Please click here for the German version of this article.
In 2022 alone, more than 250,000 Germans emigrated abroad. 16% of the 3.5 million self-employed people in Germany are currently moving jobs abroad, 30% are considering to emigrate. The number of self-employed people in Germany has fallen by 18.6% during the last 10 years. The number of female founders even fell by 22% in 2022.
Cyprus is one of the two top destinations for German business migrants.
Relative to its size, Cyprus is one of the most popular non-German-speaking destinations for German entrepreneurs and private individuals emigrating. According to ‘mittelstandinbayern’, Cyprus is the most popular European country after Mallorca for German emigrants.
Number of self-employed people in Germany is decreasing significantly
Germany is destroying growth potential, finds the German Ifo Institute for Economic Research. In addition, the study by KfW Bank (Kreditanstalt für Wiederaufbau) showed that 20 years ago, 3% of people had planned to become entrepreneurs. Today it is only 1%.
New company formations in Germany are at an all-time low, which has 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 workforce in Germany are self-employed.
Since no successors can be found due to the unmanageable risk, at least 300 entrepreneur-run companies will soon close forever.
Because of the declining level of education in schools for decades, Germany is also running out of young entrepreneurial talent.
Few self-employed people these days recommend other people to 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, a total of 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 over 250,000 German emigrants in 2022, around three quarters have a university degree, and 63% of the Germans who emigrated in 2022 are between 25 and 39 years old.
Whether for the self-employed, entrepreneurs or employees, the unfavourable 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 of Germany’s economic performance.
Many hurdles for the self-employed in Germany
There are a variety of reasons why fewer and fewer people in Germany are daring to become self-employed and at the same time more and more self-employed people are emigrating abroad.
Most of the reasons lie with the state and politics.
The bureaucracy, which has completely gotten out of control, is particularly hampering the self-employed and small businesses. Self-employed people and companies in Germany have to compile a huge number of statistics and report them to various authorities, often physically, by letter. The same or very similar figures and reports must be reported to a number of authorities, rather than the authorities distributing submitted information internally.
The constant increase in regulations, some of which coming from the EU, as well as the associated increase in documentation requirements makes it almost impossible for self-employed people who work alone or with only a few employees to focus more on the actual work than on the completion of official requirements.
An example: The owner of a furniture carpentry shop in central Germany with three employees and one trainee is no longer able to work in the company due to the bureaucratic burden. The owner founded his carpentry shop years ago out of passion. Today he can only spend up to 10% of his 10- to 12-hour day doing actual carpentry work. Writing reports, creating statistics, doing accounting, and preparing required documentation take up to 90% of his time.
In Germany, for example, there is a regulation as to how long a worker is allowed to 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 per day at which height of the ladder.
Unfortunately, authorities and the state usually do not support the self-employed and small businesses.
Economic policy is aimed almost exclusively at large companies and corporations.
The willingness of German authorities to sue is another problem, 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 made to pay in the form of fines. If the person concerned raises an objection, the case usually goes to court.
Increasing financial needs
The insurance contributions required for the self-employed are above the average for employees. Self-employed company founders already pay more social security contributions than employers and employees in companies combined. Nevertheless, they are expected to be increased in the near future.
The minimum paid-up capital of GmbHs is EUR 25,000. Company formation costs are relatively high in Germany.
In addition, the over-regulation of banks, although not only in Germany, leads to a significant reduction in loans to self-employed persons and small companies. The Basel regulations also play a role here.
This means that starting new companies is increasingly reserved for people who have wealthy parents.
Cyprus in the focus of German self-employed people and small businesses
A significant proportion of German self-employed people and small businesses who decide to relocate their business and the centre of their lives do move to Austria or Switzerland for language reasons.
Many self-employed people and small businesses want to emigrate, but want to stay within the EU because of the known advantages.
For this group of self-employed people and small businesses, Mallorca is the most popular destination and Cyprus is the second most popular destination.
We at Shanda Consult can only confirm this from our own experience. The number of self-employed people, small businesses and wealthy people relocating from Germany to Cyprus has risen sharply in recent years. Wealthy people are moving their centre of life to Cyprus, particularly because of the non-dom tax status. The non-dom tax status in Cyprus allows 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 work and lifestyle than Germany. In contrast to Germany, the famous work-life balance is generally not a subject of discussion in Cyprus. In Cyprus, family and social exchange play an important role.
Even though real estate prices and rents have increased in recent years, they still lag significantly behind comparable prices in Germany.
With over 3,000 years of history as a trading centre in the Eastern Mediterranean, Cyprus has developed a business-friendly culture that has become part of the country’s DNA.
Of course there is bureaucracy in Cyprus, where does it not exist? However, the time that self-employed people and small businesses have to spend completing bureaucratic duties is only a fraction of what it takes in Germany.
VAT returns, for example, must be submitted quarterly in Cyprus and not on a monthly basis. There is no advance VAT deduction in Cyprus. Most matters in Cyprus can be completed electronically. Water and electricity bills are issued every two months to reduce bureaucratic burdens.
Tax advantages of Cyprus
The annual tax exemption on salaries and salary-like benefits in Cyprus is EUR 19,500. A progressive tax rate then sets in, starting with 20% income tax. The income tax rate increases by 5% in increments of approximately EUR 7,000 – 8,000, whereby the calculated income tax is only applied to the respective progression level and not to the total income, as in Germany. The maximum income tax rate in Cyprus is 35% and is applied to annual income over EUR 65,000.
In addition, there is a 50% income tax waiver for high earners in Cyprus with a gross annual salary of EUR 55,000 or more, which is granted for a certain period of time under certain conditions.
Income from the sale of shares and securities is not subject to tax in Cyprus on individual level.
Cyprus also offers significant advantages over Germany in the entrepreneurial area.
Corporate tax is 12.5% on taxable profits. There is no business tax in Cyprus (“Gewerbesteuer”), nor is there a solidarity surcharge.
Income from the sale of shares and securities is again not subject to tax for companies.
Corporate profits from dividends are not taxable in Cyprus for a period of two years. Thereafter, a capital gains tax (“Special Defence Contribution”) of 17% on 70% of the undistributed dividend profits applies.
However, every person who moves 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.
So if a company has dividend profits and passes them on to its shareholders within two years, the company’s dividend profits are not taxed either at the company level or at the level of the taxpayer as a natural person.
Cyprus has no withholding tax.
Cyprus also has no wealth tax or inheritance tax.
Overall, Cyprus offers a very tax-friendly environment for the self-employed and for companies as well as for private individuals.
Two examples of German self-employed people in Cyprus
The names of the persons below have been changed.
Andreas:
Andreas decided to emigrate to Cyprus in 2019. At that time, the emigration was primarily 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 I would pay around 15 percent. “In addition, I only have to stay in Cyprus for 60 days a year to trigger a tax liability.”
(Quote from German Business News, August 7th, 2022)
Diana:
I’m 46, my husband is 51. Last year [end of 2022] we thought: If we don’t go now, we won’t do it anymore. We had vacationed in Cyprus several times before and knew the country. We have been living there for almost four months now, in a bungalow near Pafos.
From my experience, you need tens of thousands of euros for a step like this. When we finished our preparations, we sold our house, the apartments, the cars, everything. We only took our dog with us. My husband earns his money mainly as a self-employed stock market trader, so he can work from anywhere and we live off the stock income. There is no tax on capital gains 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 neighbourly conditions for so many years, people mowed and spontaneously arranged to meet over the fence for a glass of champagne. A glass like this could then turn into an extensive evening. When that fell away, it was very difficult for me.
(Quote from Die Welt, April 23, 2023)
And when may we welcome you?
If you are self-employed or a small business owner and can also run your business from Cyprus, perhaps even targeting the Cypriot market, we will be happy to advise you and support you in the implementation of your project.
Contact us now using the form below.
Sources:
- ARD program “Under Pressure – Self-employed people in Germany” from August 29, 2023
- Online entrepreneur magazine mittelstandinbayern, article “More and more entrepreneurs are emigrating” from July 25th, 2022
- German business news, article “Thousands of euros saved: How emigrating is financially worthwhile” from August 21, 2022
- Die Welt, article “In the end I still got more money out of it than in Germany” from April 26, 2023
- Agrarheute, Artikel „Hunderttausende Fachkräfte wandern aus – und verlassen Deutschland“ vom 30.06.2023
- Own Research
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