The Cyprus government has introduced an attractive tax exemption to encourage foreign employees to work in Cyprus! Here’s what you need to know:

What is the Scheme?

• Exemption: 20% or €8,550 (whichever is lower)
• Applicable To: Individuals taking up their first employment in Cyprus
• Eligibility: Employment after July 26, 2022
• Annual Salary Limit: Less than €55,000
• Maximum Duration: Up to 7 years

Legislative Background

On July 14, 2022, the House of Representatives passed amendments to the Income Tax Law (ITL) in Cyprus, including:

• Exemptions: 20% or 50% from income tax for first-time employees
• New provisions under Articles 8(21A) and 8(23A) detailing specific conditions for exemptions.
• Circular 10/2022: Clarifies these exemptions and provides practical examples.

Key Clarifications in the Circular:

• Definitions: What constitutes “First Employment” and “Remuneration.”
• Contract Requirement: No formal contract is needed.
• Probation Periods: Counted towards the 120 days threshold.
• Multiple Employments: Exemptions apply only to the first employment.

Important Note for Eligibility:

• Individuals will qualify as employed outside Cyprus if they worked for a foreign employer exclusively outside Cyprus for the 36 months leading up to their employment start date in Cyprus.

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Recent Updates: The provisions for taxation of employment income in Article 8 have been amended. The latest amendment was published on June 30, 2023, with a retrospective effect from January 1, 2022.

Key Changes Introduced in Article 8 (23A):

1. New Definition of “First Employment in the Republic”
   • An individual is now considered to have first employment in Cyprus if they haven’t worked in Cyprus for at least 15 consecutive tax years.
     (This is a significant change from prior definitions that did not account for this scenario.)
2. Eligibility for the 50% Exemption
   • The annual remuneration threshold for the 50% exemption has been adjusted:
     • New Threshold: ≥ €55,000
     • Previous Threshold: ≥ €100,000
   • The exemption is available for a maximum period of 17 years for qualifying individuals.

Important Note:

• Special provisions have been created for individuals previously eligible for the 50% exemption under the prior version of Article 8 (23A) but who may not meet all conditions outlined in the amended law.

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For a deeper understanding of how these changes may affect you and for personalized advice, reach out to our tax experts!

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