On 14 July 2022, the House of Representatives passed the following amendments to the Income Tax Law (“ITL”):
- Amendments to articles 8(21) and 8(23) of the Law,that provide for a 20% or 50% exemption fromincome tax for individuals that take up firstemployment in Cyprus.
- Amendments to article 9A of the Law, that providesfor a deduction from income tax for persons thatinvested in a small or medium innovative business,as defined in the relevant legislation.
More details as to the above follow:
1. 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 newlegislation in the Official Gazette of the Republic,the provisions of article 8(23) will not beapplicable and the provisions of the new article8(23A) will apply.
- The individuals that are currently eligible for theexemption of 50% based on the provisions ofarticle 8(23) of the ITL, and are not eligible for thetransitional provisions of the new Law, willcontinue to claim the exemption for the remainingyears, without being affected by the provisions ofthe new Law.
- Based on the provisions of article 8(23A), the 50%exemption from income tax for the individualsthat take up first employment in Cyprus will begranted subject to the following conditions:
- The exemption will be granted in any taxyear in which the remuneration fromemployment in Cyprus exceeds theamount 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 theindividual was not a resident of Cyprus for10 consecutive years prior to his/her employment.
- The exemption will be granted in the caseswhere the first employment in Cyprus willcommence on or after 1 January 2022.
- The exemption will be granted for a periodof 17 years starting from the year ofemployment in Cyprus.
Transitional provisions based on the amendments made to the Law
- The following transitional provisions are included inthe amendments made to the Law:
- The individuals who were not Cypriot tax residentduring any of the 10 years preceding the year ofemployment 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% exemptionbased on the provisions of Article 8(23) ofthe ITL and they have a continuousemployment in Cyprus starting from the yearof employment until the tax year 2021; or,
- Their first employment in Cypruscommenced during the years 2016 until
2021 with a remuneration exceeding the amount of €55.000 per annum; or - Their first employment in Cypruscommenced during the years 2016 until2021 with a remuneration not exceeding theamount of €55.000 per annum, and within 6months from the date of publication of thenew Law in the Official Gazette of theRepublic 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’staxable income in the year in which the investment is
- The total deductible amount may not exceed€150,000 per year.Any non-deductible investment may be deducted in thefive years following the year of investment, subject to therestrictions 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 amountinvested in the small or medium innovative businessby the legal person.
- The tax deduction is limited to 50% of the taxableincome of the legal person in the year in which theinvestment is made.
- The total deductible amount may not exceed€150,000 per year.Any non-deductible investment may be deducted in thefive years following the year of investment, subject to therestrictions mentioned above.
The provisions of article 9A of the Law are applicable until 30 December 2023.
For any further guidance regarding this procedure or if you require an initial consultation, please do not hesitate to contact our Law Firm at [email protected], +357 22 261 777 or +357 25 261 777 or please visit our office in Nicosia or Limassol.