A recently published amending law has introduced changes to the 50% exemption of employment remuneration, as outlined in Article 8(23A) of the Income Tax Law. One significant amendment is the extension of the non-tax residency requirement. Previously, individuals needed to have 10 consecutive years of non-tax residency before starting their first employment in Cyprus. However, the requirement has now been increased to at least 15 consecutive years.
Expanded Scope of Remuneration Application
The amendment also expands the scope of the provision. While the exemption originally applied only to the remuneration from an individual’s first employment in Cyprus, it now encompasses remuneration from employment in Cyprus as a whole. This means that even if an individual changes employers within the 17-year period, they can still qualify for the exemption. Therefore, subsequent employments within this period are also covered by the provision.
Duration and Clarification of the “Second Year”
The exemption remains applicable for a duration of 17 tax years or until the provisions of Article 8(23A) are abolished, whichever comes first. Additionally, the amending law provides clarification regarding the definition of the “second year” mentioned in a specific paragraph. The second year refers to the year following the date of the individual’s first year of employment in Cyprus.
Conditions for Granting the Exemption
The exemption is granted in any tax year when the remuneration from employment in Cyprus exceeds €55,000. This applies regardless of whether the remuneration falls below €55,000 in subsequent tax years. However, it is crucial that in the first or second year of employment in Cyprus, the remuneration exceeded €55,000 annually. Furthermore, the Commissioner must be satisfied that any fluctuations in annual remuneration are not an arrangement intended to obtain the exemption.
Exemption in the First Year of Employment
To be eligible for the exemption in the first year of employment, the remuneration from employment in Cyprus during the initial 12 months must exceed €55,000.
Termination of Employment Provision Deleted
The amending law eliminates the provision regarding the tax year of termination of employment in Cyprus. This provision stated that the exemption would be granted during the tax year of termination or at the end of the 17-year period, provided that the remuneration from employment in Cyprus during the last 12 months of employment exceeded €55,000.
Definition of “Commencement of First Employment in Cyprus”
The term “Commencement of first employment in Cyprus” refers to the initiation of employment in Cyprus by an individual who, after 15 consecutive tax years without performing any salaried services in Cyprus, commences employment with either a Cyprus or a non-Cyprus employer. Notably, the previous reference to occasional full or part-time employment in Cyprus has been removed.
Continued Exemption for Eligible Individuals
Individuals who previously qualified for the 50% exemption based on the old provisions of Article 8(23A) will continue to benefit from the exemption. To maintain eligibility, they must meet all the conditions in effect before the publication of the Amending Law of 2023.
Application of Amendments and Retrospective Effect
Based on the amendments, the provisions of Article 8(23A) of the Income Tax Law apply from January 1, 2022, regardless of the year of commencement of an individual’s first employment in Cyprus. These provisions remain in effect for a period of 17 consecutive tax years or until the abolishment of Article 8(23A), whichever occurs earlier. The eligibility criteria include continuous employment in Cyprus from the year of first employment until the tax year 2021, and a period of at least 15 consecutive years immediately before the commencement of the individual’s first employment in Cyprus, during which they were considered a non-Cyprus tax resident. The criteria also encompass individuals who were eligible for the 50% exemption under Article 8(23) of the Income Tax Law or whose first employment commenced in Cyprus between the tax years 2016-2021 with emoluments exceeding €55,000 per annum. Furthermore, those whose first employment in Cyprus between the tax years 2016-2021 had emoluments not exceeding €55,000 per annum, but whose remuneration exceeded €55,000 per annum within six months of the publication of the previous amendments, are included.
Retrospectively, the amending law is effective from January 1, 2022.
Expectations for Guidance from Cyprus Tax Authorities
Given the recent changes, it is anticipated that the Cyprus Tax Authorities will provide further guidance and clarifications regarding the practical application of the exemption outlined above.
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