Cyprus: Extension of employment income tax exemptions of 20% and 50%

Cyprus | February 2016 |

Important amendments to the Cyprus Tax Legislation

On December 10th, 2015, the Cyprus House of Representatives voted into law numerous anticipated tax law amendments, published with the Government Gazette on December 17th, 2015, amongst which are changes to the Taxation Scheme of Individuals, as follows:

Extension of employment income tax exemptions of 20% and 50%

As an incentive to multinational organisations to keep developing presence and economic substance in Cyprus, various extensions have been granted to some already existing employment income tax benefits, for the encouragement of relocation of senior management personnel to Cyprus.

In particular, as per the Cyprus Income Tax Law, any individuals taking up employment in Cyprus, and who have not been tax-residents of Cyprus before commencement of their employment, were in a position to claim one of the two following two:

• Exemption from Income Tax of 20% of their employment income earned in Cyprus, with ceiling of 8.550 Euros annually, for a period of 3 years.
• Exemption from Income Tax of 50% of their employment income earned in Cyprus, for personnel with annual salary over 100.000 Euros, for a period of 5 years.

As per the amendments, the 20% income tax exemption is now extended from 3 to 5 years, provided the employment started during or after year 2012. Further, this exemption will continue to remain applicable for the tax years up to year 2020, and from there on it will be abolished.

Also, the 50% exemption is also now extended from 5 to 10 years.

Additionally, for personnel starting their employment as of January 1st, 2015 and onwards, some additional parameters are in place in order to be eligible to the 50% exemption, and these are:

• They must have not been Cyprus tax-residents for a period of at least 3 out of the last 5 years, immediately prior to the year of commencement of employment, and
• They must have not been Cyprus tax-residents in the tax year immediately prior to the year of commencement of employment.

As another clarification, the 50% tax exemption can be applied in the course of any tax year during which the annual employment income of a qualifying employee is above 100.000 Euros, irrespective if throughout the overall 10 year-period the annual employment income might decrease at times below the 100.000 Euros threshold. This provision applies when the annual employment income is above 100.000 Euros during the first year of employment, and the Commissioner is convinced and satisfied that any such salary fluctuation thereafter, of a decrease and subsequent increase, was not intended so as to take advantage of the 50% exemption.

As per the law amendments, the above two exemptions are mutually exclusive and only one of the two can be claimed by a taxpayer.
Date applicable: This law is amended with a retroactive effect as of January 1st, 2015.

Eurofast’s take

The major rationale of these Tax Law changes relates to the improvement of Cyprus’ competitiveness in the investment – destinations field, and our payroll and tax advisors here at Eurofast are supporting all affected taxpayers in maintaining their conformity in line with the new amendments, assessing windows of opportunities within the amended tax legislation frame, and pin-pointing any need for necessary actions.

Christiana Nicolaou
Tax Consultant