The draft Social Insurance (Amendment) Law of 2026 — the first-pillar pension reform — was put to public consultation between 2 and 16 September 2026 and is expected before the House of Representatives within the month. The Government's stated aim is for the new system to take effect on 1 January 2027, with a transitional period running to 2031. Most of the public debate concerns pension levels and the retirement age. Two provisions, however, concern company owners directly, and they have received far less attention.
Measure 1: dividends of shareholder-employees become insurable earnings
For an employee insured as an employee of a company in which they hold shares, the draft amends the definition of earnings so that it includes every dividend the employee receives from the company that employs them. Such dividends would count towards insurable earnings — the base on which social insurance contributions are charged — up to the annual ceiling, €68,904 for 2026.
Under current law, salary and dividends sit on separate tracks: salary bears social insurance contributions up to the ceiling, dividends bear none. The draft does not invent a new tax on dividends; it extends an existing charge to income that was previously outside it. The effect falls on the owner-manager who draws a modest salary and takes the remainder as dividend.
A worked example
A shareholder-director draws a salary of €22,000 and a dividend of €100,000 from the company that employs them.
- Newly insurable band: €68,904 − €22,000 = €46,904 (the dividend exceeds it, so the ceiling binds).
- Employee contributions on that band at 8.8%: about €4,128 a year.
- Whether employer contributions also attach to dividends treated as earnings is not made explicit in the draft — a point the committee stage should settle. If they do, the annual cost roughly doubles.
- The existing charges on dividends are unchanged: SDC at 5% for Cyprus-domiciled residents on post-2026 profits, and GHS at 2.65%.
A shareholder already drawing a salary at or above €68,904 sees little or no change: the ceiling is already exhausted. And where profits are retained rather than distributed, there is no dividend to count — following the 2026 reform's abolition of deemed distribution, retention itself carries no shareholder-level charge.
One current-law detail worth knowing in this context: because social insurance and GHS contributions are deductible, income tax first becomes payable at a salary of about €24,845, not €22,000.
Measure 2: a contribution on passive income
The draft introduces a contribution for persons it terms income earners («εισοδηματίες») — broadly, those living on income from property and investments who are not covered by another insurance obligation or equivalent credit. The income counted includes dividends, interest, rents, royalties, fees and other profits from property. The contribution is 15.82%, with the State adding 4.68%, and it applies to such income only up to the annual amount of basic insurable earnings — a far lower base than the €68,904 ceiling. The rate is legislated to rise in steps: 17.1% from 2029, 18.5% from 2034 and 19.6% from 2039.
The measure is drafted as a top-up. A person whose insurable earnings in a year fall short of the basic amount contributes on passive income to the extent of the shortfall; someone fully insured through employment or self-employment is outside it; the pure rentier contributes on the full basic amount. Periods covered this way count only towards the basic benefits for old age, incapacity and widowhood.
The measure applies to Cypriot and EU citizens — and third-country nationals within Regulation (EC) 883/2004 — who are habitually resident in the government-controlled areas. It turns on residence, not domicile: non-domiciled status, which shelters dividends from SDC, gives no protection from social insurance contributions.
Where this stands, and what to do
This is a draft bill, not law. The architecture is likely to pass in some form — the reform is the Government's declared priority for this parliamentary season — but the parameters, including the rate, the employer-share question and the commencement date, can move at committee stage.
The sensible step now is measurement, not restructuring. For each owner-managed company, the distance between the shareholder's salary and €68,904, set against the dividends actually paid, is the exposure. That single calculation shows who is affected and by how much — before any decision needs to be taken. We are following the bill through the House and will update this note when the text stabilises.
Sources: the draft bill and the Government's reform summary, as published on the Republic's official consultation platform (η-Διαβούλευση).
This note describes a draft bill as published for public consultation in September 2026 — not enacted law. Its provisions may change before enactment, and nothing here is professional advice. Please contact us before acting on anything set out here.