Pension reform in Cyprus

On 2 September the Cyprus government published a draft of a large-scale pension reform. For now it is only a bill: public consultation is open until 16 September, and it has not yet entered into force.

The key change concerns directors and shareholders of employer companies: it is proposed to include the dividends an employee receives as a shareholder of their own company in their insurable earnings.

Separately, contributions are introduced for those who live mainly on income from property (dividends, interest, rent, royalties) if that income is not currently covered by compulsory insurance. The starting rate is 15.82% within the basic insurable income, with further increases.

There are also mitigating provisions: the reform proposes to credit additional pension periods for caring for children and dependants, disability, study and first entry into the labour market, and to partially reduce the current 12% penalty for retiring early at 63.

If you are paid through a combination of salary and dividends, a standard tax optimisation scheme for many owners of Cypriot companies, it is worth starting to follow how the reform progresses through consultation.

A transition period of 2027–2031 is envisaged, but the exact date of entry into force has not yet been fixed. It is too early to change your remuneration structure right now, as the draft may change following the consultations.

Avoid hasty restructuring decisions until the final version of the law appears: the familiar model of a low salary with the main income paid as dividends may, over time, lose some of its tax efficiency.

We are following this bill and will let you know as soon as the entry-into-force timeline and the outcome of the public consultation, which is open until 16 September, become clear.