Payroll taxes in Cyprus in 2023
As in many other jurisdictions, in Cyprus, the employer deducts certain amounts from the employee's wages each month, as provided by law. Among the mandatory payments related to wages:
- income tax,
- social insurance,
- GESY.
In addition, the employer also independently bears the costs for each employee for:
- social insurance (8.3% to the Social Insurance Fund, 1.2% to the Unemployment Fund, 0.5% to the Industrial Training Fund, 2.0% to the Social Unity Fund),
- GESY at a rate of 2.90%.
Thus, when negotiating salary with an employee, the employer should keep in mind three indicators:
- Net Salary, i.e. the amount that the employee will receive on hand which is important in determining the financial expectations of the employee.
- Brutto or Basic Salary, i.e. the amount before deducting all necessary payments - is the basis for all calculations, as a rule, is prescribed in the contract.
- The Total cost per employee, i.e. the “value” of an employee for the company which is necessary for correct financial planning within the company
Social insurance
The amount of social insurance deducted from the employee's salary is 8.3%. The employee, unlike the employer, pays contributions only to the Social Insurance Fund. However, if the Basic Salary exceeds EUR 5.005, the amount of social insurance is a fixed amount of EUR 415.42.
GESY
The contributions to GESY are 2.65% of the Basic Salary.
Income tax
Income tax is calculated at a progressive rate:
- Income up to 19,500 euros is not subject to income tax,
- From 19,501 to 28,000 euros - at a rate of 20%,
- From 28,001 euros to 36,300 euros - at a rate of 25%,
- From 36,301 euros to 60,000 euros - at a rate of 30%,
- More than 60,000 euros - at a rate of 35%.
Tax base
Let's take a closer look at the tax base.
To determine the tax base, you must subtract (1) Social insurance, (2) GESY, and (3) exemption from Basic Salary, if applicable.
Further, 19,500 euros are deducted from the resulting amount, because this amount is not taxed in Cyprus. If the tax base falls within the range from 19,501 to 28,000 euros, then a rate of 20% is applied.
For example, the tax base was 25,000 euros, subtract 19,500 euros, as a result, 5,500 euros are taxed at a rate of 20%, then the amount of tax per year will be 1,100 euros.
If the tax base is 30,000 euros, then 19,500 euros are deducted from this amount. Further, 8,500 euros (28,000-19,500) are taxed at a rate of 20% - 1,700 euros; EUR 2,000 (30,000-28,000) is taxed at a rate of 25% - EUR 500. The total amount of income tax will be 2,200 euros.
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Consider the tax burden when paying the minimum possible salary for employees from third countries. The Basic Salary is 2,500 euros per month (30,000 per year). Payments from the employee's salary:
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Cypriot legislation provides for the possibility of applying a 50% and 20% exemption for persons who were foreign residents before starting work in Cyprus. Let's stop in more detail.
1. 50% tax exemption
50% of the remuneration of employees whose first employment in Cyprus began on or after 1 January 2022 is exempt from income tax for a period of 17 years, starting from the month in which they began employment in Cyprus, provided that:
- their gross monetary remuneration per year exceeds EUR 55,000;* and
- employees have not been residents of the Republic for at least 10 consecutive years immediately prior to the start of their employment in Cyprus.
An important point - the bar of 55,000 euros must be reached within a calendar year. In other words, if an employee starts working in January, then his monthly salary must be at least 4,583.33 euros. If the work starts in July, then the employee has only 6 months to apply the exemption, then his salary must exceed 9.166 euros per month.
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Let's look at an example: Let's assume that the maximum amount of expenses that a company can afford to "support" one employee (Total cost per employee) is approximately 6,100 euros (we use 6,099.33 euros for calculations). If an employee is hired from January, then with a Basic Salary of 5,332 euros, his income for the calendar year will be 63,984 euros, which exceeds the threshold of 55,000 euros. In such a case, the exemption may be applied. We determine the amount of the tax exemption: 50% of the annual income - 31.992 euros.
Since income up to 19,500 euros is not taxed in Cyprus, and income between 19,500 euros and 28,000 euros is taxed at a rate of 20%, income tax will be calculated in the amount of 5,811.36 euros (25,311.36-19,500) and for the year will be 1,162.27 euros or 96.86 euros in month. In this case, the employee will receive (Net Salary) 4,678.42 euros per month.
Basic Salary – 5,332 euros, |
2. 20% tax exemption
20% of the amount of salary (but not more than €8,550) of employees whose first job in Cyprus began on July 26, 2022 onwards, is exempt from income tax for 7 years, provided that the employees, immediately before starting work in Cyprus:
- have not been resident in Cyprus for at least 3 consecutive tax years, and
- during this period worked outside of Cyprus for a non-resident employer.
It should be noted that a 20% exemption can be granted from the year following the year of commencement of employment in Cyprus.
Read the original in "Vestnik Kipra"
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