed outside of Cyprus by a non-Cyprus resident employer for at least 3 consecutive years prior to the commencement of his/her first employment in Cyprus.
The term “commencement of first employment in Cyprus” has the same meaning as under Article 8(23A) of the Income Tax Law.
The 20% tax exemption is granted for a period of 7 years starting from the tax year following the year of the commencement of the employment in Cyprus.
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