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Understanding Cyprus’ General Health Care System (GHS)

Healthcare system Cyprus (Gesy)

The General Healthcare System (“GHS”) is introduced in Cyprus during 2019 with the objective to transform the existing public healthcare system. The Healthcare Insurance Organization’s vision is, through the implementation of the GHS, for every Cypriot citizen to enjoy lifelong, equal and unhindered access to high quality healthcare services.

The GHS Fund revenues will come from contributions, co-payments, personal contributions, donations and legacies, income from assets of the HIO and any other income accrued from the activities of the HIO. The main finance will come through compulsory contributions of employees, employers, self-employed persons, pensioners, persons earning other types of income and the government.

Contributions’ categories

The payment of the contributions for the first phase will start on 1 March 2019 (which will only cover outpatients) and for the full implementation on 1 March 2020 (which will cover both outpatients and inpatients).

  1. Employees – has the meaning given to the term Social Insurance Law
  2. Employers – includes the Government of the Republic
  3. Self-employed – has the meaning given to the term Social Insurance Law
  4. Pensioners – shall be interpreted according to the term “pension” which means the retirement of any natural person coming from the sources specified in Article 5 of the Income Tax Law
  5. Income-earners *

(*) Income-earners means the income of any natural person coming from the sources defined in Article 5 of the Income Tax Law (ITL), other than remuneration or pension, and includes dividends as defined in the Special Contribution for the Defense of the Republic (SDC). The referral of the Law to Article 5 of the ICL means that the exemptions and exemptions of income granted for income tax purposes based on the other articles of the ITL do not apply for GHS contribution purposes. In the case of income, for example, dividends are excluded from other legislation then they are not considered to fall under Article 5 of the Income Tax Law and therefore there is no obligation to pay a contribution to the GHS.

Dividends are determined in accordance with the SDC law, and therefore a contribution is paid to the GHS on the deemed dividends corresponding to the shareholders who are natural persons resident in the Republic. The company should deduct the contribution to these amounts. Shareholders are required to pay such dividends on the due date.

The GHS contribution on the one-off / gratuities paid to public and private employees and the benefits paid by Provident Funds, which fall under Article 5 of the ITL, is calculated on the amount earned for service after 1st March 2019.

Dividends to other Companies

Dividends paid to another company are not subject to SDC and GHS, but subject to the following exemption.

Exemption: if the deemed distribution date comes first, then SDC and GHS contributions are payable and no refund is available for the CY resident companies.
Four year rule: Applicable to dividends paid between Cyprus tax resident companies – if four years have passed from the end of the year in which the profits arose, then the above exemption does not apply.

Cyprus Benefits in Kind

The Tax Department (“TD”) has published an which explains the tax treatment of certain benefits offered by employers to employees and persons who hold or are deemed to hold an office. The Informative Guide provides clear guidelines as to the proper valuation of the Cyprus Benefits in Kind, for the purpose of consistency, clarity and uniformity, clearing any ambiguities.

In addition, the TD issued Circular 32 and Circular 37 both of which provide additional information on the documentation to be held and how the benefits in kind are calculated.

The taxation of benefits is provided in Article 5 of the Income Tax Law, according to which benefits from any office or employment, provided to an employee or to a member of his family either in cash or otherwise, are subject to tax.

The guide describes how the TD intends to apply the law as from 1 January 2019. Nevertheless, the subject provisions may be applied for previous years as well.