Cyprus has introduced new rules for income tax exemptions on employment income to attract foreign talent. Income Tax Law (Amendment) (No. 6) of 2022 was published in the official Gazette on 26 July 2022 amending Articles 8 par 21 (the “Specific Exemption”) and Article par 23 (the “Executive Exemption”) which provide for income tax exemptions on employment income for relocated or repatriated employees under certain conditions.
The amendments stem from the New Integrated Strategy announced by the Ministry of Finance on 15 October 2021 (the “Strategy”) aimed at making Cyprus a Sustainable Business and Commercial Centre in the region and across Europe (refer to our Article here).
We have summarized in the comparison tables below the main changes to the current exemptions.
Specific Exemption Article 8(21)
| Specific Exemption Article 8(21) (old rules) | Specific Exemption Article 8(21) (new rules) | |
|---|---|---|
| Exemption | 20% of the remuneration capped at €8,550 from employment exercised in Cyprus is exempt from tax for the exemption period | 20% of the remuneration capped at €8,550 from employment exercised in Cyprus is exempt from tax for the exemption period |
| Exemption period duration | 5 years | 7 years |
| Exemption period starting date | Applies for a 5-year period, starting from 1.1.20XX following the year of employment | Applies for a 7-year period, starting from 1.1.20XX following the year of employment |
| First employment in Cyprus commenced | During years 2012 to 2025 | From 26 July 2022 onwards |
| Qualifying individuals | Applies to individual’s resident outside of Cyprus prior to commencing employment in Cyprus (even for one year) | Applies to individual’s resident outside of Cyprus for at least 3 consecutive years prior to commencing employment in Cyprus and were employed outside of Cyprus by a non-resident employer |
| Transitional provisions | Individuals who meet the conditions of the old rules before 26 July 2022 will remain under the old rule until the expiry of their 5-year period. |
Executive Exemption Article 8(23)
| Executive Exemption Article 8(23) (old rules) | Executive Exemption Article 8(23A) (new rules) | |
|---|---|---|
| Exemption | 50% of the remuneration exceeding €100,000 from employment exercised in Cyprus is exempt from tax for the exemption period | 50% of the remuneration exceeding €55,000 from employment exercised in Cyprus is exempt from tax for the exemption period |
| Exemption period duration | 10 years | 17 years |
| Exemption period starting date | Starts immediately from the month of commencement of first employment in Cyprus | Starts immediately from the month of commencement of first employment in Cyprus |
| First employment in Cyprus commenced | From 1.1.2012 onwards | From 1.1.2022 onwards |
| Qualifying individuals | Was not a Cyprus tax resident in the tax year immediately prior to the year of commencement employment in Cyprus | Was not a Cyprus tax resident for at least 10 consecutive years immediately prior to the year of commencement employment in Cyprus |
| Has not been a Cyprus tax resident for at least 3 out of the last 5 years immediately prior to the tax year of commencing employment in Cyprus. | ||
| Transitional provisions | Individuals who meet the conditions of the new rules prior to 1.1.2022 may also benefit from the new rules. | |
| Other | Exemption is available only if the employment income in Cyprus is more than the threshold of €100,000 in the first 12 months of employment in Cyprus. | Exemption is available only if the employment income in Cyprus is more than the threshold of €55,000 in the first and last 12 months of employment in Cyprus. |
| The employment income in the first year of employment in Cyprus needs to be over the threshold of €100,000. | The employment income in the first and second year of employment in Cyprus needs to be over the threshold of €55,000. | |
| If the employment income falls under the threshold, the benefit will not be granted in that tax year and will continue when the employment income increases again over the threshold of €100,000. | If the employment income falls under the threshold, the benefit will not be granted in that tax year and will continue when the employment income increases again over the threshold of €55,000. |
Our team is ready to help out with any questions or clarifications for the income tax exemptions and how this affects existing employees who benefit from the old rules or new employees considering to move to Cyprus.
