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Payroll & Tax in Cyprus

Cyprus payroll & taxation

Foreign companies operating in Cyprus may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in Cyprus are: Individual income tax (IIT) for employees in Cyprus, social security costs, VAT, withholding tax, business tax and permanent establishment concerns.

Your Payroll Options in Cyprus

Remote Payroll

A remote payroll in Cyprus is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Cyprus. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Cyprus is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Cyprus under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Cyprus may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Cypriot payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Cypriot employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Cyprus to a GEO, like Shield GEO. This is possible for both foreign workers and Cypriot nationals. This is the easiest, fastest and safest way to payroll staff in Cyprus.

Shield GEO manages all aspects of payroll for workers in Cyprus, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Cyprus

Information Explanation
Currency ?

Euro €

Tax Figures

Information Explanation
Corporate Income Tax ?

The current corporate tax rate in Cyprus is 12.5%.

Income Tax Rate ?
Grossed income Tax Rate (%)
0-€19,500 0
€19,500-28000 20
€28001-36300 25
€36301-60000 30
Over €60000 35
Payroll Tax ?

No

Sales Tax ?

VAT is imposed on the supply of goods and provision services in Cyprus, as well as on the acquisition of goods from the European Union (EU) and the importation of goods into Cyprus. Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods or services which they receive (input tax).

The registration threshold for VAT purposes is € 15,600 (€ 10,251 for intra-community acquisitions of goods.

The current standard rate of VAT imposed on taxable goods and services is 19%, with reduced rates of 0%, 5% and 9%.

Withholding Tax ?

Cyprus imposes withholding tax (WHT) on certain classes of income earned by non-residents:-

  • Dividends: No WHT applies. However, a 17% Defence Fund tax is withheld from dividends paid to resident individuals. This tax is a final tax.
  • Royalties: 5% on film royalties, and 10% on all other royalties
  • Interest: No withholding tax is imposed on interest paid to a nonresident. Interest paid to a resident is subject to Defense Fund Tax deducted at source at 30%.
  • Technical service fee: 10%
 A reduced rate may be available under an applicable Double Tax Treaty or EU Directive.
Employee Social Security (EE SS)

Employees only make contributions towards Cypriot Social Insurance. The employee’s total contributions amount to 7.8% of their monthly salary. All monthly contributions are capped at € 4,533.

In addition to the above, both employers and employees are also subject to a special contribution for any individual with monthly gross employment income above €1,500. The rates range from 0-3%, and are shared equally between the employer and the employee.

Employer Social Security (ER SS)

Employer’s total contributions include:

  • Social Insurances’ contributions amounting to 7.8% of the employee’s monthly salary.
  • Contributions to the Social Cohesion Fund equal to 2% of the employee’s monthly salary.
  • Contributions to the Redundancy Fund equal to 1.2% of the employee’s monthly salary.
  • Contributions to the Industrial Training Fund equal to 0.5% of the employee’s monthly salary.
  • Contributions to the Leave Fund (in lieu of holiday pay) equal to 8% of monthly salary [however, exemption may be obtained from having to contribute to this fund]

All monthly contributions are capped at € 4,533.

In addition to the above, both employers and employees are also subject to a special contribution for any individual with monthly gross employment income above €1,500. The rates range from 0-3%, and are shared equally between the employer and the employee.

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