New Tax Exemptions, Long-Term Solutions for Cross-Border Teleworking and Cross-Border Pension Rules – The Latest News
Cyprus
Cyprus Introduces New Tax Exemptions for Foreign Employees
From 26 July 2022, 20% of the remuneration of employees whose first employment in Cyprus began on or after 26 July 2022 is exempt from personal income tax for a period of seven years
As part of the government’s strategy to engage and keep talented people from abroad to Cyprus (under the framework approved by the Council of Ministers in October 2021), Cyprus has announced new tax incentives for foreign employees.
Under the amending law, foreign workers arriving in Cyprus will receive the following tax benefits, replacing the current regime:
- From 26 July 2022, 20% of the remuneration of employees (up to a maximum tax exemption of €8,550 per year) whose first employment in Cyprus began on or after 26 July 2022 is exempt from personal income tax for a period of seven years, provided that immediately before starting work in Cyprus, the employees:
- have not been resident in Cyprus for at least 3 tax years in a row;
- were employed outside of Cyprus by a non-resident employer.
The exemption will be granted for the first time in the tax year following the tax year in which employment began.
Noteworthy, the law does not require an individual and an employee to be or become tax resident in Cyprus in order to benefit from the new 20% exemption.
This exemption is not available to individuals if they use the 50% exemption mentioned below.
From January 1, 2022, 50% of the remuneration of employees (whose first job in Cyprus began on or after January 1, 2022) is exempt from personal income tax for a period of 17 years, provided that their annual remuneration exceeds 55,000 euros and the employees were not residents of Cyprus for at least 10 consecutive years immediately prior to starting work in Cyprus.
Individuals who started working before January 1, 2022 may also qualify for the new 50% tax exemption if they meet the following criteria:
- individuals whose employment began at any time between 2016 and 2021 may benefit from the exemption if:
- their remuneration for employment in Cyprus exceeded 55,000 euros per year; or
- their remuneration did not exceed 55,000 euros per year, but for 6 months, starting from 26 July 2022, their remuneration exceeds this threshold.
- employees who have benefited from the previous regime and have a permanent job in Cyprus until 2021 inclusive.
European Union
European Commission Considers Long-Term Solutions for Cross-Border Teleworking
The Commission is in contact with the OECD for possible coordination of the framework applicable to the taxation of cross-border teleworkers in the European Union and between OECD member countries, which is currently inconsistent.
On 11 August 2022, the Commissioner for Economy, Paolo Gentiloni, reported the European Parliament that the European Commission is currently working with Member States and stakeholders to find long-term solutions for the tax and social implications of cross-border teleworking in the European Union.
During the COVID-19 pandemic, the leadership of the Administrative Commission for the coordination of social security systems allowed the applicable rules to be “frozen” until the end of June 2022. The new regulation, applicable from 1 July 2022, sets out a general interpretation of the EU social security provisions relating to teleworking. It also establishes that national institutions must assess the situation of workers in accordance with such an interpretation by December 31, 2022. According to the Commissioner, no changes are expected in the legislation applicable to cross-border workers during this period.
Gentiloni also confirmed that the Commission is in contact with the OECD for possible coordination of the framework applicable to the taxation of cross-border teleworkers in the European Union and between OECD member countries, which is currently inconsistent.
The above information was provided in response to a Parliamentary question by European Parliament Member Pascal Arimont, who noted that bilateral agreements introducing tax and social security benefits for cross-border workers due to remote work during COVID-19 pandemic should have expired on 30 June 2022. With many employers now offering the option to work remotely, cross-border teleworkers may be at a tax and social security disadvantage compared to those working in their country of residence. Thus, the European Commission was asked the following questions:
1. Is the Commission aware of this problem?
2. Is the Commission conducting negotiations and discussions at OECD level with a view to finding a long-term and sustainable solution for cross-border teleworkers?
European Union; the Netherlands
European Commission Refers Netherlands to ECJ Over Its Cross-Border Pension Rules
According to the European Commission, these rules prevent such transfers by making them incompatible with EU law.
On 3 June 2022, the European Commission referred the Netherlands to the Court of Justice of the European Union (ECJ) over its rules regarding the transfer of additional pension capital accumulated from the employer’s pension capital (second pillar) to another Member State.
According to the European Commission, these rules prevent such transfers by making them incompatible with EU law.
Based on articles 85(1)(b) and 87(2)(f) of the Law on Pensions and article 19b(2) of the Law on Wages Tax, a tax-exempt cross-border transfer of pension capital is only possible if the possibilities for redeeming the pension as a capital lump-sum are the same as, or more limited than, in the Netherlands.
In a number of Member States, pensions may be paid in whole or in part as a lump sum. Mobile workers transferring their pension capital to one of these Member States are then taxed, while similar transfers of pension capital in the Netherlands are not taxed.
The European Commission takes the view that these conditions restrict the free movement of workers (article 45), the freedom to provide services (article 56) and the free movement of capital (article 63) under the Treaty on the Functioning of the EU (TFEU) and the free movement of workers (article 28), the freedom to provide services (article 36) and the free movement of capital (article 40) of the Agreement on the European Economic Area (EEA Agreement).
