Amendments to Income Tax Law- Attractive benefits for relocating Companies’ operations and Individuals to Cyprus

On 14th of July 2022, the Cyprus House of Representatives passed the following amendments to the Income Tax Law (“ITL”):

  1. Amendments to articles 8(21) and 8(23) of the Law, that provide a 20% or 50% exemption from income tax for individuals that take up first employment in Cyprus.
  2. Amendments to article 9A of the Law, that provides a deduction from income tax for persons that invested in a small or medium innovative business, as defined in the relevant legislation.

Details of the changes are below:

Amendments to articles 8(21) and 8 (23) of the Law:

  • Income Tax Law – 20% exemption (Article 8(21)):

Based on the new provisions of the Law, the following will apply:

From the date of the publication of the new legislation in the Official Gazette of the Republic, the provisions of article 8(21) will not be applicable and the provisions of the new article 8(21A) will apply.

The individuals that are currently eligible for the exemption of 20% based on the provisions of article 8(21) of the ITL, and are not eligible for the transitional provisions of the new Law, will continue to claim the exemption for the remaining years, without being affected by the provisions of the new Law.

Based on the provisions of article 8(21A), the exemption of 20% (or €8.550, whichever is lower) will be granted to individuals that take up first employment in Cyprus, provided that during the 3 years preceding their employment they were exercising their employment outside Cyprus for a non-Cypriot resident employer. The exemption will be granted for 7 years, starting from the tax year which follows the year of employment in Cyprus.

  • Income Tax Law – 50% exemption (Article 8(23)):

Based on the new provisions of the Law, the following will apply:

From the date of the publication of the new legislation in the Official Gazette of the Republic, the provisions of article 8(23) will not be applicable and the provisions of the new article 8(23A) will apply.

The individuals that are currently eligible for the exemption of 50% based on the provisions of article 8(23) of the ITL, and are not eligible for the transitional provisions of the new Law, will continue to claim the exemption for the remaining years, without being affected by the provisions of the new Law.

Based on the provisions of article 8(23A), the 50% exemption from income tax for the individuals that take up first employment in Cyprus will be granted subject to the following conditions:

  • The exemption will be granted in any tax year in which the remuneration from employment in Cyprus exceeds the amount of €55.000, provided that during the first or second year of employment the remuneration exceeded the amount of €55.000 per annum.
  • The exemption will be granted if the individual was not a resident of Cyprus for 10 consecutive years prior to his/her employment.
  • The exemption will be granted in the cases where the first employment in Cyprus will commence on or after 1 January 2022.
  • The exemption will be granted for a period of 17 years starting from the year of employment in Cyprus

Transitional provisions based on the amendments made to the Law

The following transitional provisions are included in the amendments made to the Law:

The individuals who were not Cypriot tax resident during any of the 10 years preceding the year of employment will be eligible to claim the 50% exemption during any tax year in which their remuneration exceeds the amount of €55.000, starting from the year 2022 until the completion of 17 consecutive years from the year of their employment, provided that they meet one of the following conditions:

  • They were eligible for the 50% exemption based on the provisions of Article 8(23) of the ITL and they have a continuous employment in Cyprus starting from the year of employment until the tax year 2021; or,
  • Their first employment in Cyprus commenced during the years 2016 until 2021 with a remuneration exceeding the amount of €55.000 per annum; or,
  • Their first employment in Cyprus commenced during the years 2016 until 2021 with a remuneration not exceeding the amount of €55.000 per annum, and within 6 months from the date of publication of the new Law in the Official Gazette of the Republic their remuneration will exceed the amount of €55.000 per annum.

Amendments to article 9A of the Law

Provisions that are applicable since 2017

As of 2017, qualifying individuals that invest in a small or medium innovative business (as defined in the legislation) are eligible to deduct the costs of their investment from their taxable income, subject to certain conditions and the following limitations:

The tax deduction is limited to 50% of the investor’s taxable income in the year in which the investment is made.

The total deductible amount may not exceed €150,000 per year.

Any non-deductible investment may be deducted in the five years following the year of investment, subject to the restrictions mentioned above.

New provisions of the Law based on the amendments

Based on the new provisions of the Law, that will be effective retroactively from 14 February 2022, the deduction from the taxable income will also be granted to legal persons that invest in a small or medium innovative business (as defined in the legislation), subject to certain conditions and  the following limitations:

The tax deduction is limited to 30% of the amount invested in the small or medium innovative business by the legal person.

The tax deduction is limited to 50% of the taxable income of the legal person in the year in which the investment is made.

The total deductible amount may not exceed €150,000 per year.

Any non-deductible investment may be deducted in the five years following the year of investment, subject to the restrictions mentioned above.

The provisions of article 9A of the Law are applicable until 30 December 2023.

The law Firm of NASOS A. KYRIAKIDES AND PARTNERS LLC can assist you with any clarifications you may be needing, assess whether the above changes can apply to your case/s and further take actions for the implementation of the changes.

Feel free to contact us if you have any queries.