welcome to our blog of: Self-employed taxes in Spain vs Cyprus! Today, we will compare the self-employment tax systems in two European countries: Spain and Cyprus. If you are self-employed or considering starting your own business in either of these countries, this information will be invaluable to you.
Self-employment is an increasingly popular option nowadays, as it provides the opportunity to be your own boss and have greater control over your professional life. However, before embarking on this adventure, it is important to understand the differences in self-employment tax systems between different countries, such as Spain and Cyprus. In this article, we have thoroughly analyzed the key aspects of both systems to help you make an informed decision.
In addition to tax rates, there are other factors to consider when evaluating the feasibility of self-employment in these two countries. For example, it is crucial to take into account the cost of living, access to healthcare services, economic stability, and business opportunities. These elements can vary significantly between Spain and Cyprus and can influence the profitability and success of your self-employed business.
Furthermore, it is important to note that tax systems and regulations can change over time. Therefore, it is essential to stay updated on the latest laws and regulations in both countries to avoid unpleasant surprises and ensure proper compliance with your tax obligations.
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Which country to choose?
Before deciding on a country, we will need to evaluate a series of criteria to be able to choose between Spain or Cyprus.
Cost of living: The cost of living can vary significantly between Spain and Cyprus. It is important to research and compare housing prices, food costs, transportation, and other basic expenses in both countries. This will help you assess how your self-employment income will be affected by daily costs. Here is a detailed guide where you can see the prices in Cyprus.
Market access: Another important factor to consider is market access in each country. Evaluate the size and demand of the market in your specific industry in Spain and Cyprus. Research if there are growth opportunities and whether the competition is high or low in each country. This will give you an idea of the possibilities for success and expansion of your self-employed business. If you are an online freelancer, you won’t have any problems.
Infrastructure and services: Analyze the quality of infrastructure and services available for self-employed individuals in both countries. Consider aspects such as internet connectivity, availability of coworking spaces, accessibility to legal and accounting services, and any other relevant factors for your business. These aspects can influence your productivity and efficiency as a self-employed individual.
Political and economic stability: Evaluate the political and economic stability of each country. Research the current situation and future prospects in terms of government policies, business regulations, and general economic conditions. Greater political and economic stability can provide a more conducive environment for the development of your business. Although Cyprus is a completely safe country, also research its culture, it might surprise you.
Quality of life: Finally, consider the quality of life offered by each country. Evaluate factors such as climate, lifestyle, recreational and cultural opportunities, and other aspects that are important to you. Remember that as a self-employed individual, your personal well-being is also important for the success of your business.
In both countries, there are three main types of taxes that you will have to pay:
- Income tax.
- Social contributions.
- VAT.
Let’s start with the first one,
Income Tax
Both Cyprus and Spain have progressive tax systems, which means that the tax rate depends on the income a person earns in a year.
However, in Spain, the tax system is quite complex. In each autonomous community, the effective tax rate will be different since it consists of two parts: federal tax and regional tax. This means that in Valencia, you will pay one tax, while in Madrid or Barcelona, you will pay another.
In Cyprus, despite there being different regions like Limassol, Nicosia, and Larnaca, the tax system is unified. This means that anywhere in Cyprus, the tax rate will be the same.
In Spain, you will have to pay taxes as shown in the on-screen table. However, as I mentioned earlier, the rates are indicative and can vary from one region to another. As you can see in the table, the first 12,450 euros would be taxed at a rate of 19%, gradually reaching 47% if annual income exceeds 300,000 euros.
| Amount earned in EURO | Tax rate |
| From 0 – to 12,450 | 19% |
| From 12,451 – to 20,200 | 24% |
| From 20,201 – to 35,200 | 30% |
| From 35,201 – to 60,000 | 37% |
| From 60,001 – to 300,000 | 45% |
| From 300,000 | 47% |
In Cyprus, although they are not the lowest tax rates in the world, they seem like a paradise compared to the tax rates in Spain. Now on the screen, you can see the table with the tax rates applied in Cyprus. They range from 0% to 35%.
| Taxable income, EUR | Income tax rates |
| 0 to 19,500 | 0% |
| 19,501 to 28,000 | 20% |
| 28,001 to 36,300 | 25% |
| 36,301 to 60,000 | 30% |
| 60,000+ | 35% |
So not only does Cyprus have lower tax rates, instead of 47% in Spain, in Cyprus, they cannot exceed 35%.
Social contributions
Spain: Until 2023, in Spain, a fixed amount was deducted from each self-employed individual. The amount paid did not depend on actual income and was set at a rate of 280 euros or less for the first years after registering the activity. How will it work now? Spain has also introduced a scale-based tax system, so the actual social contribution rate will depend on income. To make life easier for the self-employed, an online calculator has been created where you can determine how much you will pay based on income. You can find the link here: https://portal.seg-social.gob.es/wps/portal/importass/importass/tramites/simuladorRETAPublico
Cyprus: In Cyprus, the system is not based on scales, so all self-employed individuals pay social contributions at a rate of 15.6%. However, in addition to the contribution to social insurance, there is also the GESY (National Health System) with a rate of 4%. Therefore, the effective rate would be 19.6% of income.
VAT The VAT system in Spain is the same as in Cyprus. VAT payment is not regulated by each country itself but regulated at the level of the European Union. What countries decide for themselves are the VAT rates. In Spain, services are subject to a general VAT rate of 21%, while in Cyprus, it is 19%.
CONCLUSION
In conclusion, the choice between Spain and Cyprus as a destination for your self-employed activity will depend on various factors, such as your income, business profile, and personal needs. Both countries offer opportunities for self-employed individuals, but it is crucial to understand the differences in tax systems and evaluate which option better suits your individual circumstances.
Although both countries have progressive tax systems, tax rates in Cyprus tend to be lower compared to Spain, especially for higher income brackets. This can result in a lower tax burden for self-employed individuals in Cyprus. From a tax perspective, it is more beneficial to work from Cyprus than from Spain. However, each situation is unique. In any case, keep in mind that in some situations, having a company in Cyprus is even better from a tax perspective. But you can get more details in this other blog.
Remember that it is always advisable to seek professional advice before making important decisions regarding taxes and self-employment. An accountant or tax advisor specializing in international matters can provide you with accurate information and personalized guidance based on your specific needs.
We hope this comparative guide (Self-employed taxes in Spain vs Cyprus) has been helpful in your decision-making process! If you have further questions or need additional information, feel free to consult our recommended resources or contact our experts in the field. We wish you much success in your journey as a self-employed individual and hope you achieve your professional goals and dreams!
