The Cabinet of Ministers approved, on 10 May, a new tax incentive scheme aimed at attracting foreign talent to Cyprus and encouraging international companies to relocate their headquarters to Cyprus.
Currently, non-residents of Cyprus who take up employment in Cyprus and are paid more than €100,000 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 from €100,000 to €55,000 per year, while the duration of the 50% tax exemption will be extended from 10 years to 17 years from the commencement of their employment in Cyprus.
A grace period of two years will apply for obtaining this benefit in cases where an employee’s initial remuneration starts at an amount below the minimum annual salary of €55,000.
This incentive scheme will also apply to existing employees in Cyprus, provided they were resident abroad for 12 consecutive years prior to the commencement 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.
Finance Minister Constantinos Petrides said: “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.”
Petrides said he was confident that the scheme would further promote the development of the technology sector in Cyprus, which is an important strategic objective of the government.
“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,” he said.
Additional measures are expected to be implemented to incentivise foreign talent to relocate to Cyprus e.g. personal tax residency for non domiciled individuals. These measures would make it easier for spouses of foreign employees to obtain a residence permit in Cyprus and have access to the local labour market. Petrides said a ‘one-stop shop’ would be created to facilitate the scheme.
Legislation providing for the proposed scheme is currently being reviewed by the government legal service prior to being submitted to parliament for debate.
“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,” said George Ayiomamitis, Managing Director of Sovereign Trust (Cyprus) Limited.
“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.”
The key benefit of Cyprus is the uniform 12.5% corporate tax rate, which is one of lowest in the EU. The Cyprus ‘Intellectual Property Box’ regime offers an 80% income tax exemption for worldwide royalty income generated from IP owned by Cypriot resident companies. The remaining 20% will then be subject to the standard corporation tax rate of 12.5%, to give an effective tax rate of 2.5% or less.