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

Individuals taking up employment in Cyprus, who were previously residents outside Cyprus, are eligible to claim one of the following tax exemptions:

• 20% of their employment income earned in Cyprus to be exempt from income tax, up to a maximum of €8,550;
• 50% of their employment income earned in Cyprus to be exempt from income tax, assuming such individuals earn more than €100,000 per year;

According to the amending law, the exemption period for the 20% income tax exemption is extended from 3 years to 5 years provided the employment started during or after 2012. This exemption applies for tax years up to 2020 and it is then abolished.

The exemption period for the 50% income tax exemption is extended from 5 years to 10 years.

Furthermore, for individuals commencing employment from 1 January 2015, there will be additional requirements in order to be eligible for the 50% tax exemption. These are:

• A qualifying individual should not have been a Cyprus tax resident for at least 3 out of the last 5 years immediately prior to the year of commencement of employment and
• he/she should not have been a Cyprus tax resident in the tax year immediately prior to the year of commencement of employment.

The 50% tax exemption will be granted in any tax year in which the annual employment income of the qualifying individual exceeds €100,000, regardless if in a year during the 10-year period the employment income falls below €100,000. This provision shall apply where the annual employment income exceeds €100,000 during the first year of employment and the Commissioner is satisfied that the decrease and subsequent increase observed in the annual income of the employee was not intended to take advantage of the 50% tax exemption.

The above provisions are effective from 1 January 2015.

Published on Wednesday 30th December 2015