The Cyprus Chamber of Commerce and Industry (KEBE) is calling for a reassessment of a proposed pension reform provision that would include dividend income when calculating contributions to the Social Insurance Fund, warning that the measure could affect small and medium-sized businesses.
The proposed dividend social insurance contributions have prompted debate in recent days, with the government indicating that changes remain possible.
Labour Minister Marinos Mousiouttas said on Thursday that the Council of Ministers is expected to examine a proposal concerning the treatment of dividend income within the coming days.
The reform has not yet been finalised and discussions are continuing, he said.
“There is indeed a provision concerning dividends among the proposals being discussed. It is not final,” Mousiouttas said.
Salary and dividends could count towards €68,000 limit
The proposed reform changes how contributions would be calculated for company directors who are also shareholders and therefore receive both a salary and dividends.
Under the proposal, both salary and dividend income would be taken into account for contribution purposes, up to the maximum insurable earnings threshold of €68,000 per year.
Speaking to Economy Today, KEBE secretary-general Philokypros Roussounides expressed the business community’s reservations about the proposed change.
He said it could create serious challenges for small and medium-sized businesses, which make up the majority of companies in Cyprus and where shareholders frequently also serve as directors.
KEBE is preparing its own proposal, part of which has already been discussed with the Labour Minister as part of the social dialogue. It is expected to submit the proposal next week.
KEBE warns measure could undermine tax reform
KEBE argues that introducing dividend social insurance contributions would conflict with changes already implemented under the tax reform.
“The tax reform corrected an inequality that existed between Cypriot companies and foreign companies. This comes to ‘torpedo’ that particular tax relief and correction that was introduced,” Roussounides said.
The tax reform, which came into force on 1 January 2026, included the complete abolition of deemed dividend distribution and reduced the Special Defence Contribution on actual dividend distributions from 17% to 5%.
Roussounides said the final arrangements should be socially fair and avoid creating imbalances.
“Our position is that these specific measures should be reassessed so that they respond to the needs of the economy and are socially fair, without creating imbalances. We will submit our proposal next week, which we discussed with the Labour Minister, who appears open to suggestions,” he said.
KEBE believes a different approach could emerge through a reassessment of the proposed provisions.
What the proposed changes would mean
The proposed reform changes the definition of “earnings” to include not only salaries but also income from dividends, rents and other property-related profits.
For directors who are also shareholders, Social Insurance Fund contributions would be calculated on their total earnings up to the maximum insurable amount of €68,000 per year.
This means that no Social Insurance Fund contributions would be payable on income above €68,000.
For example, a director-shareholder earning an annual salary of €50,000 would pay Social Insurance contributions on that amount. A further €18,000 would remain before reaching the €68,000 maximum insurable threshold.
If the same person also received €50,000 in dividends, contributions would be payable on only €18,000 of that dividend income. No contributions would be payable on the remaining €32,000.
The contribution rate on salary income is 8.8%, while the rate for dividends and rental income is 15.8% for each insurance unit. The state’s contribution of 5.2% would remain in place.
Under the current system, employees also pay contributions up to the €68,000 maximum insurable threshold, but only on their salary.
Changes proposed for people living on investment income
The pension reform would also introduce changes for people who do not work but receive income from sources including rents, shares and dividends.
People in this category currently do not have an insurance account because they do not pay Social Insurance contributions and receive a social pension from the age of 65.
The proposed reform seeks to change this by requiring contributions on income from sources such as rents and dividends.
Contributions would not apply to the person’s entire income but only up to an annual threshold of €11,500, corresponding to the minimum insurable income required to obtain an insurance unit.
For example, someone receiving €100,000 a year from rents or dividends would pay Social Insurance contributions only on the first €11,500. No additional contributions would be payable on the remaining €88,500.
The contribution would be 15.8% for each insurance unit, alongside a state contribution of 5.2%.
Mousiouttas has previously said the introduction of this new category would provide a significant additional source of revenue for the Social Insurance Fund.
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