Remote Working in Cyprus for Residents and Tax Residents
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Any expat who lives in Cyprus for more than 6 months should be registered resident and tax resident.
Under international law and EU social insurance agreements with other countries including the UK, anyone working as an employee remotely and in Cyprus for more than 90 days should be paying tax and social insurance under Cyprus Tax Codes.
This does not apply to sole traders/contractors, different rules apply.
The 90-day short-stay business or holiday rule will be enforced within the EU Schengen zone and with ETIAS being launched in the Schengen Area from 2025.
PAYROLL SERVICES
The responsibility and liability for Cyprus Payroll Taxes is with the EMPLOYER not the employee.
The employee on low income could make a Cyprus Tax return each year and declare the overseas income and tax liability in Cyprus is assessed. This would allow the Cyprus Tax Authority to reclaim the tax due to them from the UK. It may take years if ever for it to come up as an issue for the individual, but even so the liability is with the overseas employer.
For an employer with many overseas workers in a country the solution maybe to register a branch office to operate in Cyprus. With the business registered in Cyprus it then can perform Cyprus company tax and payroll activity.
The simplest and a correct way for an employer to honor their payroll tax and social insurance liability for remote workers overseas is to use a Payroll Service through a Cyprus registered business.
This could be through a CYSEC registered Administration Service provider like ProACT or through a registered accounting firm.
The Payroll service in Cyprus is the registered tax agent for the employer in Cyprus and operates their payroll and PAYE tax for payslips each month/ week. The key issue is that pay needs to pass through a Cyprus nominee bank to distribute pay for the employee net of tax and social.
LOW INCOMES
In the UK there is no tax or national insurance payable below £12570 pa for an employee or employer.
In Cyprus an employee / employer pay social insurance on all income at a rate of 8.8% each = total 17.6% with no personal allowance.
So, in Cyprus, no income tax is due on income below £12570 pa, but social insurance is due if payroll is paid from Cyprus.
If a UK remote worker to a UK company was switched to a 'Contractor basis' by the employer, then, the remote worker in Cyprus as an individual would have the following liability:
1. tax resident and tax return in Cyprus
2. no Cyprus income tax below around £16500 income
3. No Social Insurance liability if working remotely as an individual contractor
If working as a Sole trader business from Cyprus then social is payable again at a flat rate around 18%
4. Health tax of around 2.65% on worldwide income at a flat rate
NOTING qualification for State health care in Cyprus requires expats to:
1. have a short term S1 issued to short term overseas contract workers by their home country
2. have a long term S1 issued to state pensioners by there home country
3. pay social insurance in Cyprus
4. be a permanent resident status or family member
5. by a cyprus citizen
In summary
For remote workers on overseas contracts living and working abroad in Cyprus:
i. for lower incomes there is a discrete approach that leaves some liability with the employer.
ii. If the contract is switched to 'contractor' not 'employee' the employer has no further liability to taxes
iii. a Cyprus tax return is always due by a tax resident
iv. Social insurance can be avoided but then benefits such as Cyprus State health care are lost
v. voluntary UK National Insurance contributions can fund a full UK state pension.
For help and guidance, contact us.