Cyprus reforms social insurance to include dividends for business owners

The Cypriot Ministry of Labor is advancing pension reform aimed at closing legal loopholes that allowed business owners, directors, and shareholders to minimize social security contributions. Currently, approximately 2,990 individuals register monthly salaries below €500 while drawing significant income from dividends, which were previously excluded from social insurance calculations. This practice allowed these individuals to benefit from low contribution rates and tax advantages, as their declared income often fell below the €19,500 tax-free threshold effective through the 2025 tax year.

The proposed reform seeks to establish fiscal equity by mandating that dividends be included in insurable income calculations up to a specific limit. By ensuring that contributions more accurately reflect actual earnings, the government aims to rectify a decades-old practice that was legal but considered unfair to average employees who contribute based on their full wages. The Ministry of Labor is now prioritizing this legislative adjustment as part of the broader national pension reform package to ensure long-term sustainability and social balance.