Amendment of 50% tax exemption on employment income

Overview

On 30 June 2023, the amendment of the Cyprus Income Tax Law (‘’ITL’’) relating to Article 8(23A) was published in the Official Gazette of the Republic of Cyprus.

Previous Article 23(A) before the amendment

Based on the previous Article 23(A) of the ITL, which entered into force from 1st January 2022, a 50% exemption applies in respect of remuneration earned under a first employment exercised in Cyprus.

The previous Article 8(23)(A) provided the following:
  • The exemption applied for an individual whose annual remuneration from first employment in Cyprus exceed EUR55.000.
  • The individual should have been a non-Cyprus tax resident for at least 10 consecutive years immediately prior to commencing employment in Cyprus.
  • For each individual, the period of the exemption was for 17 tax years from the tax year of commencement of first employment in Cyprus. The exemption was granted during the year of first employment provided that during the first 12 months of first employment in Cyprus, the remuneration exceeded EUR55.000. Furthermore, the exemption was granted during the year of termination of employment or at the end of the 17-year period of employment in Cyprus, provided that the remuneration from the employment during the last 12 months of employment exceeded EUR55.000
  • The exemption applied to an individual who:
  • Started the first employment in Cyprus within the period of 2016-2021 and the remuneration at the commencement of first employment in Cyprus exceeded EUR55.000 per annum.
  • Started the first employment in Cyprus within the period of 2016-2021 and the remuneration at the commencement of first employment did not exceed EUR55.000 per annum and within 6 months following the publication of the amending law (26 July 2022) the remuneration exceeds EUR55.000 per annum.
  • Started the first employment in Cyprus in 2022 onwards and in the first or second year of fist employment, the remuneration exceeds EUR55.000 per annum.

Amendment of Article 8(23A) of ITL

The new Article 8(23)(A) of the ITL, as amended, provides, inter alia, the following:
  • Individuals who meet the conditions for the 50% exemption (based on Article 8(23A) of the ITL) are allowed to continue to benefit from this exemption even if they change employer during the years they are entitled to claim the 50% exemption.
  • For the purposes of claiming the 50% exemption on remuneration earned from an employment in Cyprus, the number of years that an individual must not have been resident in the Republic of Cyprus before commencing his first employment in the Republic has been increased from 10 to 15 consecutive tax years.
  • Prior to the law amendment, the exemption was granted also in the tax year of termination of employment in the Republic or at the end of the 17-year period, provided that the remuneration from employment in Cyprus during the last 12 months exceeded EUR55.000. According to the law amendment, this provision has been deleted.
  • Individuals who during the year 2022 claimed the 50% exemption, based on the previous Article 8(23A), have the right to continue claiming the 50% exemption provided that the conditions of Article 8(23A) which was in force before the said law amendment came into force are met. In other words, provided that all conditions are met, individuals who were eligible for the 50% exemption before the law amendment (i.e. for at least 10 years they were not tax resident in Cyprus before their first employment in Cyprus), have the right to continue claiming the 50% exemption on their remuneration earned from their first employment in Cyprus.
  • The 50% exemption is granted for a period of 17 years or until the repeal of the said subsection of the ITL, whichever occurs earlier, commencing from the year in which the first employment in the Republic begins.
  • The tax exemption is granted in any year in which the remuneration from employment in the Republic exceeds EUR55.000, irrespective of whether in any tax year the said remuneration falls below EUR55.000, provided that:
    • during the first or second year following the date of commencement of the first employment in the Republic of Cyprus, the said remuneration exceeded EUR55.000 annually, and
    • the Tax Commissioner is satisfied that the fluctuation in the annual remuneration from employment in the Republic of Cyprus does not constitute an arrangement aimed at obtaining the exemption.

How can Taxcom help you

Taxcom can assist you in reviewing cases of employment exercised in Cyprus and elaborate further as to the practical applicability of the 50% exemption.

Contact us at info@taxcom.cy