Many German self-employed people and small business owners continue to move to Cyprus

Emigrating from Germany is a topic that affects many people and influences the country's demographic development. Every year, numerous Germans leave their homeland to find new prospects in other countries. In 2023, Germany recorded a total of 1.27 million emigrations, which is roughly the same as the previous year.
German emigrants have a variety of motives for their decision to leave the country. These range from economic considerations to personal goals and political factors.

Economic factors
Many Germans emigrate for professional reasons. They are looking for better career opportunities, higher salaries or more attractive working conditions abroad. Some industries often offer more lucrative positions or opportunities for advancement abroad.
The cost of living also plays a role. In some countries, emigrants can achieve a higher standard of living with their income than in Germany. This is especially true in regions with lower rent and food prices.
The desire for financial independence or the opportunity to start one's own business also motivates some people to emigrate. Countries with less bureaucracy or more favorable tax systems are often attractive for this.

Personal and social motives
Many people emigrate to gain new experiences or broaden their horizons. They are driven by the desire for adventure, cultural exchange or learning a foreign language.
Family reasons also play an important role. Some follow their partner abroad or want to live closer to relatives. Others are looking for a better environment for their children, perhaps with a higher quality of life or better educational opportunities.
The search for greater life satisfaction is another factor. Some people do not feel comfortable in German society and hope to be happier in another country. Aspects such as mentality, lifestyle or social norms can be decisive in this.

Political and legal aspects
Dissatisfaction with the political situation in Germany can also be a reason for emigrating. Some people do not agree with certain political decisions or developments and are looking for alternatives abroad.
Legal frameworks play a role. Some expats seek more personal freedom or less regulation in certain areas of life. This can range from tax systems to environmental regulations.
In some cases, security concerns also lead to emigration. People who do not feel safe in Germany may look for countries with lower crime rates or more stable political conditions.

There are currently more than 20,000 Germans living in Cyprus, about half of whom live in Cyprus permanently, others are digital nomads, stateless, are only registered in Cyprus for business purposes or are pensioners.

Given its size, Cyprus is one of the most popular non-German-speaking emigration destinations for German entrepreneurs and private individuals. According to Mittelstandbayern, Cyprus is the most popular European country for German emigrants after Mallorca.

Number of self-employed people in Germany drops significantly

Germany is destroying growth potential, says the Ifo Institute. In addition, a study by the KfW Bank (Kreditanstalt für Wiederaufbau) found that 20 years ago, 3% of people planned to start a business. Today, the figure is only 1%.

The number of new companies being founded in Germany is at an all-time low – with serious consequences.

The majority of German companies are family businesses. They provide 55% of all jobs and generate 42% of gross value added. Almost 10% of the employed people in Germany are self-employed.

Since successors cannot be found due to the unmanageable risk, at least 300 entrepreneur-run companies are on the verge of permanent closure.

Due to the declining level of education in schools over the past decades, Germany also lacks young entrepreneurs.

Today, only a few self-employed people recommend that other people become self-employed. Most self-employed people feel that the state is fighting against them and therefore recommend either working in the public sector or going abroad.

According to the OECD, around 3.5 million Germans live abroad.

With an emigration rate of 5.1 percent, Germany ranks third internationally behind Great Britain and Poland.

Of the more than 250,000 German emigrants in 2022, around three quarters have a university degree, and 63% of Germans who emigrated in 2022 are between 25 and 39 years old.

Whether for the self-employed, entrepreneurs or employees: the unfavourable framework conditions in Germany that have persisted for years are leading to an exodus of skilled workers, self-employed founders and the intelligentsia and thus not only to a deterioration in Germany's economic performance.

Many hurdles for self-employed people in Germany

There are many reasons why fewer and fewer people in Germany are taking the step into self-employment and why more and more self-employed people are moving abroad.

Most of the reasons lie with the state and politics.

The completely out-of-control bureaucracy is a particular obstacle for self-employed people and small businesses. Self-employed people and businesses in Germany have to compile a huge amount of statistics and report them to various authorities, often in person or by letter. The same or very similar figures and reports have to be reported to several authorities, instead of the authorities distributing the information internally.

The constant increase in regulations, partly also from the EU, as well as the associated increase in documentation requirements make it almost impossible for solo self-employed people or self-employed people with only a few employees to concentrate more on their actual work than on fulfilling official requirements.

An example: The owner of a furniture carpentry business in central Germany with three employees and one trainee can no longer work in the company due to the bureaucratic burden. The owner founded his carpentry business years ago out of passion. Today he can only spend up to 10% of his 10 to 12 hour working day on actual carpentry work. Writing reports, creating statistics, bookkeeping and preparing the necessary documents take up to 90% of his time.

In Germany, for example, there is a regulation on how long an employee may stand on a ladder each day, divided into sections of 2 meters (0 - 2 m, 2 - 4 m and 4 - 6 m; longer ladders are no longer permitted). It must be documented how long each employee spent each day at what height on the ladder.

Unfortunately, there is usually no support from the authorities or the state for self-employed individuals and small businesses.

Economic policy is aimed almost exclusively at large companies and corporations.

Another problem is the willingness of German authorities to take legal action instead of giving self-employed people and small businesses the chance to adapt within a set deadline and thus comply with the regulations. Instead, a failure is usually discovered by the authorities and then fined. If the person concerned files an objection, the case usually ends up in court.

Increasing financial needs

Insurance contributions for the self-employed are higher than the average for employees. Self-employed business founders already pay more social security contributions than employers and employees in companies combined. Nevertheless, an increase is expected in the near future.

The minimum share capital of a GmbH is 25,000 euros. The costs of setting up a company in Germany are relatively high.

In addition, the over-regulation of banks, not only in Germany, is leading to a significant reduction in lending to the self-employed and small businesses. The Basel regulations also play a role here.

This means that the founding of new businesses is increasingly reserved for people whose parents are wealthy.

Cyprus in the focus of German self-employed and small business owners

A significant proportion of German self-employed persons and small business owners who decide to relocate their business and place of residence to Austria or Switzerland for language reasons are moving to Austria or Switzerland.

Many self-employed people and small business owners want to emigrate, but want to stay in the EU because of the well-known advantages.

For this group of self-employed and small business owners, Mallorca is the most popular destination and Cyprus is the second most popular.

We at Shanda Consult can only confirm this from our own experience. The number of self-employed people, small business owners and wealthy individuals moving from Germany to Cyprus has risen sharply in recent years. Wealthy individuals are shifting their center of life to Cyprus in particular because of the non-dom tax status. The non-dom tax status in Cyprus enables tax-free receipt of dividends and interest income over a period of 17 years.

Some examples of general advantages of Cyprus

In addition to the excellent climate, Cyprus offers a more relaxed working and lifestyle than Germany. In contrast to Germany, the famous work-life balance is generally not an issue in Cyprus. In Cyprus, family and social interaction play an important role.

Even though property prices and rents have increased in recent years, they are still well below comparable prices in Germany.

Cyprus has a history of over 3,000 years as a trading centre in the Eastern Mediterranean and has developed a business-friendly culture that has become part of the country's DNA.

Of course, there is bureaucracy in Cyprus too - where isn't there? However, the amount of time that self-employed people and small business owners have to spend on completing bureaucratic tasks is only a fraction of what is necessary in Germany.

For example, VAT returns in Cyprus must be submitted quarterly rather than monthly. There is no input tax deduction in Cyprus. Most matters in Cyprus can be handled electronically. Water and electricity bills are issued every two months to reduce bureaucracy.

tax advantages of Cyprus

The annual tax allowance for salaries and salary-like benefits in Cyprus is EUR 19,500. After that, a progressive tax rate applies, starting with 20% income tax. In steps of around EUR 7,000 - 8,000, the income tax rate increases by 5%, with the calculated income tax only being levied on the respective progression level and not on the total income, as in Germany. The maximum income tax rate in Cyprus is 35% and is applied to annual incomes over EUR 65,000.

In addition , high earners in Cyprus with a gross annual salary of 55,000 euros or more are entitled to a 50% income tax exemption , which is granted for a specific period of time under certain conditions.

Income from the sale of shares and securities is not subject to tax at the individual level in Cyprus.

Cyprus also offers clear advantages over Germany in the business sector.

The corporate tax rate is 12.5% on taxable profits. There is no business tax or solidarity surcharge in Cyprus.

Income from the sale of shares and securities is not subject to tax for companies.

Corporate profits from dividends are not subject to tax in Cyprus for a period of two years. After this period, a capital gains tax (“Special Defence Contribution”) of 17% is levied on 70% of the undistributed dividend profits.

However, any person moving to Cyprus benefits from the so-called non-dom tax status, which exempts the taxpayer from taxation on dividend income for a period of 17 years.

Therefore, if a company has dividend profits and distributes them to its shareholders within two years, the company's dividend profits will not be taxed at either the corporate level or the individual taxpayer level.

Cyprus has no withholding tax.

Furthermore, there is no wealth or inheritance tax in Cyprus.

Overall, Cyprus offers a very tax-friendly environment for self-employed persons and companies as well as for private individuals.

Two examples of German self-employed people in Cyprus

The names of the people listed below have been changed.

Carsten:

Carsten decided to emigrate to Cyprus in 2019. At the time, the emigration was mainly for financial reasons, reports the 30-year-old online entrepreneur. "In Germany, I would effectively pay over 40 percent in taxes and duties, in Cyprus it would be around 15 percent. In addition, I only have to stay in Cyprus for 60 days a year to trigger a tax liability."

(Quote from Deutsche Wirtschaftsnachrichten, 07.08.2022)

Sandra and Dirk:

I am 46, my husband is 51. Last year [end of 2022] we thought: If we don't go now, we won't do it again. We had already vacationed in Cyprus several times and knew the country. We have been living there for almost four months now, in a bungalow near Paphos.

In my experience, you need tens of thousands of euros for a step like this. When we had finished our preparations, we sold our house, the apartments, the cars, everything. We only took our dog with us. My husband earns most of his money as a self-employed stock trader, so he can work from anywhere and we live off the profits from stocks. There is no capital gains tax in Cyprus.

But taxes were only one reason; Corona has ruined a lot of things in our lives. In the suburb near Kassel where we lived, there were wonderful neighborly relations for so many years, the lawns were mowed and people would spontaneously arrange to meet over the fence for a glass of champagne. A glass like that could turn into an extensive evening. When that was no longer the case, it was very difficult for me.

(Quote from Die Welt, April 23, 2023)

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Author:Tom Weyermann
Source: MF editorial team