New income tax benefits for employment income to attract foreign talent
On the 26th of July 2022, an amendment to the Cyprus Income Tax Law L.118(I)/2002 was published in the Official Gazette of the Republic of Cyprus. The amended legislation can be accessed in cylaw in Greek in section 8.
A simplified summary of the amendments is presented below:
The following existing exemptions no longer apply to employment starting after July 26, 2022:
Article 8(21) Any person employed in Cyprus who was previously not resident in the Republic to be exempt from tax for five years, up to a value of €8,550 or 20% of the remuneration. The exemption was available to qualifying individuals commencing employment in Cyprus between 2012 and 2025. Those who meet the requirements for this exemption before its expiry date (i.e., July 26, 2022) will continue to be eligible for the relevant five years.
Article 8(23) Persons employed in Cyprus who were not previously residents in the Republic and received an annual salary of at least EUR 100,000 are now subject to a 50% tax exemption for ten years, subject to conditions.
New income tax exemptions for employment income
Sections 8(21A) and 8(23A) of the Cyprus Income Tax Law, L.118(I)/2002, provide the following newly introduced tax exemptions:
New article 8(21A)
As of 26 July 2022, 20% of the remuneration of employees (up to a maximum amount of exemption of €8.550 per annum) whose first employment in Cyprus commenced from 26 July 2022 onwards is exempt from income tax for a period of seven years, provided the employees, immediately before the commencement of their employment in Cyprus:
- were not residents of Cyprus for a period of at least three consecutive tax years, and
- were employed outside of Cyprus by a non-resident employer.
An employee can claim this exemption for the first time in the year following the year of employment commencement.
Note that the law does not require an individual to become a Cyprus tax resident in order to take advantage of the new 20% tax exemption, nor does it require an employer to be a Cyprus tax resident employer.
Individuals who qualify for the 50% exemption described below are not eligible for this exemption.
New article 8(23A)
Employees employed in Cyprus for the first time on or after January 1, 2022, are entitled to a 50% income tax exemption for 17 years, provided that their annual remuneration exceeds €55,000 and they have not been residents of the Republic for at least ten consecutive years prior to their employment. The first employment in the Republic starts from 1 January 2022 onwards, and the period of 17 years begins from the month of employment in Cyprus. Individuals whose employment commenced prior to January 1, 2022, may also be eligible for the 50% exemption, as per the table below:
|Date of commencement of 1st employment in Cyprus||Eligibility for exemption|
|2016 – 2021||Employees whose remuneration at the commencement of first employment in Cyprus exceeded €55.000 p.a. or|
Employees whose remuneration at the commencement of first employment did not exceed €55.000 p.a., and within six months from 26 July 2022, their remuneration exceeds €55.000 per annum.
|Up to 2021 (for existing beneficiaries)||Existing employees who benefitted from the existing 50% exemption and have continuous employment in Cyprus up to and including 2021|
Clarifications according to the amending law:
- “Commencement of first employment exercised in Cyprus” is described as when an individual first is employed in Cyprus (for a resident or non-resident employer) without taking into consideration occasional full or part-time employment in Cyprus for a duration not surpassing a total of 120 days in a tax year.
- An individual may claim the exemption once in their lifetime for 17 years, starting from when they first began working in Cyprus.
- The exemption is granted for any year in which the remuneration from work in Cyprus goes beyond €55,000 per annum, despite whether in any tax year the remuneration is reduced below €55,000, given that in the first or second year of employment in Cyprus the income exceeded €55,000 p.a. and the Commissioner is satisfied that the change in the yearly income is not an arrangement established to acquire the exemption.
- The exemption is granted in the tax year of commencement of first employment, provided that the remuneration from first employment in Cyprus in the first 12 months exceeds €55,000, as well as during the tax year of termination of employment in Cyprus or the termination of the period of 17 years, provided that the remuneration from employment in Cyprus during the last 12 months exceeds €55,000.
- Likewise, with the 20% exemption, the individual doesn’t need to become a Cyprus tax resident to take advantage of the new 50% exemption or for the employer to be a Cyprus tax resident employer.
- Note that these benefits cannot be claimed simultaneously. Individuals can claim either one benefit with the 20% exemption or the other with the 50% exemption.