Choosing the Right Business Structure

One of the first questions aspiring entrepreneurs have is whether they have to register a company for their business. It's probably the most common question people ask their lawyer or accountant before starting a business.

Now, considering that there may be an inherent bias in their advice (since they probably sell incorporation services), they’ll most likely advise you to start a company. However, they might not dive deep into the reasons behind that and often won't consider your specific circumstances.

Remember, there is no one-size-fits-all approach in business ventures. The answer to whether you should register a company will be different for someone who wants to sell their handcrafted goods online as a side hustle versus someone who wants to open a restaurant.

Can You Sell Products or Services Without Registering a Company?

First things first, yes, you can have a business where you sell products or services without registering a company. It is perfectly legal and quite common for people in Cyprus to operate as sole traders without forming a company. But are they right to do so?

I will expand on both options below and outline the most important things to consider before starting your business so that you choose the path that best suits your circumstances.

What is a Sole Trader?

Simply put, a sole trader is a type of business owned and run by one person. Being a sole trader, also known as a sole proprietorship, is the simplest way to run your small business since you’re essentially self-employed and operating without a formal business structure.

However, this also means you’ll be personally liable for your business. Here’s what you need to know:

Trading Names

If you want to use a business name that isn’t your real name, you’ll need to register it with the Registrar of Companies. This involves submitting a relevant application to the Registrar and paying a registration fee.

Tax Obligations of Sole Traders in Cyprus

You can’t escape the taxman even as a sole trader. You’ll need to register with the Cyprus Tax Department to get a Tax Identification Code (TIC) if you don’t have one already and you can do so by following our Tax Registration Guide.

And if your annual turnover exceeds €15,600, you’ll have to register for Value Added Tax (VAT) as well. Check out our step-by-step guide on How to Register for VAT for more info.

Beyond that, you'll be subject to personal income tax on all the profits of your business. Of course, if your annual business profits are not over €19,500, then you won't have to pay any taxes. For profits above this threshold, as of 2025 the income tax rates apply as follows:

Feel free to check out our in depth Guide on Income Taxes for more information about individual income tax. Also, make sure to calculate your income tax using our tax calculator.

Sole Trader Contributions to Social Insurance

As a sole trader, you will also have to register as self-employed with the Social Insurance Services. The total amount of contributions is 20.6% (including both Social Insurance and Healthcare) of your earnings. Your earnings are calculated by the state based on your occupation.

Of course, if you are earning less than the amount set by the state, you can always apply to have your contributions calculated based on your actual earnings.

To see your occupation's minimum weekly earnings as determined by the state, as well as a step-by-step guide to register and pay your contributions as a self-employed individual, you can follow our Social Insurance and Healthcare System Guide.

Sole Trader (Pros and Cons)

Andvantages of Being a Sole Trader

Low Startup Costs:

As a sole trader, you won’t have to worry about high startup costs since there is no incorporation procedure involved for which you’d have to pay a lawyer to register your company. You'll just need to register for Tax, VAT and Social Insurance, which you can either do yourself or pay a lawyer or accountant to handle for you.

Low Maintenance Costs

You also don't have a lot of expenses for this setup. Of course, you may still have to hire an accountant to keep everything in order and maintain financial statements, but you won't have to undergo an audit if your income is under €70,000.

0% Tax if Business is Small

If the annual profits of your business are below €19,500, then you won't have to pay any taxes since you'll be under the taxable threshold. This is definitely a big advantage if what you're doing is a small business or side hustle.

Disadvantages of Being a Sole Trader

Personal Liability

This is arguably the biggest disadvantage of operating your business as a sole trader as there is no distinction between yourself and your business. This means that in case your business has debts or faces any legal issues, you’ll be personally liable with your personal assets potentially being at risk.

High Taxes If Business Grows

As you've seen above, Cyprus income tax is progressive. This means that the more you earn, the more you pay. So if your business grows and your profits are over €60,000 a year then you'll end up paying 35% tax on that which is nearly triple the corporate tax rate.

Potentially High Contributions

Since the government calculates your contributions based on the amount they set for your occupation, those contributions may end up being extremely high if you're a low earner. Although you can apply to pay lower contributions, you'd have to make an application every time and prove to them that your earnings are lower, which can be a hassle.

What is a Company?

A limited liability company is a legal business structure that exists separately from its owners. Think of it as creating a 'business identity' that's different from your personal one. It can own things, make money, have debts and get sued on its own without affecting your personal assets.

The company belongs to its shareholders (owners), but they're only responsible for the money they've invested in it, not for all its debts like with a sole trader.

Registering a company to run your business requires certain administrative tasks to be handled before you can start working. You can read more on that in our Essential Legal & Tax Requirements for Companies in Cyprus guide.

Registering a Company (Pros and Cons)

Advantages of Registering a Company

Limited Liability:

This is arguably the greatest benefit the registration of a company has to offer and probably what makes a limited liability company so attractive to entrepreneurs. This is the existence of a separate legal personality.

What this means is that there is a clear distinction between yourself and the company/business. With your business operating under a limited liability company, your personal assets are protected from business debts and liabilities.

Credibility:

Being a registered company can definitely enhance the credibility of your business. Customers, suppliers, and investors often view companies as more stable and professional.

Tax Benefits:

Companies in Cyprus enjoy several tax advantages. Cyprus has a relatively low corporate tax rate at 12.5% on company profits. What's particularly beneficial about this is that it's a flat tax rate. So, even if your business grows and you have a lot of money coming in, you'll still pay that same percentage of tax.

You can also claim business expenses deduction through your company that you couldn’t as a sole trader.

Disadvantages of Registering a Company

Higher Startup Costs:

Setting up a company instead of being a sole trader involves higher initial costs, which are primarily related to the registration of the company. Under Cyprus law, only lawyers licensed by the Cyprus Bar Association are allowed to prepare and sign the incorporation documents of a company.

This means that even if you want to go through the administrative hurdles yourself to save money, you can’t.

Tax Obligations Even if Business is Small

Unlike personal income tax, companies have no tax-free threshold. This means you'll have to pay 12.5% corporate tax on your profits whether you make €10,000 or €100,000 a year. This can be a burden if your business is small and you're just starting out.

Administrative & Operational Costs

Companies must follow a number of essential legal requirements to stay compliant. Aside from the initial registration, you'll need to file tax returns, undergo statutory audits every year, maintain proper financial records, and hold Annual General Meetings.

These requirements mean you'll likely need to hire professionals like accountants and lawyers to help you stay compliant.

Final Thoughts: What’s Best for Your Business?

In the end, there's no clear winner between being a sole trader and registering a company in Cyprus. It all depends on your specific circumstances and business goals.

When Being a Sole Trader Makes Sense

Using the example I gave at the start, let's say you want to sell your handcrafted goods online and you don’t expect your profits to be higher than €19,500 a year. Also, the credibility of having a company isn't important since you're only dealing with small clients.

In this case, you should consider being a sole trader to save on startup costs and avoid administrative hurdles. Generally, for small-scale or low-risk ventures, staying as a sole trader is often the simplest and most cost-effective option.

Why Register a Company?

However, if you're planning to grow your business or seek investment, and want peace of mind from limited liability, starting a company might be the better choice. If you're a digital nomad wanting to register a company in Cyprus, make sure to check out our guide on starting a business as a digital nomad.

Of course, the startup costs can put off young entrepreneurs who just want to test their business ideas without spending a lot of money upfront. That's why picking the right service provider is really important.

Be Cautious of Hidden Fees

While some service providers offer incorporation services at seemingly low prices, it's important to be cautious. Additional fees may be charged later for items that should have been included as part of the incorporation process, such as company certificates.

Transparent Pricing with EasyCorporate

This is why you should make sure to request from your service provider their fees for incorporating your company, as well as exactly what is included in their pricing. This is exactly why we have created our online incorporation platform. Our pricing is transparent so you know exactly what is included in the price you pay, and you can track the entire process online.

Ready to Register Your Company?

If you think registering a company is the right choice for your business, then Fill Out This Form to order your company online in minutes and save up to 40% compared to traditional law firm fees.

FAQ: Common Questions About This Topic