Self-employment in Cyprus: pros, cons and how to get started?

Cyprus is not only a popular tourist destination with picturesque beaches and rich history, but also an attractive dot on the map for self-employed entrepreneurs. With its strategic location, mild climate and tax incentives, the island attracts freelancers and professionals from all over the world.

Self-employment in Cyprus can be a lucrative and exciting endeavour if you approach the process prepared. With the right preparation and an understanding of local legislation, Cyprus offers great opportunities to grow and develop your business. This blog is designed to help self-employed individuals in Cyprus better understand their obligations, ensure that their employment is legal and that they can rely on the social and tax benefits offered by the government. Requirements may change. We recommend that you contact a specialist lawyer for more detailed and up-to-date advice.

Benefits of self-employment in Cyprus

In Cyprus, self-employment income includes the following:

1. Any income or benefit derived from employment.
2. All types of profits or benefits derived from running a business.
3. Income from the sale of securities if the income is classified as trading profits.

Benefits include:

1. Tax system. Cyprus is known for its favourable tax system, including low corporation and dividend taxes. There is a progressive tax scale for the self-employed in Cyprus, which can be advantageous for start-ups with a turnover of less than €70,000 per year.
2. Location. Cyprus is conveniently located at the crossroads of Europe, Asia and Africa, making it an ideal base for doing business with international clients.
3. Quality of life. A high standard of living, excellent weather and a wide range of leisure activities make Cyprus an attractive place to live.

Challenges for the self-employed

1. Bureaucracy: Despite government efforts to simplify the process of doing business, many people still face red tape when registering and maintaining a business.
2. Language barrier: Although most Cypriots are fluent in English, it is useful to know Greek to immerse oneself in the culture and business environment. In addition, many forms must be completed in Greek. As a minimum, you will need to write your name in Greek, your current address, your passport number and your weekly income in the correct column.

How to get started

1. Business registration. The first step is to register your business in Cyprus. This can be done through the local tax authorities, where you will need to register as a self-employed person.
2. Open a bank account. This is one of the most important steps after registering your business. There are both local and international banks in Cyprus.
3. Set up a co-working space. There are many co-working spaces and offices in Cyprus that can be rented for any length of time. This provides a convenient environment in which to run your business.
4. Understand your tax obligations. It is important to understand your tax obligations and to meet them on time to avoid penalties.
5. The license to use premises for business activities is issued by the local municipality or local council in which the activity will take place.
6. Financial reporting requirements. Self-employed persons whose annual turnover exceeds €70,000 must submit auditable annual accounts, similar to the requirements for companies. This ensures transparency of financial transactions and compliance with tax laws.

Registration process

To start the registration process, you must visit your local Social Security office on weekdays. You must bring a form filled out in Greek, which can be downloaded from the official website. The form can be downloaded here. Note that the social security number is usually assigned on the day of application. The following documents should be attached to the application form

1. A copy of your identity card or passport;
2. Copy of the foreigner's registration certificate issued by the Department of Civil Registration and Migration;
3. Documents proving employment (e.g. contracts with clients, receipts of income). Contracts with contractors are better.
4. Specialist diploma translated into Greek by a sworn translator with apostille (if required). An English version may be acceptable.
5. Proof of residence in Cyprus.

Taxation of the self-employed

When applying for self-employed status in Cyprus, it is important to note that such status does not confer any special tax benefits, such as a simplified tax regime. Self-employed persons are subject to general taxation rules similar to those applicable to other categories of persons and pay income tax on a progressive scale. It is worth noting that if an entrepreneur has no income during a calendar year, there is no tax liability to the budget.

Self-employed persons are taxed at the following rates:

1. Income up to 19,500 euros - 0%;
2. Income between 19,500 and 28,000 euros - 20%;
3. Income between 28,000 and 36,300 euros - 25 per cent;
4. Income between €36,300 and €60,000 - 30%;
5. Income over 60,000 euros - 35 per cent.

In Cyprus, both companies and the self-employed are taxed on their taxable profits (not turnover). Companies pay corporation tax at a flat rate of 12.5%, but the rate is reduced to 2.5% if the IP BOX tax scheme is used. Unlike companies, the self-employed pay tax on their income at income tax rates.

Social and health insurance contributions

The amount of the contributions depends on the income, but cannot be less than the minimum established for each profession. These limits are set annually. To find out how much you have to pay for your profession, contact your social security office. The website of the Social Insurance Agency provides information on the amount of contributions for each profession. Employees can choose to earn up to the maximum insured earnings, which can be particularly important in the pre-retirement phase.

From 2024, the rate will be 21.8%, of which 16.6% will be paid by the self-employed and 5.2% by the Consolidated Fund of the Republic. The next increase is expected in 2029. The contribution rate for the general health care system will be 4% from 1 March 2020.

Contribution payment schedule

Contributions are payable quarterly on the 10th of each month, following the schedule provided at the time of enrolment. You can pay at the Social Security office or online. You must register in advance. The official bank details of the payer (bank statement) must be enclosed. Forms for filling in tax returns for each year are available on the Sisnet or TAXISnet portal.

What happens if a self-employed person's income is below the minimum threshold for their professional category?

If your actual income is below the minimum amount for the relevant professional category, you are entitled to claim contributions based on your actual income. You must enclose with your application a letter from an accountant or auditor confirming your actual income. The letter is usually valid for a limited period. It must be submitted in advance and before the contribution is due. By law, we pay tax on €1.

Will my pension take into account my time as a self-employed person?

Self-employed status is taken into account when pensions are recalculated, but there is a condition. Self-employed people must pay contributions for each week they were self-employed. The obligation to pay contributions ends on the day on which the insured person reaches retirement age, which is 65. However, if an insured person reaches retirement age but does not meet the contribution requirements for an old-age pension, he or she may continue to pay contributions until these conditions are met. No contributions will be made after the age of 68, regardless of the circumstances.

What are the risks of receiving income without declaring it to the social security authorities?

The Social Security Act 2010 (59(I)/2010) provides for the imposition of an administrative fine for work not declared to the social security authorities. This fine is increased by 200 euros for each calendar month or part thereof preceding the visit of the inspector who detected the offence. If the self-employed person wishes to suspend the activity, the competent authorities must also be informed. See theapplication form.

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