The Cypriot Cabinet of Ministers has approved a tax incentive scheme aimed at attracting foreign talent to the country as well as encourage international companies to relocate their headquarters to Cyprus.
Currently, non-residents of Cyprus who take up employment in the European country and are paid more than €100,000 (£84,658, $104,938) per year can benefit from a 50% tax exemption in respect of their employment income for the first 10 years of employment.
Under the proposed legislation, the minimum required salary will be reduced to €55,000 per year, while the duration of the 50% tax exemption will be extended to 17 years from from the start of their employment in Cyprus.
A grace period of two years will apply for obtaining the tax advantage in cases where an employee’s initial remuneration starts at a figure below the minimum annual salary of €55,000.
The incentive scheme will also apply to existing employees in Cyprus, provided they were resident abroad for 12 consecutive years prior to the start of their employment in Cyprus. In such cases, a grace period of six months will be applied to achieve the minimum annual salary threshold of €55,000.
The move is also targeting Cypriot citizens who are currently living and working abroad by offering them the same benefits as their foreign counterparts in a bid to persuade them to repatriate.
Boost economy
Finance Minister Constantinos Petrides said on 10 May 2022: “We are convinced that this scheme is one of the most competitive of its kind in the European Union. There is already a lot of interest, and it particularly concerns high-tech companies, which in recent years seem to choose the island as a place to relocate their headquarters.
“The employees and companies that will settle in Cyprus due to this programme will bring direct and indirect benefits to the local economy, while the administrations of international businesses are also encouraged to move their headquarters to Cyprus, thus creating a real infrastructure on the island.”
George Ayiomamitis, managing director of Sovereign Trust Cyprus, added: “Cyprus’s generous intellectual property (IP) tax regime has already made it an attractive and popular new home for high-tech and IP-rich companies. Now, it is improving its third-country recruitment incentives to match.
“Cyprus already offers the most competitive corporate and individual tax regimes in the EU, and we have seen huge interest from companies worldwide, especially tech companies, in establishing their headquarters on the island. This new bill will only add to Cyprus’ attractiveness for headquartering.”
Karen Ogilvie, director of compliance at Blacktower Financial Management Group, told International Adviser: “The Cyprus government is looking to attract talent and promote headquartering to benefit the economy, utilising the excellent international business infrastructure in place whilst advancing the technology and financial services sectors. Through this relocation, the tax base and income of companies is broadened.”
Tackling the covid damage
Lee Hinton, financial planner at Aisa International, told IA: “The new proposed tax scheme will be seen as a positive step in attracting new residents to Cyprus. Lowering income thresholds will allow a new set of workers access to the country. Cyprus is a great place to be located for internet-based business with the wonderful climate and the central time zone.
“Cyprus has been hard hit by the covid outbreak with a great deal of damage done to the tourism industry through the various lockdowns and the restrictions of movement of local residents – certainly harsher and longer than those imposed within the UK.
“While the income tax revenue from those individuals moving to Cyprus on the proposed scheme will be nil, the hope is that income will be spent within Cyprus in many other forms including; property rentals, car purchases, shopping as well as utilising professional services of companies such as ourselves along with accountants and lawyers.
“The scheme also seeks to repatriate Cypriot professionals who are currently living and working abroad by offering them the same benefits as their foreign counterparts. This will no doubt help reintroduce Cypriot nationals who have perhaps stayed in places like the UK and Germany post-university and encourage them to return to their homeland.”
Jason Porter, business development director at Blevins Franks, also said to IA: “Reducing the salary level at which the 50% tax incentive kicks-in and extending the period of benefit is an interesting move by the Cypriot authorities. The fact that it can also be applied to existing employees as well makes it even more valuable for a company operating in the qualifying areas of business.
“Many firms who were attracted by the corporation tax benefits of Cyprus will now also be able to ‘sell’ the opportunity to their employees as well – be they existing or prospective. From a tax perspective, the attraction of Cyprus has always been there from an individual taxation point of view – but this has tended to mainly benefit those that live off pensions, capital and investments – favouring retirees in most part. These exciting measures should attract a whole new raft of industries, as well as their employees to the country.”
