The long-awaited tax incentives for individuals in relation to first employment in Cyprus were officially published in the Official Gazette of the Republic of Cyprus on 26 July 2022. These new provisions, introduced into the income tax legislation, form part of the Cyprus Government’s broader strategy to attract businesses and skilled professionals from abroad, making Cyprus an even more attractive destination for foreign talent and investment.

Analysis of the New Provisions

1. The 50% Exemption

1.1 New 50% Exemption under Article 8(23A)

Under the new legislation, individuals who begin first-time employment in Cyprus on or after 1 January 2022 are eligible for a 50% exemption on their employment income, provided they meet the following conditions:

• The individual must not have been a Cyprus tax resident for at least 10 consecutive years prior to starting their employment in Cyprus.
• The annual remuneration from employment in Cyprus must exceed €55,000. This threshold can be met either in the first or second year of employment in Cyprus.

Important Note: The 50% exemption is available for a maximum period of 17 years, which effectively means it is a lifetime exemption. It begins in the year the individual commences employment in Cyprus. However, if the conditions are not met in any particular tax year (e.g., annual remuneration falls below €55,000), the exemption will not apply for that year.

1.2 Grandfathering Provisions

The legislation also provides for “grandfathering” provisions that allow individuals to benefit from the new 50% exemption under Article 8(23A) under the following circumstances:

• Individuals who previously benefited from the old exemption under Article 8(23) (the previous rules) and had continuous employment in Cyprus up to 2021.
• Individuals who started employment in Cyprus between the years 2016 and 2021 with an annual remuneration exceeding €55,000.
• Individuals who began employment in Cyprus between 2016 and 2021 with annual remuneration below €55,000, but whose remuneration exceeded this threshold within 6 months of the legislation’s publication (i.e., by 26 July 2022).

Important Note: In all the above cases, the individual must have been a non-Cyprus tax resident for 10 consecutive years prior to commencing employment in Cyprus. Eligible individuals will be able to apply the new 50% exemption from 1 January 2022 for a maximum period of 17 continuous years, starting from the date of commencement of employment.

1.3 Old 50% Exemption under Article 8(23)

Individuals who previously benefited from the first-time employment exemption under Article 8(23) (for employment commenced before the publication of this legislation) and do not fall under any of the grandfathering categories mentioned in Section 1.2, may continue to claim the exemption under the old provisions for the duration of the original 10-year period.

2. The 20% Exemption

2.1 New 20% Exemption under Article 8(21A)

The new provisions also introduce a 20% exemption for individuals who take up first employment in Cyprus after 26 July 2022, with an annual remuneration lower than €55,000. The exemption allows for 20% of employment income or up to €8,550 (whichever is lower) to be exempt, for a maximum period of 7 years.

To qualify for this exemption, the individual must have been employed outside Cyprus for at least three consecutive years prior to commencing employment in Cyprus with a non-Cyprus tax-resident employer.

Important Note: The 20% exemption can be claimed from the year following the year of employment commencement in Cyprus. For example, if employment begins in 2023, the exemption will be available for the years 2024-2030.

2.2 Old 20% Exemption under Article 8(21)

For individuals who started employment in Cyprus before 26 July 2022 and previously benefited from the old 20% exemption under Article 8(21), but do not qualify for any of the grandfathering provisions outlined in Section 1.2, they can continue to claim the old 20% exemption until the completion of the original 5-year period.

How George Kaimakliotis & Co Ltd Can Assist

Navigating through the complexities of the new tax incentives can be challenging. George Kaimakliotis & Co Ltd is here to help you understand the full scope of these provisions and ensure that you take full advantage of the available tax benefits. Whether you’re an individual looking to relocate to Cyprus or a business considering expanding here, we offer expert guidance to help you with the application of these provisions, ensuring full compliance and maximum benefit.

Contact us today for tailored advice and support to navigate through the new employment tax incentives in Cyprus.