Tips for Sole-Traders in Cyprus

Sole trader in Cyprus? Learn about the protective advantages that incorporating a company offers, plus the chance to go freelancer if needed.
Article Last Updated: 17 May, 2024 under Self-Employed Set-Up Service

Operating as a sole trader in Cyprus requires no up-front costs, whereas a company incorporation requires a cash outflow (cost varies). Also, companies are obliged to pay €350 per year (annual company levy) whereas individuals do not have to pay this fee. Probably, the most important reason why someone may choose to run a business as a company instead of as a sole trader, is the potential of lower overall taxation on profits. However, other factors like the protection someone may enjoy from the veil of incorporation of a company might not be disregarded.

1. The major Characteristics self-employed businesses

Sole trader businesses in Cyprus have similar characteristics to companies, with the exemption that the ultimate responsibility remains to the sole trader instead of a legal person. Some of these characteristics are listed below, sole trader businesses:

  • Are taxed on profits, not turnover (just like companies)
  • Expenses incurred for the running of the business are tax allowable (deducted for tax purposes)
  • Are taxed on the PAYE tax brackets of the employed persons
  • When their turnover exceeds Euro 70,000 annually, audited financial statements must be prepared just like companies
  • Must be VAT registered and follow VAT rules and regulations
  • Can register as employers and be responsible personally for their staff payroll taxes, just like companies
  • Are frequently scrutinized by the VAT and Income Tax offices (more often than companies)
  • Are personally liable to VAT and Income Tax offices (unlike companies)

2. Conclusions

The protection from the veil of incorporation as well as the tax benefits from the incorporation of a company may leave no space for doubt as to whether a potential business person should incorporate a company in Cyprus instead of operating as a sole trader . In certain cases, however, working as self-employed in Cyprus may be an ideal option if someone deals with temporary and/or lower income businesses. A qualitative factor that should be taken into consideration, is the need for existence of a sole trader with employees. The risks of a sole trader having employees are high enough to justify the incorporation of a company even if the benefits in terms of profitability do not justify the incorporation of a company. In all cases, the advice of a local expert should be sought before a decision is made.

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