What news about payroll tax credits in Cyprus?

The Cyprus legislation provides 50% and 20% tax exemptions on gross salaries for individuals who were foreign residents before starting their employment in Cyprus. Some changes on these exemptions were adopted recently.

How was it before?

1. 50% exemption

50% of the remuneration from any employment exercised in Cyprus was exempt from tax provided that:

• an individual was resident outside Cyprus before starting employment;
  and
• the annual individual’s gross remuneration exceeds €100,000.

The exemption was given for a period of 10 years starting from the first year of employment in Cyprus. 

The exemption was not granted when:

• an individual has been a Cypriot tax resident for at least 3 out of the last 5 tax years prior to the year of beginning of employment; or 
• an individual has been a Cypriot tax resident in the tax year prior to the year of beginning of employment.

2. 20% exemption

20% of the remuneration (but not more than €8,550) from any employment exercised in Cyprus by an individual who was resident outside Cyprus before the beginning of his/her employment in Cyprus was exempt from tax up to 2025 year. 

How it is now?

1. 50% exemption

50% of the remuneration of employees, whose first employment in Cyprus began from 1 January 2022 onwards, is exempt from income tax for a period of 17 years starting from the month of employment in Cyprus, provided that: 

• their gross remuneration per year exceeds €55,000;
  and
• the employees were not residents of the Republic for a period of at least 10 consecutive years immediately before the beginning of their employment in Cyprus.

2. 20% exemption

20% of the remuneration (but not more than €8,550) of employees whose first employment in Cyprus commenced from 26 July 2022 onwards, is exempt from income tax for a period of 7 years, provided that the employees, immediately before the commencement of their employment in Cyprus:

• were not residents of Cyprus for a period of at least 3 consecutive tax years,
  and
• were employed outside of Cyprus by a non-resident employer during this period. 

It shall be noted that the exemption can be granted from the year following the year of beginning of employment in Cyprus.

How will these changes affect the business?

It is essential to employment contracts as the new regulation eliminate the 35% tax rate up-to gross salaries of €130.000 (salary + bonus) per year. 

The point is that the 35% tax rate is applicable on the amount of €60.000 annual income and over. If the employee has €130.000 salary, then (with the 50% exemption) he/she will have €65.000 as taxable income and if subtract the amount of social insurance and life insurance (if any) then final taxable amount will be under €60.000 and 35% tax rate will be not applicable. 

You can contact us for more information on how you can optimize your taxes.