Increased contributions to the Social Insurance Fund (SIF) and the General Healthcare System (GESY) over the past five years have significantly raised employer costs in Cyprus. Employers’ organizations have repeatedly raised the issue with institutional bodies such as the Labour Advisory Body and the Economic Advisory Committee.

During a meeting last summer, under the leadership of President Nicos Christodoulides and with the participation of over 40 members from the Employers and Industrialists Federation (OEB) and the Cyprus Chamber of Commerce and Industry (CCCI), the President pledged to introduce compensatory measures in response to the proposed increase in corporate tax from 12.5% to 15% within the tax system.

According to Brief’s sources, employers' organizations are set to reiterate their longstanding request for the abolition of the contribution to the Cohesion Fund and a reduction in contributions to the Excessive Staff Fund. The reason for this is the already significant burden businesses face from their total contributions to the state.

Employers are experiencing increased costs both in terms of salaries and profits. Regarding profits, businesses currently pay a corporate tax of 12.5%, which will rise to 15% following the passage of the tax reform. Additionally, they pay 5% in income tax on annual profits.

Regarding Social Insurance, employers are responsible for paying both their own contributions and those of their employees. For each employee, they currently contribute 8.3% to the SIF.

Under the 2020 GESY legislation, employers contribute 2.90% to GESY. Additionally, businesses contribute 1.2% to the Excessive Staff Fund, 0.5% to the Human Resources Development Fund, and 2% to the Cohesion Fund.

It should also be noted that businesses with employees who are unionized make additional contributions to the pension fund, supplemental health schemes, and welfare funds.

According to the preliminary study by the University of Cyprus’ CypERC on tax reform, presented recently at the Presidential Palace, despite the planned increase in corporate tax from 12.5% to 15%, businesses are expected to see a reduction of around 8% in their total tax expenses and contributions to the state, primarily due to the abolition of the deemed distribution of dividends.

Both OEB and CCCI welcomed the proposed abolition of the deemed dividend distribution by the CypERC.

However, as reported by Brief, employers’ organizations will present their proposals to the Economic Advisory Committee at its upcoming meeting, which includes a request for the removal of the contribution to the Cohesion Fund and a reduction in contributions to the Excessive Staff Fund.

In his statements to Brief, Michalis Antoniou, General Director of OEB, suggested that the government could proceed with the abolition of the Cohesion Fund contribution, as the money is no longer allocated to a distinct fund but is instead deposited into the government’s general account. Another measure could be reducing the percentage paid to the Excessive Staff Fund.

“The Excessive Staff Fund currently has a massive accumulation of reserves, around €800 million. Our view is that the contribution to this fund is now effectively a tax. Therefore, we believe there is room to reduce the contribution rate,” stated Mr. Antoniou.

The General Director of OEB emphasized that businesses acknowledge the usefulness of contributions to the SIF and GESY. However, he argued that contributions to other funds like the Cohesion Fund and Excessive Staff Fund are a tax on labor, without any corresponding return, ultimately reducing the competitiveness of Cypriot businesses.