Social Insurance in Cyprus (Hidden Cost?)

[RedSquirrel]

Hi guys,

I am a UK citizen and run a digital marketing agency here in the UK (UK registered company). I have decided to move to Cyprus full-time in a few months and re-register my business as a Cyprus-registered company to take advantage of the 12.5% corporation tax plus 0% tax on dividends (I pay myself 100% in dividends so this is great for me). The beautiful sunny weather is a bonus!

However, my research has lead me to believe that the national security contributions are around 15% for self-employed people living there, which would take my overall tax to around 27.5%. Have I made a mistake here? It seems to go against what everyone has said about Cyprus's extremely favourable business environment.

Thanks in advance! Any help would be greatly appreciated.

PS:

A document explaining Cyprus Social Security and the required contributions:

http://www.mlsi.gov.cy/mlsi/sid/sid...0036EE4D/$file/Social Insurance in Cyprus.pdf

 

[fshore]

You wouldn't be self-employed as a company shareholder receiving dividends.

 

[RedSquirrel]

You wouldn't be self-employed as a company shareholder receiving dividends.

Thanks for your response. If I'm not self-employed what would I be classed as? I would be operating the company myself, and be the only person taking dividends out. In other words, it would be entirely my own company. And I would be operating my Cypriot company from WITHIN Cyprus.

Does this still mean I would not be paying social insurance? Under what circumstances would I be paying it?

Thanks!

 

[fshore]

Self employment is employment through a sole proprietorship.

 

[RedSquirrel]

Self employment is employment through a sole proprietorship.

Ok, so the way to avoid the Cyprus social insurance is to make sure there is a co-director/shareholder? For example, if I split my company between myself and a family member 50/50 (who has no part in the business) then I would pay no social insurance?

 

[fshore]

Ok, so the way to avoid the Cyprus social insurance is to make sure there is a co-director/shareholder? For example, if I split my company between myself and a family member 50/50 (who has no part in the business) then I would pay no social insurance?

Sole proprietorship means a sole trader without a limited company

 

[RedSquirrel]

Ok thank you. So just to confirm: by moving to Cyprus, making it my permanent home and running a Cypriot company there, I will not pay social security? I will pay myself entirely in dividends.

 

[Martin Everson]

by moving to Cyprus, making it my permanent home and running a Cypriot company there, I will not pay social security?

So you think you can move to Cyprus and live and work without registering for a social security number?

Please speak to an accountant before taking any action.

 

[RedSquirrel]

So you think you can move to Cyprus and live and work without registering for a social security number?

Please speak to an accountant before taking any action.

Well, I would be paying myself entirely in dividends. This is why I asked the question. I read that social security tax is around 15% for 'self employed' working in Cyprus, but fshore said that running a limited company out there would not count as self employed. Therefore I'm just trying to work out how much, if any, social insurance I would be required to pay. I would be very happy to get a social security number, but the idea of having to pay 15% social security flat tax on all dividends appears very high.

 

[fshore]

There's seems to be 17% tax on dividends in Cyprus, did you take that into account ?

 

[RedSquirrel]

There's seems to be 17% tax on dividends in Cyprus, did you take that into account ?

Yep, but this only seems to apply to people who have lived in Cyprus for 17 years. Unless you have lived in Cyprus for 17 years, or were born there, you are considered to be 'non-domiciled' there, even if you are a tax resident.

''Foreigners who decide to move their personal tax residency in Cyprus, will automatically be considered as non-domiciled in Cyprus for a maximum of 17 years.

For tax purposes, non-domicile persons who become Cyprus tax residents will now be completely exempt from Special Defence Contribution tax (“SDC”).

SDC generally applies on dividends and interest. As SDC tax does not apply in the case of Cyprus tax resident individuals who are non-domiciled in Cyprus, dividend and interest earned by such persons will now be completely tax exempt in Cyprus. It is noted that the main income of high net worth individuals is generally dividends and interest.''

SOURCES:

https://www.totalserve.eu/Assets/Im...ntsImages/informationsheetno1291483607458.pdf

Cyprus: the Jurisdiction for Non-doms and High Earners

 

[fshore]

I had a look and it does not seem like you have to pay any social security on dividends.
Generally there is a risk that tax office can say that some of your income should be salary and not just dividends, however I'm not sure if this is the case I Cyprus. Maybe others here have more specific knowledge on this

 

[RedSquirrel]

I had a look and it does not seem like you have to pay any social security on dividends.
Generally there is a risk that tax office can say that some of your income should be salary and not just dividends, however I'm not sure if this is the case I Cyprus. Maybe others here have more specific knowledge on this

Thanks for your response and for taking the time to investigate. Presumably in such a case where the tax office orders that some income must be salary, I could pay myself a 19,500 euro salary from the business (salary up to 19,500 is 0% taxed) and simply pay social security on that? This would mean a yearly social security bill of around 3000 euros, which I would be happy with. Thanks again.

 

[Tepesch]

So I know law firms, tax attorneys in Cyprus personally and the way it's done is like this: You are the owner and operator of your CY Ltd. You are employed by your Ltd and pay yourself the minimum salary of something like 9K a year and pay approx 1k a year in social security. You then take out the rest of the company profit as dividends on which you pay 0% tax. That is how everyone that moves there and operates a CY Ltd. does it. I would still take a tax attorney though so you have no issues, they arent that expensive in Cyprus.

 

[unicorn]

Cyprus taxes (individual) residents on worldwide income - salaries fall under income tax, dividends fall under SDC (17 %). According to Tepesch in 2019 there was 0 % tax on dividends, so no application of SDC. Is this still valid in 2020 please ?

According to Deloitte, the 0 % tax on dividends rule would apply only to non-resident individuals ; if you are a (tax) resident, the 17 % would apply ... is Deloitte wrong ?

Also : if you DON'T live in / move to Cyprus, there is no social security to pay. You only pay it in 1 country.

 

[Spinat]

Why do you reopen a 1 year old thread with tax information that are out of date. @Admin ?

 

[unicorn]

Why do you reopen a 1 year old thread with tax information that are out of date. @Admin ?

to avoid creating 2 threads about an identical topic

 

[Martin Everson]

According to Deloitte, the 0 % tax on dividends rule would apply only to non-resident individuals ; if you are a (tax) resident, the 17 % would apply ... is Deloitte wrong ?

I don't think your wrong that is same info I have.

Btw Cyprus has not yet announced what their Exit Taxation rules are as part of EU ATAD that they must implement. This is expected to be announced mid this year .

Public consultation - ATAD Cyprus

 

[Marzio]

According to Deloitte, the 0 % tax on dividends rule would apply only to non-resident individuals ; if you are a (tax) resident, the 17 % would apply ... is Deloitte wrong ?

No Deloitte is correct. Cyprus tax resident individuals who are not domiciled in Cyprus will not be subject to special defence contribution on any dividend, interest or rental income.

 

[Joe Blasco]

Thanks for your response. If I'm not self-employed what would I be classed as? I would be operating the company myself, and be the only person taking dividends out. In other words, it would be entirely my own company. And I would be operating my Cypriot company from WITHIN Cyprus.

Does this still mean I would not be paying social insurance? Under what circumstances would I be paying it?

Thanks!

I cannot understand why people who answer are still so confused about Cyprus. For your company you need a director. The director needs to be insured. You can be your own director if you have residence permit. The 17 year exempt which was passed 3 years ago if remember well, that makes it 14 already, is for people who achieve domicille in Cyprus.