Employment with a Cyprus company

When embarking on an employment journey in Cyprus, it’s vital to comprehend what being an “employee” entails. This status involves signing a “contract of employment” with a Cyprus-based company, distinguishing it from the “self-employed” route, where a “contract of services” is signed instead. Employees receive salary income, which is subject to Income Tax (IT), Social Insurance (SI), and contributions to the General Healthcare System (GeSY). The tax structure is designed to be progressive. For instance, the tax-free threshold for salary income is set at EUR 19,500, with rates ranging from 20-35 per cent for income above this limit. Check out the income tax calculator to understand how it works. Contributions to SI and GeSY are calculated as percentages of the gross salary, with current rates at 8.8 per cent and 2.65 per cent, respectively.

A plethora of tax deductions are available, including premiums for life/health insurance, donations to registered charities and contributions to professional subscriptions. Newcomers to Cyprus’ employment sector can benefit from “first employment exemptions”, which offer significant tax relief under certain conditions. You may refer to these tools (20 per cent exemption tool / 50 per cent exemption tool).

Employers play a critical role in the tax process through the “Pay As You Earn” (PAYE) system, simplifying tax payments for employees. However, employees must still communicate any personal tax-deductible expenses to their employer. This is done by completing the form T.D.59, aka “CLAIM FOR ALLOWANCES FOR THE YEAR” upon commencement of employment and at the beginning of each tax year (which is the same as the calendar year) thereafter. Additionally, employees with an annual gross emolument above EUR 19,500 are required to submit a Cyprus income tax form annually. To submit, employees will need the relevant Form 63 (EMOLUMENTS CERTIFICATE FOR THE YEAR), which is provided by their employer annually / whenever they change jobs.

Self-employment

Self-employment in Cyprus necessitates a different approach, primarily involving a “contract of services” with a company. This path demands meticulous record-keeping to report business income and expenses accurately. Self-employed individuals are taxed on their annual profits, with the ability to claim various deductions similar to those available to employees.

Significant aspects for the self-employed include mandatory registration for Social Insurance and the General Healthcare System, with contributions based on the nature of their occupation. VAT registration is also essential for those exceeding or expecting to exceed the turnover threshold of EUR 15,600, with the possibility of voluntary registration for others. The categories and amounts due are annually set by the Social Insurance Department.

Employment with a foreign company

Working in Cyprus for a foreign company presents unique considerations, especially regarding tax residency. Spending over 183 days on the island likely results in Cyprus tax residency, granting Cyprus taxing rights over salary income from foreign employment. This situation necessitates careful examination of double tax treaties and the potential of a permanent establishment in Cyprus by the foreign employer.

Non-Cyprus EU employers may need to register as “local employers”, while non-EU employers need to establish a branch / company in Cyprus for tax and contribution withholding purposes. Additional compliance obligations, including accounting, audit and income tax submissions, arise for Cyprus companies.

Embarking on a professional journey in Cyprus offers a blend of opportunities and responsibilities. Whether opting for employment with a Cyprus company, pursuing self-employment, or working for a foreign entity, understanding the tax and legal framework is essential. This guide provides a foundation, but it’s imperative to seek professional tax advice to navigate the specifics of your situation effectively. With the right preparation, working in Cyprus can be both a rewarding and enriching experience.

Source: Cyprus Mail