Kyriakos Tramountanellis / Sunday, November 29, 2020 / Categories: Cyprus Company Tax, CYPRUS PAYROLL TAXES, Cyprus Taxation on Individuals Cyprus Payroll - Explained, Simply Payroll in Cyprus is affected by two kinds of Direct Taxes; Social Insurance Contributions - paid by employees & employers (a.k.a S.I.C), and Personal Tax - paid by employees, called Pay As You Earn (a.k.a. P.A.Y.E). ---------------------------------------------------------------------------------------------------------- A. Social Insurance Contribution (S.I.C) - Employed & Self Employed Persons Employed Persons Social Insurance is payable on the total income. For 2018 the rate applied to both the employee and the employer is 7.8%. The employer is also subject to an additional 3.7% of Security Contributions analysed as follows: Social Cohesion fund 2% Redundancy Fund 1.2% Industrial Training fund 0.5% In some cases where the employees offer labour in seasonal industries such as the construction and tourism the employer may also be responsible for the Holiday Fund at 8% of the gross salary. For 2018 Social Insurance Contributions are capped to a maximum Amount of Income / Salary of €54,396. Therefore, in the event that an employee earns annual income > €54,396 no social insurance contribution or deduction is due on the excess amount except of Social Cohesion Fund paid by the Employer at the 2% rate ( => i.e Social Cohesion Fund does not have a Cap). Example on Social Insurance: If an individuals’ salary is €1,500 per month Employee: The net salary will be €1,500 – (€1,500 x 7.8%) = €1,383 per month. The social insurance deducted from this salary is €117 per month. Employer: The employer will have to pay all of the contributions mentioned above (we will assume that the company is exempt from holiday fund since the annual leave is paid from the employer). Therefore, the total contribution / cost for the employer is 11.5% (7.8% + 2% + 1.2% + 0.5%) => €1,500 * 11.5% = €172.50 will be paid to by the employer each month. This will be a Tax Allowable Cost to the Company. Self-employed Persons Self-Employed persons are subject to a contribution of 14,6% of their total income. Note: Each year the Social Insurance Office issues a Tax Table which illustrates the minimum and maximum accepted remuneration range per job description for self employed persons is given. Typically for smaller clients we use the minimum accepted salary based on their job description for Social Insurance Purposes. ---------------------------------------------------------------------------------------------------------- B. The "Pay As You Earn" Tax (P.A.Y.E.) P.A.Y.E. is payable on taxable income (net of all applicable deductions, including Social Insurance) of an individual that exceed the Cyprus Tax Free amount of €19,500 per annum. After that, the income is subject to bands as mentioned on the below table: Amount in € Tax Rate % Accumulated Tax in € First 19,500 Nil 0 From 19,501 - to 28,000 20 1,700 From 28,001 - to 36,300 25 3,775 From 36,301 - to 60,000 30 10,885 From 60,000 35 P.A.Y.E Calculation - Example 1: Annual Gross Salary €19,500 Let’s assume that the monthly salary of an employee is €1,500 per month payable in 13 instalments (i.e including 13th salary). The gross salary per annum is €19,500. =>This employees’ salary is tax free. No P.A.Y.E. is due. P.A.Y.E Calculation - Example 2: Annual Gross Salary €65,000 Let’s assume that the gross salary of an employee per annum is €65,000 after all applicable deductions (including social insurance explained above). Therefore, the tax payable will be calculated as follows: Income Received Tax rate % Accumulated tax in € First 19,500 0 0 From 19,501 - to 28,000 20 1,700 From 28,001 - to 36,300 25 3,775 From 36,301 - to 60,000 30 10,885 From 60,000 - to 65,000 35 1,750 => TOTAL TAX DUE 12,635 (1,750+ 10,885 (accumulated up to Euro 60,000) ---------------------------------------------------------------------------------------------------------- C. Example of Social Insurance & P.A.Y.E Taxes - Typical Real Life Scenario Annual Gross Salary €36,000 a. Calculation of Social Insurance Employee: 36, 000 * 7.8% = 2,808 / 12 Months = €234 per Month Employer: 36,000 * 11.5% = 4,140 / 12 Months = €345 per Month b. Calculation of P.A.Y.E tax: Taxable Amount (assuming no other deductions such as life insurance etc) = Gross Salary 36,000 - 234 * 12 Social Insurance (above) = 33,192 Income Received Tax rate % Accumulated tax in € First 19,500 0 0 From 19,501 - to 28,000 20 1,700 From 28,001 - to 36,300 25 1,297 (33,192 - 28,001)*25% => TOTAL P.A.Y.E Deductible = 2,997 per annum (1,700+ 1,297) or 250 per month (2,997/12) => Monthly Deductions: Employee: SIC 234 + P.A.Y.E 250 = 484 Employer: SIC 345 ............................................................................................................................................. Need Help with Payroll? If you need further Guidance on Cyprus Payroll or you need to Outsource Your Payroll Function simply drop us an email at kt@cyprusaccountants.com.cy or call me directly on 00357 99 428 543 and we will be more than happy to assist you! You can always have a look at our Videos on out YouTube Channel which also include several other Cyprus Payroll examples. Thank you for your time, Kyriakos Tramountanellis Read our Article on Linked In here. Previous Article Increase your Net Worth & Well Being + Reduce Your Taxes. Are You Taking Action? Next Article Επιστροφή Φ.Π.Α με Έμβασμα σε Τραπεζικό Λογαριασμό Print 72 Rate this article: No rating Please login or register to post comments.
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