Salary Taxes in Cyprus in 2024

In Cyprus, as in other countries, employers withhold certain amounts of taxes and contributions from an employee’s salary. These include income tax, contributions to the Social Insurance Fund, and contributions to the GESY healthcare system. Additionally, employers bear extra costs for social insurance and GESY. When determining salary, it’s essential to consider the “net” salary (the amount the employee takes home), the “gross” or base salary (before deductions), and the total cost of employment.

Social Insurance and GESY Contributions

In Cyprus, employee contributions to social insurance are set at 8.8%, with an increase of 0.5% starting from January 1, 2024. These contributions are made solely to the Social Insurance Fund. If the salary exceeds €5,239, the contribution is capped at €461.03. Contributions to the GESY healthcare system are 2.65% of the base salary. These payments are crucial for social protection and healthcare coverage for the employee.

Income Tax

Income tax in Cyprus is based on a progressive tax scale, depending on the taxpayer’s income level. Here’s how it works:

• Income up to €19,500 is exempt from taxation.
• Income between €19,501 and €28,000 is taxed at 20%.
• Income between €28,001 and €36,300 is taxed at 25%.
• Income between €36,301 and €60,000 is taxed at 30%.
• Income over €60,000 is taxed at 35%.

How to Calculate the Tax Base

To determine the tax base, you need to deduct the following amounts from the annual base salary:

1. Social insurance contributions made by the employee,
2. GESY contributions paid by the employee,
3. Any applicable deductions.

Then, subtract the non-taxable amount of €19,500, as this portion is not subject to tax in Cyprus. If the tax base falls between €19,501 and €28,000, a 20% tax rate is applied.

For example, if the tax base is €25,000: first, subtract €19,500, leaving €5,500 to be taxed at 20%, resulting in an annual tax liability of €1,100.

If the tax base is €30,000, first subtract €19,500, then €8,500 (i.e., €28,000 – €19,500) is taxed at 20%, which is €1,700, and €2,000 (i.e., €30,000 – €28,000) is taxed at 25%, which is €500. Thus, the total income tax would be €2,200.

Example Calculation for Minimum Wage for Third-Country Workers

1. Base salary: €2,500 per month or €30,000 per year.
2. Deductions from the employee’s salary:
   • Social insurance: 8.8%, or €220 per month (€2,640 per year).
   • GESY contributions: 2.65%, or €66.25 per month (€795 per year).
   • Income tax:
     • Tax base: €30,000 – €2,640 (social insurance) – €795 (GESY) = €26,565.
     • Non-taxable amount: €19,500.
     • Taxable amount at 20%: €26,565 – €19,500 = €7,065.
     • Annual income tax: €7,065 * 20% = €1,413.
     • Monthly income tax: €1,413 / 12 = €117.75.

So, the net salary is:

€2,500 (salary) – €220 (social insurance) – €66.25 (GESY) – €117.75 (income tax) = €2,096 per month.

Employer’s Financial Obligations

1. Social Insurance Fund: 8.8%, or €220 per month.
2. Unemployment Fund: 1.2%, or €30 per month.
3. Industrial Training Fund: 0.5%, or €12.50 per month.
4. Social Cohesion Fund: 2.0%, or €50 per month.
5. GESY: 2.90%, or €72.50 per month.

Total cost of employment includes:

€2,500 (salary) + €220 (social insurance) + €30 (unemployment fund) + €12.50 (industrial training fund) + €50 (social cohesion fund) + €72.50 (GESY), totaling €2,885 per month.

Tax Benefits for Employees

Cyprus offers two key tax benefits for certain categories of employees:

1. 50% Tax Relief: Available for those who started working in Cyprus after January 1, 2022. This relief reduces the tax burden by 50% for 17 years from the start date of work in Cyprus. Requirements include:
   • Earning more than €55,000 per year. For example, if starting work in January, the monthly income should be at least €4,583.33, and if starting in July, it should exceed €9,166 per month.
   • Not having been a Cyprus resident for the previous 10 years before starting work in Cyprus.
2. 20% Tax Relief: Applies to 20% of total employment income, with a maximum limit of €8,550. This benefit is available to employees whose first employment in Cyprus began on or after July 26, 2022, and is valid for 7 years. Requirements include:
   • Not having been a Cyprus resident for at least three preceding tax years.
   • Working outside Cyprus for a non-resident Cypriot employer during that three-year period.

Both of these benefits aim to reduce the tax burden for eligible employees. The 20% discount starts from the year following the year of commencing work in Cyprus.