Helping teammates adjust to Cyprus tax laws: our in-house tax calculator for newcomers
As an international company that attracts top talent from around the world to work in our various offices, we recognize the significance of providing support for individuals as they adapt to a new country. That's why we offer our new employees a comprehensive relocation package, including flight tickets, accommodation for the initial month, migration assistance, legal support, and more. We have also developed our own tax calculator specifically tailored for calculating potential taxes in Cyprus. This tool is valuable for those who have not worked in Cyprus and want to understand the salary prospects and tax implications in this beautiful country.
In this article, our Business System Analyst, Diana Shakirova, delves into why we created this tool, how to use it, and gives an outline of Cyprus' progressive tax scale.
The tax calculator was an interesting and important task that we were eager to invest our efforts in, as it held both business value and a sense of community."
Diana Shakirova Business System Analyst
The challenge of navigating tax laws
The question of salary in Cyprus, both before and after taxes, is a legitimate one for anyone considering making the move. While the Cypriot government aims to create attractive conditions for skilled professionals to relocate here, they also introduce numerous conditions and variables. The progressive tax scale adds to the complexity, often requiring careful examination to grasp its implications, and potentially leading to the perception of high tax liabilities.
Further confusion arises from the disparity between the salary figures mentioned on platforms like LinkedIn and Glassdoor and the actual amount received in hand. Therefore, it is crucial to clarify whether the discussion revolves around gross income (before tax deductions) or net income (take-home pay).
As a global company with offices in multiple countries, including Cyprus, we recognize the challenges even experienced payroll professionals face in understanding these intricacies. So, we understand it can be confusing to individuals who have never faced these complexities before.
How to use our custom tax calculator
First and foremost, it is important to note that our tax calculator is designed for informational and indicative purposes, specifically for newcomers to Cyprus. It is not intended to consider all sources of income other than monthly salary and should not be relied upon as a substitute for tax, legal, or accounting advice. Several factors contribute to the inability to guarantee absolute accuracy in this calculation. These factors include changing laws, individual circumstances, the inclusion of bonuses, tax considerations based on the benefits provided by the employing company, and the starting month of employment.
Therefore, it is crucial for each person to consistently consult their own tax, legal, and accounting advisors at all times."
The main purpose behind this tool is to minimize the number of clicks for the user while providing a comprehensible estimate of their tax liability. Our goal is to help users assess the approximate proportion of taxes they would be paying based on their salary. Hence, we have incorporated only 1 input field.
Users simply enter their potential gross salary, and we generate the calculation, accompanied by an explanation of each tax and how it is computed. However, we do not delve too deeply into intricate details. For instance, here is an example of the tax calculation and net salary estimation for a monthly income of 5000 euros:
Speaking of key terms and their meanings
Let's briefly explain the key components of the calculation.
What is social insurance? Every employee in Cyprus is compulsorily insured under the Social Insurance Scheme. For employed persons, the rate of contribution is 8.3%, which is deducted from the monthly salary with a maximum deduction of €415.42 per month. All employees that contribute to the Social Insurance are able to receive sickness benefit, maternity grant, maternity allowance, unemployment benefit, and an old-age pension.
What is a General Health System? It is a national health system that was implemented in Cyprus in June 2019, also known as GeSY. It aims to provide affordable and effective medical care to Cyprus residents. All expatriates living in Cyprus and holding a Cypriot ID or Alien Card are also entitled to enroll in GeSY. And they can choose their personal doctor, hospital or any other healthcare provider, from the public or private sector, that is associated with GeSY. The system is run by the Health Insurance Organisation, and is funded by contributions taken from the monthly salary of employees. Contributions are 2.65% for employees.
What is the progressive taxation system in Cyprus? The income tax is applied to individuals who earn income from Cyprus, regardless of whether they are Cyprus residents or not. A person is considered a resident if they are present on Cypriot territory for a period of time exceeding 183 days. And they’ll be subject to income tax from sources within Cyprus or abroad.
The Cypriot taxable income varies from 0% to 35% depending on the income: the first €19,500 is tax-free, and progressive rates will apply for personal taxation up to a percentage of 35%. Whereas, certain types of income can be taxed at different rates. The personal income tax is imposed on all types of business profits, discounts, pensions, rents, royalties, benefits in kind, and others.
What is tax exemption and how is it calculated? Tax exemption is granted for any employment exercised in Cyprus by an individual who was a resident outside of Cyprus, and before the commencement of their first employment in Cyprus. Tax exemption takes into account your annual gross income from any activity in Cyprus. The percentage of your exemption is applied on that as per the rates below.
We have chosen to display the salary both "without exemption" and "with exemption" to help users understand the potential benefits and the impact different salary values can have."
Who is qualified for a 50% tax exemption? Based on the updated Cyprus Income Tax Law, individuals who take up their first employment in Cyprus from 1 January 2022 onwards will be eligible for the 50% tax exemption from their employment income. However, they must fulfill the following conditions:
The individual has not been a Cyprus tax resident for at least 15 consecutive years prior to the commencement of their first employment in Cyprus.
The annual remuneration from employment in Cyprus must exceed €55,000 (This annual remuneration threshold of €55,000 can be achieved either in the first or second year of employment in Cyprus).
⚠️This exemption is available for a maximum period of 17 years, and can be utilized from the year of commencement of employment in Cyprus. If the relevant conditions are not satisfied in a tax year (e.g. annual remuneration is less than €55,000), the exemption will not be granted for that specific tax year.
Who is qualified for a 20% tax exemption? Every person if they are an employee with a yearly salary of less than €55,000 from any employment in Cyprus. For individuals who were not tax residents for 3 years before the first employment, the maximum exemption is €8,550. The tax exemption applies for 7 years, starting from the year after the first employment year.
How is the monthly tax calculated?
Annual gross salary - annual tax discount (if applicable) - annual GeSY - annual social insurance = Annual taxable income
Then apply the percentage according to the tax scale:
Annual income tax / employment months = your monthly tax
For more information about these and other parameters, please refer to the FAQ section on our calculator page.
Why we wanted our own tax calculator
At Exness, we believe it is crucial to provide greater transparency when discussing salaries with candidates. For instance, we openly discuss gross salary and explain how it converts to net salary.
This transparency, coupled with our comprehensive relocation packages for employees worldwide, helps new team members adapt better to changes. Developing our own tax calculator was a natural step towards enhancing transparency. However, there were several other reasons behind this decision:
We needed a reliable tool. While existing tax calculators were available, they might contain errors beyond our control and fail to account for changes in laws and tax systems. Additionally, some companies may offer Excel spreadsheets as calculators, making navigation cumbersome. Our calculator was developed in consultation with our tax department, enabling us to quickly incorporate any changes in tax regulations. Unlike third-party calculators, we can assure the accuracy of our calculations, making it more convenient and reliable to use.
We are a technology company, specializing in fintech, with expertise and experience in developing software products. Our development teams are agile and adaptable, so they were well-prepared to assist with this internal project and create a robust and technologically advanced product efficiently. While we have task lists and plans, we are always willing to allocate time to interesting and significant projects. This tax calculator was precisely such an interesting and important task that we were eager to invest our efforts in. We take pride in the fact that our stakeholders actively contributed their ideas, supported by business value, to the creation of this product.
We advocate for financial literacy. We strongly believe in the importance of understanding the amount of tax we pay. While it is great when a company handles tax declaration and payment on behalf of its employees, it is not ideal when the tax contribution remains a mystery. We wanted our employees, as well as others, to comprehend the extent of their contribution to the development of the country they reside in. This fosters a stronger sense of connection to their host country.
We value being part of the local community. Cyprus attracts numerous experts from around the world. It was important for us not only to provide a useful product to our candidates but also to create a shared tool that would enhance Cyprus' appeal for all expatriates. We were inspired by the opportunity to make a meaningful impact on future expatriates in Cyprus, regardless of whether they are our colleagues or employees of other companies. Cyprus has a strong sense of community, where everyone is willing to help one another.
We wanted to contribute to the development of the local community by creating a practical tool that helps future expatriates to settle in Cyprus and enjoy all the advantages this remarkable country offers."
Challenges we faced
We dedicated a significant amount of time to the design phase to achieve maximum simplicity in the user interface. To accomplish this, we had to determine the data we wanted to display and then proceed with the calculations. Our colleagues from the Payroll team provided us with Excel files, which served as a foundation for understanding the calculations. However, despite their assistance, the process proved to be quite challenging and time-consuming. On one hand, we aimed to create a streamlined interface, while on the other hand, we had to accurately replicate all the calculations, considering every intricate detail.
Collaboration with numerous specialists from different teams was essential to ensure that everything worked seamlessly. And this also required careful coordination to ensure that the task didn't become an endless project. Once we clarified the data we intended to display, we began working closely with designers and developers. We also developed an FAQ section, organized according to user needs, following a "top-down" approach to address the most common questions users may have. The process involved multiple iterations and refinements along the way. Ultimately, the development of the calculator took 3 months, but we are pleased with the final result, which is both useful and of high quality.
We have received an overwhelming amount of positive feedback from our candidates, new employees, and HR specialists from other companies who found our tool useful, understandable, and user-friendly.
The development of this calculator has served as a valuable testing ground, allowing us to refine our processes and build upon our expertise. With this experience, we are now well-equipped to develop calculators for other countries, leveraging our knowledge and insights. One of the most significant challenges in this endeavor will be verifying tax values and adhering to the unique principles of each country's tax system. However, we have established a solid framework that enables us to streamline this work more efficiently.
As Exness is a multinational, culturally rich, innovative, and productive environment, continually seeking talented individuals from different parts of the world, we are determined to expand our efforts beyond what we have already achieved. Therefore, we are actively working on developing calculators for other countries where we have offices
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