What is More Beneficial: Registering a Company in Cyprus or Operating as a Sole Proprietor?

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Registering a Company in Cyprus or Operating as a Sole Proprietor – 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:

  1. If you plan to purchase real estate for investment and rental purposes or start your own construction business in Cyprus.
  2. If you intend to hire employees.
  3. If you plan to expand your business and generate income exceeding €100,000 per year.
  4. If you aim to work in the field of intellectual property and benefit from the favorable IP Box tax regime.
  5. If you plan to start a business or buy an existing company that requires a license.

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:

IndicatorAmount (€)
Estimated Gross Revenue of the Company60,000
*Administrative Expenses for the Year (including: legal address, secretary, accounting)-3,200
Salary Payments with Employer Tax-13,848
Gross Profit for the Year42,952
Corporate Tax (12.5%)-5,369
Net Profit After Tax37,583
Salary Received to Bank Account10,626
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.

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

IndicatorAmount (€)
Annual Salary12,000
Contributions by the Employee
Social Insurance8.8%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 Deductions1,374
Net Annual Salary10,626
Annual Company Contributions on Salary
Social Insurance Fund8.8%1,056
Social Cohesion Fund2.00%240
Unemployment Fund1.20%144
Human Resources Development Fund0.50%60
General Healthcare System (GESY)2.90%348
Total:1,848

 

What Are the Benefits of This Option for Entrepreneurs?

Scenario B: Foreign Individual Working as Self-Employed

 

Example Tax Calculation: Income – €60,000

Tax Calculation for a Self-Employed Individual in Cyprus

IndicatorTax Rate (%)Amount (€)
Income60,000
Deductions
Social Insurance16.6%-9,960
General Healthcare System (GESY)4%-2,400
Taxable Income47,640
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!

 

LEGAL SERVICES IN CYPRUS

 

 

READ ALSO:

➡️ How to Register a Company in Cyprus and What Taxes to Pay

➡️ Obtaining Permanent Residency and Immigration to Cyprus

➡️ Tax Optimization in Cyprus with Non-Domicile Status

➡️ Why Cyprus is the Best Choice for Business in Europe in 2024

➡️ Tax Optimization for Individuals in Cyprus

 

Article author

Elena Georghiou Founder and Managing Director
Ukraine
Elena Georghiou – Founder and Managing Director of Feod Group. Has two higher educations: the first at the Odessa State Polytechnic University, majoring in automation and computer engineering (1986) and second in the Moscow State Law Academy, majoring in law (1991). Has work experience in London i...
Elena Georghiou – Founder and Managing Director of Feod Group. Has two higher educations: the first at the Odessa State Polytechnic University, majoring in automation and computer engineering (1986) and second in the Moscow State Law Academy, majoring in law (1991). Has work experience in London immigration law firms. Is a regular participant in seminars and trainings on immigration, corporate and private law of the European Union. Elena Georghiou has more than 25 years of legal experience and heads the specialized Residency and Citizenship practice across European countries, UK and USA advising HNWIs and their families on:
  • immigration planning;
  • consultations on obtaining alternative (second) citizenship;
  • Residency and Citizenship by Investment;
  • business immigration;
  • preparation of appeals, working with complex immigration cases.
She advises individuals and corporate clients for wealth/business structuring and assets protection. Central to her Managerial role in the company she initiated and united high level lawyers and other top professionals around the word in order to provide Feod Group clients with bespoke level of legal and business services word wide, keeping the staff focused on the opportunities and challenges faced by each individual client. Speaks Russian, Ukrainian, English.
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