On 3 December 2020 the House of Representatives voted into law an amendment to Article 8(21) of the Income Tax Law. The amendment was published in the Official Gazette on 15 December 2020 and took effect on 1 January 2021. The amendment extends the 20% deduction previously available to expatriates who earned an annual gross employment income of less than €100,000 for an additional five years. This expatriate relief was originally legislated in 2008 and, after having already been extended in 2015, was due to expire at the end of 2020. It has now effectively been further prolonged until the end of 2025. Additionally, a provision has been inserted to ensure that the relief will apply to qualifying persons for five years from the start of employment. Therefore, an expatriate commencing employment in Cyprus before the end of 2025 may claim the deduction up to the year 2030 inclusive.
In order to qualify for the now extended 20% deduction, a person must not be a Cyprus tax resident in the tax year prior to their employment.
Notably, there is a deduction ceiling of €8,550 per annum (the lower of the 20% or €8,550 limit applies). This is an important difference compared with the 50% deduction obtainable by those earning an annual gross employment income of more than €100,000. The 50% deduction has no ceiling and applies for 10 years.
The extension of the 20% expatriate relief is welcomed and could prove to be a useful tool in enticing individuals to take up employment in Cyprus. It is part of Cyprus' concerted efforts to bolster and maintain its attractiveness as a country with the ultimate aim of incentivising foreign investment. In conjunction with the relatively low personal income tax rates and numerous other advantages, Cyprus is positioning itself as a jurisdiction of choice for expatriates.
