The Cyprus Assessment and Collection Law, as amended in 2002, introduced a regime with a provisional income tax system. Every year, by the end of July, the tax authorities must provide a pre-calculated tax, which is paid in 2 stages:

• due date for the payment of the 1st instalment – July 31 of the same year;
• due date for the payment of the 2nd part of the tax is December 31 of the same year.

Corporate tax in Cyprus is levied at a rate of 12.5% and can be paid through the tax portal.

Based on the current period's results, companies that do not expect taxable profits do not submit a tax calculation.

Once you have submitted your provisional tax return, you may submit an updated return at any time until December 31 of the same year. However, it should be noted that the amended declaration is not a basis for the return of overpaid tax. You can return the overpaid tax only after the tax authority checks the final income tax return for the reporting period and confirms the resulting overpayment.

As part of the administration of the provisional income tax in Cyprus, some penalties are provided:

• Administrative penalty of 5%.

This penalty does not apply if there is a change in the amount of tax as a result of filing an amended return, but only if the payment of the resulting difference occurs on the date of submission of the amended return (deadline December 31).

• Interest on late payment.

Annual interest is accrued for late payment of input tax based on each entire month. The tax authority annually reviews the rate of this percentage and publishes it on its website.

• 10% additional tax.

If the provisional tax is less than 75% of the actual tax payable for the year, an additional tax of 10% will be charged on the difference between the actual and provisional tax.

Here are a few examples of how fines are calculated:

Calculation of an administrative penalty of 5% and accrual of interest at a rate of 2%

If a company declares an input tax of EUR 1,500, two payments in equal instalments must be made, which amount to EUR 750 each. It is assumed that the payment was made in the following way:

• the 1st part of the tax was paid on 07/20/2021 (the penalty and interest are not charged).
• the 2nd part of the tax was paid on February 7, 2022.

In this case, interest on late payment will be calculated for each month of delay, which will amount to EUR 1.25 ((2%/12)*750/100). In addition, a penalty of 5% will also be charged, which will amount to EUR 37.5.

Application of a 10% additional tax

It is assumed that a legal entity has not submitted information on provisional income tax, but the actual tax for the year was EUR 1,500. In this case, the legal entity will have to pay an additional ten per cent tax:

• EUR 1500 x 10% = EUR 150;
  total tax payable: EUR 1650.

If a company declared a provisional tax of EUR 500, which was paid in two equal instalments of EUR 250, but the actual tax was EUR 1500, then it turns out that the preliminary tax turned out to be less than the established 75% (only 33% of the actual); therefore, additional tax will be charged on the resulting difference:

• (1500 EUR – 500 EUR) x 10% = EUR 100;
  total amount: EUR 1600 (but only EUR 1100 needs to be paid, since the amount of EUR 500 has already been paid).

Submission of an amended declaration

The company declared a provisional tax of EUR 1500, paid in two equal instalments of EUR 750. Nevertheless, on November 10, the legal entity submitted an amended declaration, according to which the provisional tax declared for payment amounted to EUR 1,800. After filing the adjusted tax on the same day, the company paid the amount difference for the first part - EUR 150. If we assume that the company paid the 1st part of the tax on time, then we get the following:

• 07/20/2021 - payment date of EUR 750 (2% and 5% are not charged);
• 10/11/2021 - the payment date of the revised declaration and the additional payment of EUR 150.

Then the interest charge for late payment, which is 2%, will be accrued on the difference of EUR 900 - EUR 750 for three months and amount to EUR 0.75 (5% will not be accrued).

• 12/28/2021 - the payment date of the second part of the tax of EUR 900(2% and 5% are not charged).

If you still have any questions regarding corporate income tax in Cyprus, or you need individual advice on other topics, don't hesitate to get in touch with our company's specialists using any of the communication channels indicated on the website. We will resolve your issues quickly, legally, and professionally! We are waiting for your requests to info@eltoma-global.com!