On June 30, 2023, an amendment to the income tax law was published in the Government Gazette, specifically addressing the 50% exemption of employment remuneration under Article 8(23A).
The amendments are as follows:
- The requirement for non-tax residency of the individual has been extended from 10 consecutive years to at least 15 consecutive years immediately prior to the commencement of the individual’s first employment in Cyprus.
- The provision now applies to remuneration from employment in Cyprus, expanding its scope beyond just the remuneration from the first employment in Cyprus. This change allows individuals to qualify for the exemption even if they change employers within the 17-year period. Consequently, the provision also applies to any subsequent employments within the 17-year timeframe.
- The exemption applies for a period of 17 tax years or until the provisions of Article 8(23A) are abolished, whichever occurs earlier. The period starts from the tax year in which the individual’s first employment in Cyprus commenced.
- The amending law clarifies that the “second year” referred to in the following paragraph is the year that follows the date of the first year of employment in Cyprus: The exemption is granted in any year where the remuneration from employment in Cyprus exceeds €55,000, regardless of whether the remuneration in any tax year falls below €55,000. This is provided that in the first or second year of employment in Cyprus, the remuneration exceeded €55,000 annually, and the Commissioner is satisfied that the fluctuation in annual remuneration is not an arrangement made with the purpose of obtaining the exemption.
- The exemption is granted in the tax year of the commencement of the first employment, given that the remuneration from employment in Cyprus during the first 12 months exceeds €55,000.
- The provision regarding the tax year of termination is deleted: “The exemption is granted during the tax year of termination of employment in Cyprus or at the end of the 17-year period, provided that the remuneration from employment in Cyprus during the last 12 months of employment in Cyprus exceeds €55,000.”
- An individual is considered to have “Commencement of first employment in Cyprus” when, for the first time after a period of 15 consecutive tax years in which they did not perform any salaried services in Cyprus, they start working in Cyprus under the employment of a Cyprus or non-Cyprus employer.
Furthermore, based on the approved amendments, regardless of the year of commencement of the first employment in Cyprus, the provisions of Article 8(23A) of the Income Tax Law apply from January 1, 2022, until the completion of the 17 consecutive tax years or the abolishment of the current Article, whichever happens earlier. This applies starting from the tax year of the individual’s first employment in Cyprus, provided they had continuous employment in Cyprus from the year of their first employment up to and including the tax year 2021, and had been considered a non-Cyprus tax resident for at least 15 consecutive years immediately before the commencement of their first employment in Cyprus. The individual must meet one of the following criteria:
- They were eligible for the 50% exemption based on Article 8(23) of the Income Tax Law, or
- Their first employment commenced in Cyprus between the tax years 2016-2021, with emoluments exceeding €55,000 per annum, or
- Their first employment in Cyprus between the tax years 2016-2021 had emoluments not exceeding €55,000 per annum, but within 6 months from the date the previous amendments were published in the Gazette (i.e., from July 26, 2022), their remuneration exceeded €55,000 per annum.
The amending law has a retrospective effect as of January 1, 2022.