Cyprus proposes charging social contributions on part of dividends — Cyprus Mail

In Cyprus, as part of the proposed pension reform, authorities plan to take into account part of the dividends of employees who hold shares in the companies where they work when calculating income for social insurance. As Cyprus Mail reports, the changes are intended to expand the contribution base for the Social Insurance Fund and increase state revenue.

The reform targets a practice under which business owners, directors and shareholders declare a small monthly salary while receiving additional income in the form of dividends. According to the Ministry of Labour, 2,990 owners, directors and shareholders in companies with up to three employees declared a salary of less than €500 per month while also receiving dividends.

In total, 11,500 owners, directors and shareholders declared monthly income of up to €2,000. Of these, 26% reported salaries below €500 per month.

Limit for calculating contributions

The bill provides for contributions to be charged on dividend income until the total calculation base reaches two insurance units, or €22,960 per year. This threshold is calculated on the basis of the basic annual insurable income of €11,480 set for 2025 and 2026.

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Initially, contributions will be calculated from the declared salary and then from dividends until the maximum amount is reached. For example, for a company owner with a salary of €500 per month, contributions on dividends will be charged after €6,000 of their annual salary income has been taken into account.

According to the example provided by the ministry, a person with an annual salary of €15,000 and dividends of €30,000 will pay contributions on their salary and on an additional €8,000 in dividends. The total income on which contributions will be charged will amount to about €23,000.

New category of contributors

The bill also proposes creating a new category of contribution payers — income recipients. It is planned to include people who receive income from positions, dividends, interest, rent, copyright and patent royalties, fees and other property income.

Before the 2026 tax reform, dividends were taxed at a rate of 17%, and from January 1, 2026, it was reduced to 5%. The Ministry of Labour seeks to ensure that social contributions more accurately correspond to the income of people who are simultaneously employees and shareholders of companies.