As international companies grow their footprint and tap into new markets, understanding local hiring laws and employment structures becomes vital to building sustainable operations. In this 17-part series, we guide foreign businesses through the legal and strategic aspects of employment in key global jurisdictions.
This installment brings us to Cyprus—a business-friendly EU member state known for its favorable tax regime, efficient company formation process, and common law legal system. With access to international talent, competitive operational costs, and attractive residency options, Cyprus is an ideal entry point into the European market. Whether through direct employment or flexible alternatives like independent contracting, businesses have multiple paths to building teams while optimizing costs and compliance.
Authored by Esmeralda Sofokleous
Aliant Cyprus
Are there Alternatives to Direct Employment?
Yes, there are alternative methods to direct employment in Cyprus, such as the following:
- An independent contractor may be hired through a services agreement for a specific project or timeframe.
- No employer/employee relationship is established, and the independent contractor remains responsible for their own taxes, social insurance contributions and employment benefits as they are self-employed.
- The Independent contractor issues their own invoices for the services provided, based on the services agreement, so there is no salary obligation or payroll requirements.
- A self-employed individual may setup a company in Cyprus company as an entrepreneur and invoice their customers for services provided.
- This will not be a formal employment and therefore the requirements outlined below for direct employment are not necessary.
- Under certain criteria the self-employed individual may also enjoy the benefit of the 60 days rule non dom tax residency, which is set out below.
Is it necessary to set up a local entity to hire an employee?
There are two methods to formally hiring an employee in Cyprus, however, there are various factors which guide this. For example, the objective of the company/investor and the nationality of the employee. Strictly speaking, the setup of a local entity to hire an employee is not mandatory.
Direct Employment through the setup of a local entity:
- To employ individuals who are not EU passport holders, a local entity must be set up and registered to the Business Facilitation Unit (BFU).
- A prerequisite to registering to the BFU is that an investment of 200,000 EUR must made to the company in the form of share capital in order to obtain Foreign Interest Status (FIS). This amount may be used for the operating of the company’s business activities.
- The employee of a foreign interest company is granted the right to reside in Cyprus by virtue of his employment.
- This residency benefit is extended to dependent children and the spouse of the employee. This includes access to the healthcare and education systems in Cyprus.
- A foreign interest company may employ any number of foreigners to the company. However, to protect the workforce, a 70:30 ratio must be maintained, i.e. 30% of the workforce must be Cypriot/EU Nationals, this may be implemented over a period of five years.
Direct employment through the setup of a branch in Cyprus:
- A foreign company may expand its business activity to Cyprus by setting up a branch through the Cyprus Registrar of Companies.
- The setup of a branch does not create a legal entity in the Republic of Cyprus but rather creates the possibility for a legal entity incorporated outside the Republic to operate in Cyprus.
- The branch may employ Cypriot and EU nationals but may not employ third country nationals. Therefore no investment of 200,000 EUR and registration to the BFU is required.
- While the branch is considered a part of the parent company it is subject to the Cyprus taxation system and thus beneficially, taxed only on profits earned in Cyprus.
Direct employment vs. Independent contractor: What about costs?
Direct employment:
- For foreign nationals there is a minimum gross salary requirement of 2500 EUR.
- For Cypriot/EU nationals the minimum gross salary requirement is 1000 EUR.
- Obligation to make social insurance, tax, general health system contributions.
- Costs for the BFU registration, registration of the employee with the Civil Registry and Migration department, Registration of the Employee with Social Insurance, Tax Authorities.
- Statutory requirements such as holiday benefits, paid sick leave, parental leave and/or severance pay under certain circumstances.
Independent Contract/Indirect Methods:
- No salary requirements as the independent contractor issues an invoice based on the pre-agreed sum for their services.
- All contributions remain the obligation of the independent contractor/self-employed individual.
- No holiday benefits, paid sick leave, parental leave or severance pay.
Overview of the Tax Perspective/Residency:
An investors’ relocation to Cyprus offers a variety of benefits compared to other countries. Physical persons can be considered as Cyprus tax residents under one of the following concepts:
183 days residency concept
An individual is considered as a tax resident in Cyprus if they physically reside in Cyprus for a period or periods exceeding 183 days during a tax year.
60 days residency concept
An individual may also be considered as a tax resident in Cyprus if the below conditions are met:
- The individual does not spend more than 183 days in any other foreign country;
- The individual is not considered as a tax resident of any other foreign country;
- The individual stays physically in Cyprus for at least 60 days during the tax year;
- The individual carries on a business in Cyprus, or is employed in Cyprus, or holds an office in Cyprus;
- The individual maintains a permanent residence in Cyprus (which is either owned or rented).
90 Day Rule Exemption
If a Cyprus tax resident spends more than 90 days in a tax year providing services to a non-resident employer or a foreign permanent establishment of a Cyprus-based employer, the remuneration earned during this period is fully exempt from Cyprus income tax.
- Where an individual is a tax resident of Cyprus, tax is levied upon the individual’s global income (irrespective of where it emanates from).
- Taxable income up to €19.500 is taxed at 0%.
- Taxable income exceeding this amount is subject to progressive income tax rates ranging from 20% to 35%.
- However, any foreign individual may be eligible to claim exemptions on employment income received from Cyprus such as:
- The 20% exemption, which is granted for a period of 7 tax years and;
- The 50% exemption which is granted for a period of 17 tax years.
- These exemptions are subject to certain conditions.
- An individual which is not considered to be domiciled in Cyprus (non-dom individual), will be exempt from the payment of Special Defence Contribution (“SDC”) tax on dividends, interest and rental income.
- This exemption applies for 17 consecutive tax years, starting from the first year of tax residency in Cyprus.
In addition, the following tax advantages also should be considered:
- No tax on gains arising from the disposal of shares, bonds, and other similar financial instruments;
- No tax on gains arising from the disposal of non-Cyprus real estate;
- No tax on retirement gratuity;
- Special tax regime on foreign pension income.
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