Cyprus improves income tax exemptions to attract foreign talent

The Cyprus government published the Income Tax (Amendment) (No. 6) Law of 2022 in the official gazette on 26 July with respect to the income tax exemptions for employment income provided in articles 8(21) and 8(23) of the Income Tax Law. The existing exemptions were abolished and new, more favourable, exemptions were introduced.

The new incentives are designed to attract highly skilled and high-earning foreign nationals to Cyprus, either as employees of a Cypriot entity or as employees of a non-Cypriot entity through remote working arrangements.

Article 8(23) provides for individuals with annual remuneration of more than €100,000 to claim a 50% exemption from tax for income in relation to first employment in Cyprus. Under the new article 8(23A), the annual income threshold is reduced to €55,000 and the exemption is extended from a maximum period of 10 years to 17 years.

To claim this exemption, the individual should not have been Cyprus tax resident for at least 10 consecutive years prior to the commencement of the employment in Cyprus and the annual remuneration from employment in Cyprus must exceed €55,000 in either the first or the second year of employment in Cyprus.

Individuals who met the conditions for this exemption before 26 July 2022 will continue to benefit for the relevant 10-year period, unless they also qualify for the new 50% exemption, in which case the individual can benefit for a longer period of 17 years. The first qualifying employment in Cyprus starts as from 1 January 2022 and the period of 17 years starts as from the month of employment in Cyprus.

Article 8(21) provides for individuals with annual remuneration lower than €55,000 to claim a 20% exemption from tax for income in relation to first employment in Cyprus or an amount of €8,550, whichever is lower. Under the new article 8(21)A, this exemption is extended from a maximum period of five years to seven years.

To claim this exemption, the individual is required to have been employed outside Cyprus by a non-Cyprus tax resident employer for at least three consecutive years before the start of the employment in Cyprus. Individuals who met the conditions for this exemption before 26 July 2022 will continue to benefit for the relevant five-year period, unless they are granted the 50% exemption under new article 8(23A).

Under both articles, the individual is not required to become a Cyprus tax resident to benefit from the exemptions and the employer is not required to be a Cyprus tax resident employer.

Grandfathering provisions apply, such that an exemption under article 8(23) can be claimed by individuals who:

• Previously benefited from the old provisions of article 8(23) and had continuous employment in Cyprus up to 2021.
• Started their employment in Cyprus between the 2016-2021 tax years with annual remuneration of more than €55,000.
• Started their employment in Cyprus between the 2016-2021 tax years with annual remuneration of less than €55,000 but who exceed the new threshold within six months of 26 July 2022.

The amending law, which was approved by the House of Representatives on 14 July, falls within the framework approved by the Council of Ministers in October 2021 in line with the Cyprus government’s strategy to attract and retain foreign talent.