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What is More Beneficial: Registering a Company in Cyprus or Operating as a Self-employed?
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Registering a company in Cyprus or operating as a self-employed – an important decision for entrepreneurs. Both options have their advantages, particularly in terms of taxation. If you’re considering whether to register your company or operate as a sole proprietor in Cyprus, this article is for you.
First, let’s explore scenarios where a Cypriot company is necessary:
For a clearer comparison of taxes when registering a company versus working as a sole proprietor, let’s take an example where the total income is €60,000 per year.
Scenario A: Registering and Employing Yourself in Your Company
You can register your company in Cyprus and employ yourself in it, provided you have the appropriate immigration status that allows you to work in Cyprus. Examples of such statuses include temporary protection, status for spouses of EU citizens, spouses of individuals with a work permit, or as the owner and director of a company with foreign interest.
In this scenario, you have the option to pay yourself the legally mandated minimum wage, with the remaining profits distributed as dividends at a 0% tax rate.
Employing yourself in your own company and receiving a salary also entitles you to social insurance and medical services in Cyprus, ensuring additional social security.
Estimated Expenses and Payments with a Monthly Salary of €1,000:
Indicator
Amount (€)
Estimated Gross Revenue of the Company
60,000
*Administrative Expenses for the Year (including: legal address, secretary, accounting)
-3,200
Salary Payments with Employer Tax
-13,848
Gross Profit for the Year
42,952
Corporate Tax (12.5%)
-5,369
Net Profit After Tax
37,583
Salary Received to Bank Account
10,626
Total: Possible Profit Considering Salary (€10,626) and Dividends (€37,583)
48,210
With an income of €60,000, by receiving a salary and withdrawing tax-free dividends, it is possible to earn approximately €48,210 per year.
This calculation does not include other operational expenses that may arise from entrepreneurial activities, such as office rent in Cyprus, business trips, conference participation, marketing and advertising costs, and other potential expenses related to running a specific type of business.
Additionally, besides withdrawing dividends, you can also reinvest a portion of the profits.
This combination allows you to optimize taxation while ensuring access to social and medical services in Cyprus. Therefore, registering a company in Cyprus and being employed within it can be a financially advantageous decision.
Detailed Salary Tax Calculation
Indicator
Amount (€)
Annual Salary
12,000
Contributions by the Employee
Social Insurance
8.8%
1,056
General Healthcare System (GESY)
2.65%
318
Personal Income Tax Withheld (PIT)
Up to €19,500 per year – 0%
not applicable
Total Annual Deductions
1,374
Net Annual Salary
10,626
Annual Company Contributions on Salary
Social Insurance Fund
8.8%
1,056
Social Cohesion Fund
2.00%
240
Unemployment Fund
1.20%
144
Human Resources Development Fund
0.50%
60
General Healthcare System (GESY)
2.90%
348
Total:
1,848
What Are the Benefits of This Option for Entrepreneurs?
Social Contributions and Healthcare By employing yourself in your own company, you pay social contributions and health insurance. This allows you to be eligible for pension benefits and other social security payments, as well as healthcare services, ensuring social protection and stability.
Tax-Free Dividend Payments One of the key advantages of registering a company in Cyprus is the ability to distribute dividends with zero tax. Unlike some other countries, such as Portugal, where dividend payments are limited to once a year, Cyprus imposes no restrictions on the frequency of dividend payments. This provides greater flexibility in managing your income.
Reduced Corporate Tax for Intellectual Property Companies If your company is involved in intellectual property, you can benefit from tax incentives and reduce your corporate tax rate to as low as 2.5% under the IP-Box regime.
Scenario B: Foreign Individual Working as Self-Employed
Example Tax Calculation: Income – €60,000
Tax Calculation for a Self-Employed Individual in Cyprus
Indicator
Tax Rate (%)
Amount (€)
Income
60,000
Deductions
Social Insurance
16.6%
-9,960
General Healthcare System (GESY)
4%
-2,400
Taxable Income
47,640
Personal Income Tax (PIT)
Up to €19,500
€19,501 to €28,000
€28,001 to €36,300
€36,301 to €60,000
Over €60,001
-864
Net Annual Income:
46 776
This calculation also does not account for operating expenses related to the specific type of business you plan to conduct.
Comparison: Registering a Company in Cyprus vs Being Self-Employed
With an income of 60,000 euros, registering a company in Cyprus can yield approximately 48,210 euros net of all taxes and fees, whereas working as self-employed would result in a net income of around 46,776 euros.
This slight difference in income, considering various factors, can make registering a company more advantageous. The benefits of registration include a more stable and secure business model. Specifically, the status of a legal entity significantly expands your business opportunities and growth prospects.
The choice between registering a company in Cyprus and working as self-employed depends on numerous factors, including expected income, planned expenses, and personal preferences.
Our experienced lawyers and tax consultants in Cyprus are ready to help you make the optimal choice. We will offer you a personalized approach, taking into account all the nuances and specifics of your situation, so you can fully leverage the benefits of the Cypriot jurisdiction.
By consulting with us, you will receive comprehensive support and recommendations, enabling you to make an informed decision and ensure the successful development of your business in Cyprus!
Elena Georghiou is the founder of Feod Group, a company that has been successfully operating since 1992. With over 30 years of experience, she specializes in corporate law, international taxation, immigration law, investment, and financial consulting....
Elena Georghiou is the founder of Feod Group, a company that has been successfully operating since 1992. With over 30 years of experience, she specializes in corporate law, international taxation, immigration law, investment, and financial consulting.
