Cyprus pension reform would extend social insurance contributions to dividend income
A proposed pension overhaul would require employees holding shares in their workplaces to pay social insurance on some dividends, with covered earnings capped at €22,960 annually.
Nicosia, Cyprus. A pension reform proposal would require business owners, company directors and shareholders receiving dividends alongside low declared salaries to pay social insurance contributions on some dividend income. The measure is expected to raise state revenue, according to a report first published by local news outlet Philenews.
How the proposed contributions would work
According to the report, the draft legislation would count dividends received by employees from businesses in which they also own shares when determining earnings liable for social insurance contributions.
Contributions would initially be calculated using the individual’s declared salary. Dividend income would then become liable for contributions until total covered earnings reached an annual limit of €22,960, equivalent to two insurance units.
The report said that limit derives from basic annual insurable earnings of €11,480, the amount applicable in both 2025 and 2026.
For an owner reporting monthly pay of €500, equivalent to €6,000 annually, contributions would apply to the salary first and then to dividends until the ceiling was reached, according to the proposed formula.
Low salaries alongside dividends
Philenews reported that the changes seek to address arrangements in which owners and shareholders report small monthly salaries while drawing further income as dividends. Such arrangements could allow them to qualify for tax exemptions and social benefits in the future.
Labour Ministry data quoted by the outlet showed that 2,990 owners, company directors and shareholders employed in businesses with no more than three people report monthly pay below €500 while also receiving dividends.
Across the broader group, 11,500 owners, company directors and shareholders report monthly earnings not exceeding €2,000. Of those, 26 per cent declare salaries below €500, according to the figures cited.
Ministry example of the calculation
An illustration based on Labour Ministry figures cited in the report described an individual receiving €15,000 in annual salary and €30,000 in dividends. Contributions would cover the salary plus a further €8,000 of dividend income, putting the total earnings liable for contributions at approximately €23,000.
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