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Cyprus introduces labour income tax benefits to attract foreign professionals

November 16, 2022

On October 15, 2021, the Minister of Finance of the Republic of Cyprus, Mr Konstantinos Petridis, held a press conference dedicated to the launch of the Action Plan for attracting companies to conduct activities and expansion in Cyprus.

The above Action plan is a significant improvement in promoting Cyprus as an international business centre and includes the following:

• Business Promotion Group

• Employment of third-country nationals

• Family members of third-country nationals

• Simplification of the procedure for obtaining a work permit

• Benefits of social security

• Digital Nomad visa (500 beneficiaries)

• Tax incentives and exemptions

• Cypriot citizenship through naturalisation

• Secondary actions complementing the Action Plan

• Human resources and workforce improvements

The concept of "first employment"

The revised legal framework governing income tax following the Income Tax Law of 2002 (L.118(I)/2002), as amended, introduces the definition of “first employment”, applicable to persons who are employed in the Republic of Cyprus for the first time, noting that:

• A person is considered to have received the first job when he/she is paid by an employer in Cyprus, who may be a resident or non-resident.

• The concept of "first employment" does not consider temporary full-time or part-time employment, the total duration of which does not exceed 120 days during the tax    year.

New tax exemptions

Tax exemption of 20% under Section 21A: Tax exemption of 20% (up to the maximum amount of EUR 8,550 per year under the tax exemption) on the remuneration of employees who got their first job in Cyprus on or after July 26, 2022. Employees falling under this category are exempt from income tax for 7 years, provided that before starting work in Cyprus they:

• have not been residents of Cyprus for at least 3 consecutive years; as well as

• have been employed outside Cyprus with a non-Cyprus resident employer.

In addition, the employee or the employer concerned is not required to be a tax resident in Cyprus for the employee to benefit from the 20% tax exemption.

50% tax exemption according to Section 23A: A 50% tax exemption on the remuneration of employees who took their first job in Cyprus on or after 1 January 2022. Employees in this category are exempt from paying income tax for 17 years, provided that:

• the amount of their remuneration for the year is not less than 55,000 euros; as well as

• before starting work in Cyprus, they have not been residents in Cyprus for 10 consecutive years.

Employees hired before 1 January 2022 are still eligible for a 50% tax exemption subject to specific criteria related to the start date of their first employment in the Republic of Cyprus.

These tax incentives are part of the Government's Action Plan 2022-2024 for encouraging and expanding companies in Cyprus, which is being implemented to promote Cyprus as an international business centre and global/regional headquarters location.

We have rich experience in the field of tax optimisation. Therefore, our clients seek advice and assistance from our experts in all aspects related to the taxation of both legal entities and individuals in connection with the latest changes in the field of taxation in the country and the world.

Our clients trust us to structure their activities to take full advantage of applicable tax incentives while ensuring that they comply with all tax obligations and file tax returns. Our tax professionals' fundamental knowledge is why our clients choose us as their trusted tax partners. For a free consultation, please get in touch with us at info@eltoma-global.com. We are waiting for your requests!

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