Filenews 22 July 2025 - by Eleftheria Paizanou
The new tax regime promoted by the Government will also tax the revenues from compensation received by employees in the context of the implementation of early – voluntary retirement plans. However, other income, acquired in the form of bonuses or incentives or allowances, will also be taxed.
Voluntary retirement compensation plans are usually granted by banks and semi-governmental organizations, in an effort to incentivize some of their staff to leave, in order to save resources in the medium and long term and to reorganize the structure of an organization.
In most cases, voluntary retirement plans are quite generous and, in fact, with the amount of compensation tax-free.
However, according to the bill prepared by the Government to amend the Law on Income Tax (and included in the package of six pieces of legislation for tax transformation), a new article is added to the basic law, so that any income, profits or other benefits, monetary or otherwise, are taxed. provided or granted in respect of any office or salaried services, to the person holding the office or providing the salaried services or to any member of his or her family, including eight other sources of income.
What will be taxed
According to Article 5, the following incomes will be taxed:
- Benefit income provided as an incentive to accept employment or appointment, including such benefit provided before the commencement of employment or appointment.
- Gratuitous gratuity income upon retirement, or early retirement, or termination or early termination of an employment contract or appointment to office
- Benefit income granted on the basis of the Early Retirement Scheme for Employees.
- Compensation income for termination of employment or appointment to office, the payment of which is not provided for in an employment contract or contract for appointment to office, or in a collective agreement or regulations, or in any other terms governing employment or appointment.
- Income from any other benefit granted under an employment contract or appointment contract, or under a collective agreement or regulations or any other terms governing employment or appointment.
- Income from amounts receivable in accordance with a court decision, which relate to employment or office.
- Income of the estimated annual value of accommodation, housing, house or food and
- Income from any allowance.
20% tax-free
According to information obtained by "F", the amount of taxation will depend on the scale in which the taxpayer's annual income is located. It is not excluded that a tax rate of 20% will also be determined.
20% of the income that taxpayers will have from early retirement plans will be exempt from taxation. For example, if the amount of compensation that the taxpayer will receive is in the order of €100 thousand, the first €20 thousand. They will be tax-free and will be taxed on incomes of €80 thousand.
According to the bill, lump sums received by employees in the public sector and the wider public sector, as well as compensation paid by pension schemes and provident funds, are excluded from taxation.
Essentially, all compensations, welfare and pension funds, that employees receive and are provided for in their collective agreements will remain out of tax.
Voluntary exit or successful retirement plans which were tax-free were implemented by the Bank of Cyprus, Laiki Bank, Hellenic Bank, Alpha Bank, Cooperativismos, Cyta, the Ports Authority and EAC.
In the past, the Ministry of Finance has also made an effort to tax the compensation of early retirement plans. In fact, for this purpose, the competent ministry had prepared a relevant bill, which would tax the compensation from such plans. At that time, exercises were carried out on paper for the imposition of a horizontal tax at a low rate and not on the annual incomes of the departing employees. The bill did not proceed and remained in the drawers of the ministry. The unions had disagreed with the possibility of taxing such compensation, which had argued that their labour gains were being affected.
