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30 September 2020
Along with its relatively low personal income tax rates, Cyprus offers numerous advantages to expatriates who take up employment there. Ordinarily, taxable income up to €19,500 is effectively exempt from income tax. Taxable income exceeding this amount is subject to progressive income tax rates ranging from 20% to 35% (the latter applicable for income exceeding €60,000). However, incentives for expatriates may be applied in respect of employment income. If an employer-employee relationship exists, there are two key forms of expatriate relief that can be used as a deduction for income tax purposes. For each tax year, a 50% deduction is available to those who earn employment income of more than €100,000 annually or, a 20% deduction for those earning below €100,000.
Persons considered to be Cyprus tax residents may benefit from the 50% deduction (expatriate relief) on personal income tax if they:
Such a deduction will be granted for 10 years if their annual gross employment income exceeds €100,000. The term 'gross emoluments' includes but is not limited to the following:
If an individual's annual gross employment income drops below €100,000, the 50% deduction will not apply. However, the 20% deduction may apply in such cases with a ceiling of €8,550 per annum (the lower of 20% or €8,550 applies). The deduction lasted for five years from the 2012 tax year and commenced on 1 January in the year following the start of employment (unlike the 50% deduction which commences immediately). Applications for the 20% deduction were meant to close at the end of 2020, but a draft bill suggesting its prolongation for an additional five years has been put before Parliament. If passed, this will effectively mean that qualifying persons may apply for the relief up until 2025 and, if successful, receive the deduction for 10 years from the commencement of their employment.
|50% relief||20% relief|
|Full deduction and no ceiling||Ceiling of €8,550 per annum (the lower of 20% or €8,550 applies)|
Granted following the commencement of employment
Available for 10 years
|Five years to be extended to 10 years (provided that the draft bill is passed)|
|No expiration||Expires by the end of 2025 (provided that the draft bill is passed)|
The extension of the 20% expatriate relief would be a welcome addition in an environment currently characterised by the uncertainty of COVID-19. While the 50% relief is and will still be available to higher employment income earners, the 20% extension is a welcome addition for lower employment income earners. Both could prove a useful tool for attracting a wide range of individuals to take up employment in Cyprus. This could include high-profile individuals, individuals who are directors or shareholders of companies and their employees. It could also incentivise individuals who have completed their studies abroad to return to Cyprus to work, provided they were not Cyprus tax residents in the previous year.
For further information on this topic please contact Elena Christodoulou at Elias Neocleous & Co LLC by telephone (+357 25 110 110) or email (email@example.com). The Elias Neocleous & Co LLC website can be accessed at www.neo.law.
Fabian Cabeza, legal consultant, assisted in the preparation of this article.
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