Salary below 500 euros, plus dividends. Cyprus is preparing changes to contributions.

A salary of less than €500 per month doesn't mean a business owner is living solely on that amount. According to Philenews, 2,990 owners, directors, and shareholders report salaries below this level to the Cypriot social security system while also receiving dividends. This additional income is currently not covered by contributions to the Social Security Fund.

The Ministry of Labor wants to change this mechanism as part of the pension reform. The proposal involves including a portion of dividends in the contribution base for individuals working in their own companies. This is still a draft—no longer a mandatory requirement.

Salary and dividend are two different sources of income

A salary paid for working for a company doesn't have to be the sole source of income for its owner. A shareholder can also receive dividends, which are payments from the company's profits.

Therefore, declaring a salary of less than €500 doesn't reflect the individual's full financial situation. Without information about dividends, it's impossible to determine their total income.

According to Ministry of Labor data cited by Philenews, of the 11,500 owners, directors, and shareholders who declare a monthly salary of up to €2,000, approximately 26 percent report a salary of less than €500. This does not represent all entrepreneurs in Cyprus.

Dividend contributions in Cyprus – what is going to change?

The proposed project applies to employees who are also shareholders in the company that employs them. Dividends received from the company would also be taken into account when determining the contribution base.

The mechanism is intended to supplement the low base based on salary. A limit corresponding to two basic insurance units is provided.

Philenews provides the amount for this threshold 22,960 euros per yearThe minister's statements also include a rounded figure of approximately €23,000.

This is the basis for calculating contributions, not the amount of contributions to be paid. It should also not be presented as a general limit on contributions for all wages.

The Ministry wants to link pensions to actual payments

Labour Minister Marinos Mousiouttas justifies the proposal with the need to better link future pensions to contributions.

The ministry points to situations where a low declared salary translates into low contributions to the system, despite additional income from company profits. The project aims to reduce such individuals' subsequent dependence on social assistance benefits.

However, this doesn't mean that everyone who declares a low salary will automatically receive the low-income pension supplement. Eligibility depends on the terms of the specific benefit.

A legal mechanism, not proof of fraud

The mere division of payments into salary and dividends does not prove concealment of income or a violation of the law. Philenews emphasizes that the practice described was consistent with applicable regulations.

It's also important to distinguish between the absence of Social Security contributions and the absence of any dividend tax burden. Taxation and contributions are separate issues.

From the perspective of entrepreneurs, the most important thing will be the final scope of the reform: who will be covered, how the basis will be calculated and when the new rules will come into force.

The reform is still being prepared

According to a report by Politis on October 15, the government is aiming to launch the reform from January 1, 2027, but the project is still undergoing consultations and requires further legislative work.

At this stage, planned contributions should not be presented as an existing cost. It is certain, however, that a business owner's low salary is insufficient to assess their income—and it is precisely this difference that the Ministry of Labor has highlighted.