Owner and director.
The salary you never decided.

A great many Cyprus companies have the same person as owner and as director. Sometimes that person is the sole director and the only one doing the work, sometimes there is a team around them, but the ownership and the management sit together in one pair of hands. In those companies a salary is drawn and the balance is taken as dividend, and the point at which one stops and the other begins is usually a figure someone arrived at years ago and nobody has looked at since. It is worth looking at now, because the reasoning that produced it has changed.

Two roles, one person

The owner-manager is paid for two entirely different things, and it is worth separating them before thinking about anything else.

As director, the return is on work. The hours, the judgment, the client relationships, the decisions that cannot be delegated, and the personal accountability that attaches to holding the office. If that person disappeared tomorrow, this is the part somebody would have to be hired to replace.

As shareholder, the return is on capital and on risk. The money originally put in, the profits left in rather than taken out, the personal guarantees given to a bank, and the simple fact of standing behind the business and losing first if it fails. If the person disappeared tomorrow, this part would still belong to them, or to their estate.

Those are genuinely different contributions and they genuinely earn different returns. In a company with outside shareholders and hired management nobody has any difficulty telling them apart, because two different sets of people receive them. The difficulty arises only when both flow to the same bank account, at which point the split stops being observed and starts being chosen.

The arithmetic that used to do the deciding

For a long time the choice did not require much thought, because the tax treatment pointed fairly clearly in one direction. A modest salary, roughly up to the point where personal income tax started to bite, with the balance taken as dividend. It became a common structure in Cyprus, and it worked.

What is worth noticing is why it worked. It was not, for the most part, a considered position about what the work was worth. It was a response to where the tax lines happened to fall: at a certain level the salary route stopped being the cheaper one, and the sensible thing was to stop there. The arithmetic was doing a good deal of the deciding.

In 2026 the lines moved. The corporate tax rate went up. The Special Defence Contribution charged on dividends to Cyprus-domiciled individuals came down a long way. The two changes did not offset each other, and the point at which one route stops being cheaper than the other is no longer where it used to be.

I am deliberately not going to lay out the new arithmetic and hand over a replacement rule of thumb, because that would repeat the original approach in a more current form. The more useful point is not where the line now sits. It is that a line was sitting there at all, quietly carrying part of a decision the owner may reasonably have thought was theirs.

The arithmetic was never a judgment about what the work was worth. It was just the place where the tax stopped rewarding one answer.

One note on how I am measuring, because it affects the comparison. I am treating social insurance and health contributions as sitting outside this question. They are not tax in the sense that matters here: they buy pension entitlement and healthcare, and the return may be modest but it is not nothing. Counting a premium as a pure cost would overstate the case against paying a salary. Including them would move the numbers and would not change the direction of anything that follows.

Does it feel fair?

Here is the test I would actually apply, and it does not require any law to exist.

Could you say it out loud? Could you sit across a desk and say, without adjusting your posture, that you earn a thousand a month and take a million a year in dividends? Say it to a bank considering your mortgage. To a court, in a matrimonial context. To somebody you are hoping will buy the business, or join it as a partner. To the senior person on your own payroll who earns five times your declared salary. If the sentence needs framing before it can be said, that is information.

What would you have to pay someone to do your job? Not to own the business. To do the job. If the honest answer is eighty thousand, and the salary is twelve, then sixty-eight thousand of what is being described as a return on capital is a return on labour wearing a different coat. The money is the same either way. The description is not.

How does it sit against what you pay your own people? There is something worth sitting with in a company where the founder's declared salary is the lowest on the payroll. It may be perfectly explicable. It is rarely explained.

And the fair counter, which matters most. A business genuinely can be extraordinarily profitable relative to the labour inside it, and when that is true the large dividend is entirely real. So the question is why it is profitable. If the profit comes from capital deployed, from intellectual property, from a system that runs whether or not the owner is standing in it, from something built years ago that now earns on its own, then the shareholder return is the honest description and the split is defensible. Say so, clearly, and the answer holds.

If the profit is there because the owner personally works sixty hours a week and the clients come for them and nothing much happens when they stop, then the split is describing something other than what is going on. That is a question the owner is better placed to answer than anyone else, and usually answers quickly.

The question other systems ask directly

Several mature systems interrogate this at the point where it is most exposed: the company with a single client and one person doing the work. They ask, in substance, whether that arrangement is a business at all or an employment relationship with a company placed in the middle. The answer is fact-dependent and a single client is nowhere near conclusive on its own, so it should not be overstated. But the question gets asked.

The reason it is worth knowing is not that Cyprus asks it. Cyprus does not. It is that the question is a good one, and the owner-manager who cannot answer it comfortably has learned something regardless of whether any authority is asking.

What was nearly law

None of this is a question Cyprus has ignored. It was examined closely during the tax reform, and the research commissioned to support that reform recommended addressing it directly, through deemed market-rate salaries for director-shareholders.

The proposed mechanism is instructive. Rather than allowing the tax authority to assess a market rate case by case, it would have pegged the deemed salary to the insurable earnings already published each year by the Social Insurance authorities for self-employed occupational categories, with a floor preventing anybody from reducing a salary already being paid. That design was deliberate. The advice recorded in the research was that discretion exercised by the Commissioner in setting salaries had to be tightly constrained, because a discretionary power of that kind carries state aid risk at European level. So the instrument chosen was blunt on purpose, to be defensible.

It reached draft legislative form. It attracted substantial objections during the consultation, and the objections were serious ones: that a tax authority setting salaries intrudes on freedom of contract, that the proportionality of the burden was not established, and that companies would in practice have to commission studies to justify a number. Those are reasonable concerns and they deserve to be recorded as such. The provision was not carried into the enacted legislation.

What was enacted addressed the neighbouring questions instead: value taken out of a company in forms other than a declared distribution, and balances owed by shareholders. We have written about the charge on shareholder use of company assets and the treatment of shareholder debit balances separately, and they are worth reading alongside this. The salary itself was left alone.

Make it a decision

So Cyprus law says nothing about what an owner-manager should be paid, and there is no published guidance, and nothing in the recent reform changed that. The absence is simply a description of where the law stands. It is not a criticism of anybody relying on it, and it is not a prediction that something is about to happen.

But it does mean something practical. The discipline that used to sit in the arithmetic is not there any more, and nothing has replaced it. Whatever number an owner-manager settles on now, they are settling on it themselves, for the first time.

That is not a burden. It is an opportunity to hold a position that is actually defensible, which is worth considerably more than a position that merely happens to be efficient. The salary should be what the work is worth. The dividend should be what the capital and the risk have earned. Where the same person receives both, the only real safeguard is that they can explain the split, in plain words, to somebody who has every reason to be sceptical, and not mind being asked.

If the explanation is ready, the number is right. If the explanation has to be constructed, the number was never decided at all.