Tax Exemptions for Employment Income to attract Foreign Talent to Cyprus
The concept of “first employment”
The revised legislative framework governing income tax under the Income Tax Law of 2002 (L.118(I)/2002), as amended, introduce the definition of “first employment” applicable to persons who are employed in the Republic of Cyprus for the first time noting that:
- A person is considered to have first employment when he/she works on a salaried basis for an employer that is either resident or non-resident in Cyprus
- The definition of “first employment” does not take into account occasional full or part-time employment that does not exceed 120 days overall in a tax year
20% Tax Exemption under Section 21A: 20% tax exemption (up to a maximum tax exemption of €8,550 per annum) on remuneration for employees commencing their first-time employment in the Republic of Cyprus on or after 26 July 2022. Employees in this category are exempt from income tax for 7 years, provided that prior to their employment in Cyprus they:
- were not Cypriot residents for at least 3 consecutive years; and
- were employed outside the Republic of Cyprus by a non-Cypriot resident employer.
Additionally, there is no requirement for the employee, or the employer concerned, to be Cypriot tax resident for the employee to benefit from the 20% tax exemption.
50% Tax Exemption under Section 23A: 50% tax exemption on remuneration for employees commencing their first-time employment in the Republic of Cyprus on or after 1 January 2022. Employees in this category are exempt from income tax for 17 years, provided that:
- their annual remuneration is at least €55,000; and
- prior to their employment in Cyprus they were not Cypriot residents for 10 consecutive years.
Pre-01/01/2022 Employees: may still qualify for the 50% tax exemption subject to the eligibility criteria revolving around the commencement date of their first-time employment in the Republic of Cyprus.
Action Plan 2022-24: These tax incentives form part of the Government’s Action Plan for Attracting Companies to Operate & Expand their Activities in Cyprus 2022-2024, launched for promoting Cyprus as an international business centre and an international / regional headquartering destination.
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