Amendments to the 50% exemption of Article 8(23A) of the Income Tax Law – 30 June 2023

June 30, 2023

On 30 June 2023 amendments to the 50% exemption provided in Article 8(23A) of the Income Tax Law was published in the official Cyprus Government Gazette. The changes apply retrospectively, effective as of 1 January 2022.

This is a continuation of our tax alert circulated to you during 2022, “New income tax exemptions for employment income 2022”.

It is important to note that individuals who were previously eligible for the tax exemption based on the previous provisions of the Article 8(23A) will continue to benefit provided that all conditions, as they were in effect before the amending law, are met.

Amendments introduced through the amended Article 8(23A)

  • Increase in the number of minimum years of non-Cyprus tax residence immediately prior to commencement of employment in Cyprus, from 10 to 15.
  • With the old Article 8(23A), the definition of first employment meant that the employee had never worked in Cyprus before (with some relaxations with respect to occasional employment) and would not change employers once the “first employment” started.

As per the law amendment, an employee will be considered as exercising first employment in Cyprus if he/she did not exercise any salaried services (including occasional employment) in Cyprus (whether for a local or foreign employer) for a 15-year consecutive period immediately prior to the aforesaid employee taking up employment in Cyprus.

In other words, the first employment is no longer a condition for ascertaining whether the employee is able to enter into the regime in the first place. As a result, once the employee is initially assessed as eligible for the exemption of the amended Article 8(23A), the said employee can change employer and continue to benefit from the relevant tax exemption provided the other conditions are met.

  • The exemption applies for a period of 17 tax years from the tax year of commencement of employment, or up until the relevant legislative provision is repealed (whichever comes first)
  • As per the law amendment, the 50% exemption can no longer be claimed in the tax year of termination of employment, or the tax year during the 17 year period elapses, even if the remuneration exceeds the €55.000 during the 12 month period immediately preceding either of the above dates unless the remuneration exceeded €55.000 within the same tax year. On the other hand, and similarly to the old Article 8(23A), the exemption can be claimed during the first year of employment if, during the first 12 month period following the commencement of employment, the remuneration exceeds €55.000
  • The exemption applies for any tax year that the remuneration of the employee exceeds €55.000. Any fluctuations to the employee’s remuneration do not affect the employee’s entitlement to the exemption provided that: a) during the first or second 12 month period following the date of the first employment the remuneration of the employee exceeded the €55.000 and b) the Commissioner of Taxation is satisfied that the fluctuation is not a result of an arrangement put in place in order for the employee to benefit from the exemption.

This publication has been prepared as a general guide and for information purposes only. It is not as substitution of a professional advice. One must no rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any laws occasioned by acting or refraining from acting on the basis of this publication

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