If you’re considering starting a business in Cyprus, you may have wondered which structure is best for you: registering as self-employed or incorporating a company. In this article, we’ll analyze the taxes and benefits of each option to help you make an informed decision. Let’s explore the advantages of being self-employed and the benefits of registering a company in Cyprus. Let’s dive into the details!
Benefits of Registering as Self-Employed in Cyprus
When considering registering as self-employed in Cyprus, there are several benefits to keep in mind. Let’s look at some of them:
Costs of self-employment in Cyprus
One of the main advantages of becoming self-employed in Cyprus is that startup costs are extremely low. It is the most cost-effective option to start a business in the country. You won’t have to face significant expenses when establishing your self-employed activity.
Expense deduction for self-employed in Cyprus
As a self-employed in Cyprus, you’ll be able to deduct all business-related expenses from your income. This means that if you can prove that those expenses were necessary to carry out your business activity, you can subtract them from your income before calculating your taxes.
For example, if you need to buy a new laptop for your work or if you have to travel abroad to meet your clients, you can include these expenses as deductions.
It’s important to note that the responsibility for filing annual accounting reports lies with you as a self-employed in Cyprus. Make sure to keep proper records of your expenses and be prepared to fulfill your accounting obligations.
Audit for self-employed in Cyprus
Another advantage of being self-employed in Cyprus is that you are not required to undergo an annual audit unless your income exceeds 70,000 euros. This means that you won’t have to incur the additional costs associated with hiring audit services.
Exemption from the annual fee of 350 EUR for companies
Unlike registered companies, as a self-employed in Cyprus, you won’t have to pay the annual fee of 350 EUR applied to companies. This allows you to save that amount and allocate it to other aspects of your business.
Access to Cyprus healthcare system
By registering as self-employed in Cyprus, you will have access to the country’s healthcare system. This means you can benefit from medical services and receive the necessary coverage for your well-being and that of your employees, if you have any.
These are just a few of the benefits of becoming self-employed in Cyprus. Now that we’ve explored the advantages, let’s delve into the taxes applicable to self-employed individuals in the next section.
Let’s dive into the taxes applicable to self-employed in Cyprus. It’s important to understand how taxes work to make an informed decision about your business structure. Let’s look at the main taxes:
Social Security for the self-employed in Cyprus
As a self-employed in Cyprus, you will be subject to Social Security contributions. Currently, the Social Security contribution for self-employed workers is set at 15.6%. However, it’s important to note that this percentage is calculated based on your “estimated income” rather than your actual income.
The Tax Authority determines the amount of “estimated income” annually, considering your experience and the sector of activity you’re in.
There is the possibility to submit a special application to have taxes applied based on your actual income if it is significantly lower than the estimated income. By doing so, you can adjust the amount of your Social Security payments. It’s important to note that Social Security payments are made every three months.
GESY (Cyprus’ National Health System)
If you register as self-employed in Cyprus, you will be required to pay GESY contributions, corresponding to Cyprus’ National Health System. The amount of these contributions is 4% of your earnings.
Income Tax
In Cyprus, a progressive income tax is applied to both self-employed individuals and any other natural person. The tax rates vary based on income brackets and are as follows:
- Taxable income up to 19,500 EUR: 0%
- Taxable income from 19,501 to 28,000 EUR: 20%
- Taxable income from 28,001 to 36,300 EUR: 25%
- Taxable income from 36,301 to 60,000 EUR: 30%
- Taxable income above 60,000 EUR: 35%
These tax rates determine the percentage of income tax you will have to pay based on your earnings. Overall, the total tax rate can range between 19.6% and 54.6%, depending on your income (You can calculate it with this calculator here).
It is important to consider these taxes when evaluating the costs and benefits of registering as self-employed in Cyprus. Now that we have explored the fiscal aspects, let’s move on and look at the advantages of setting up a company in Cyprus in the next section.
Now that we have explored the fiscal aspects of registering as self-employed in Cyprus, it is time to analyze the advantages of incorporating a company in this country. While registering as self-employed can have its benefits, registering a company also offers interesting opportunities. Let’s look at some of the advantages:
Benefits of Registering your company in Cyprus
Taxation of a company in Cyprus
One of the main advantages of incorporating a company in Cyprus is the favorable tax treatment that applies. Compared to self-employed individuals, registered companies in Cyprus are subject to a fixed tax rate of 12.5% on their profits. This percentage is considerably lower than the one applied to self-employed individuals, which can result in significant savings.
Additional expenses of a company in Cyprus
While companies enjoy more favorable tax treatment, it is important to consider the additional expenses associated with incorporation. When incorporating a company in Cyprus, you should take into account the following aspects:
- Annual fee: Every year, companies must pay a registration fee amounting to 350 euros.
- Municipal tax: At the end of each year, the company will also have to pay municipal tax. The amount of this tax varies depending on the municipality where the company is located. For example, for the year 2022, the bills in the Larnaca district were around [indicate approximate amount in euros].
- Audited report: As a company, you will need to submit an audited report every year. This involves keeping the company’s accounting records and hiring an external auditor to perform the audit. These additional costs should be taken into account when evaluating the option of incorporating a company in Cyprus.
Withholding taxes and health care of a company in Cyprus
An important consideration when choosing the business structure is the issue of withholding and healthcare. If you incorporate a company and do not work as self-employed, you will not be required to pay healthcare withholdings.
However, in return, you will also not have access to free healthcare in Cyprus. This aspect should be carefully weighed based on your personal needs and preferences.
FAQ
1. How can I access the Cyprus healthcare system if I register as self-employed?
By registering as self-employed in Cyprus, you will have access to the country’s healthcare system. This means you can benefit from medical services and receive the necessary coverage for your well-being and that of your employees, if you have any.
2. What are Social Security contributions, and how do they work for self-employed individuals in Cyprus?
As a self-employed individual in Cyprus, you will be subject to Social Security contributions. Currently, the Social Security contribution for self-employed workers is set at 15.6%. However, it’s important to note that this percentage is calculated based on your “estimated income” rather than your actual income. The Tax Authority determines the amount of “estimated income” annually, considering your experience and the sector of activity you’re in.
There is the possibility to submit a special application to have taxes applied based on your actual income if it is significantly lower than the estimated income. By doing so, you can adjust the amount of your Social Security payments. It’s important to note that Social Security payments are made every three months.
3. What are GESY (Cyprus’ National Health System) contributions and how do they affect self-employed individuals?
If you register as self-employed in Cyprus, you will be required to pay GESY contributions, corresponding to Cyprus’ National Health System. The amount of these contributions is 4% of your earnings.
4. How does income tax work for self-employed individuals in Cyprus?
In Cyprus, a progressive income tax is applied to both self-employed individuals and any other natural person. The tax rates vary based on income brackets and are as follows:
- Taxable income up to 19,500 EUR: 0%
- Taxable income from 19,501 to 28,000 EUR: 20%
- Taxable income from 28,001 to 36,300 EUR: 25%
- Taxable income from 36,301 to 60,000 EUR: 30%
- Taxable income above 60,000 EUR: 35%
These tax rates determine the percentage of income tax you will have to pay based on your earnings. Overall, the total tax rate can range between 19.6% and 54.6%, depending on your income.
5. What are the advantages of registering a company in Cyprus compared to being self-employed?
One of the main advantages of incorporating a company in Cyprus is the favorable tax treatment that applies. Compared to self-employed individuals, registered companies in Cyprus are subject to a fixed tax rate of 12.5% on their profits. This percentage is considerably lower than the one applied to self-employed individuals, which can result in significant savings.
6. What are the additional expenses associated with incorporating a company in Cyprus?
While companies enjoy more favorable tax treatment, it is important to consider the additional expenses associated with incorporation. When incorporating a company in Cyprus, you should take into account the following aspects:
- Annual fee: Every year, companies must pay a registration fee amounting to 350 euros.
- Municipal tax: At the end of each year, the company will also have to pay municipal tax. The amount of this tax varies depending on the municipality where the company is located. For example, for the year 2022, the bills in the Larnaca district were around [indicate approximate amount in euros].
- Audited report: As a company, you will need to submit an audited report every year. This involves keeping the company’s accounting records and hiring an external auditor to perform the audit. These additional costs should be taken into account when evaluating the option of incorporating a company in Cyprus.
It is crucial to assess your projected income and consider all fiscal aspects and additional expenses before making a decision regarding the business structure in Cyprus. If you have any further questions or need personalized advice, feel free to contact our team at “Your Company in Cyprus” in this LINK
Remember that making the right decision is crucial for the success of your business!
