Amendments to the Income Tax Law (“ITL”) were approved by the House of Representatives and published in the official gazette on 30 June 2023 as the Income Tax Law 51(I)/2023 (Amending) (No.8) of 2023 (the “Law”). The Law effectively revises the conditions to be met by individuals employed in the Republic of Cyprus (the “Republic”) to benefit from the 50% tax deduction on their employment income, as these are provided under section 8(23A) of the ITL.

More specifically, the amendments were introduced to enable employees relocating to Cyprus to benefit from the 50% tax deduction on their employment income irrespective of the number of employers during the period of 17 years, widening the applicability of the deduction. This is part of the continuous efforts of Cyprus to attract new talents and high-profile individuals.

The new section 8(23A)

Rules relevant to individuals employed in the Republic from 01 January 2022 onwards

The 50% tax deduction now becomes available to individuals employed in the Republic who have not been Cyprus residents for fifteen (15) consecutive years (previously ten (10)) prior to their first employment in the Republic, irrespective of whether they are currently on their first employment or not provided that their annualized income exceeds the amount of EUR 55,000.

The lifespan of the deduction remains at seventeen (17) years from the commencement of the first employment in the Republic or the abolishment of section 8(23A) of the ITL - whichever comes first.

The deduction now applies irrespective of whether the employment income falls below the threshold (EUR 55,000) provided that during the first or second year of employment in Cyprus, the employment income exceeds EUR 55,000 and the Tax Commissioner considers that such arrangement was not aimed at granting the deduction. Notwithstanding the aforesaid, the deduction will be granted during the year of commencement of first employment provided that the income for the first twelve (12) months exceeds EUR 55,000.

Rules relevant to individuals employed in the Republic before 01 January 2022

Existing taxpayers that have been continuously employed in the Republic until the tax year 2021 and for a period of fifteen (15) years preceding their first employment were not Cyprus residents can also claim the 50% tax deduction if:

  • They were previously eligible for the tax deduction provided under section 8(23) of the ITL; or
  • Their first employment in the Republic commenced between the years 2016 – 2021 and their income exceeded the amount of EUR 55,000 annualized; or
  • Their first employment in the Republic commenced between the years 2016 – 2021 and the income did not exceed the EUR 55,000 yearly, provided that within the period of 6 months from the date the Income Tax Law 121(I)/2022 (Amending) (No.6) of 2022 was published in the official gazette (effectively 26 January 2023), the employment income exceeded the EUR 55,000 annualized.

Assuming that any of the above conditions apply, they may benefit from the 50% tax deduction only for the years following 01 January 2022 up to the last of seventeen (17) years of their employment, commencing on the first year of their first employment in the Republic, or until the abolishment of section 8(23A) of the ITL – whichever comes first.

The revised rules are effective as of 01 January 2022 and also apply to taxpayers who were already taking advantage of the benefits provided under section 8(23A) of the ITL.

The ITL as revised enlarges the scope of the 50% tax deduction making it now available to employees that have changed employers during the deduction eligibility period (17 years). Although the pre-requirement of not being employed in the Republic for 10 years prior to first employment was extended to 15 years, this benefit remains highly attractive for people considering relocating to the island.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.