What is this tax?

The provisional tax is actually the payment in advance of this year’s income tax. It is paid by two equal installments, on the 31st of July and 31st of December of each year (in two equal installments – for the given year). The assessment and the payment of the 1st installment can be created via Tax Portal.

When the year is audited and its financial statements together with the related Tax Return are filed in with the Inland Revenue Service (the Cyprus Tax Authorities) the Tax Assessment will be sent by the I.R.S. and any difference will be payable or refundable.

How is it calculated and paid?

The company (or the individual) estimates the net profit; (say this is Euro 60000).

The income tax on this profit is figured out by multiplying the net profit by 12.5%, the Cyprus income tax rate.

In the example we say: Euro 60000 * 12.5% = 7500.

Each installment being: 6000/2 = 3750.

A payment code is provided by the Tax Portal system with which each tax instalment is paid through a bank transfer to the Tax Department.

Are there any penalties for not paying this tax or from understatement of provisional tax payments?

If the Provisional Tax Return (a Form on which the net income of the company and the calculation of the corresponding tax payable are presented) is not submitted to the tax authorities then for the given year, a 10% penalty will be imposed on the income tax payable for the year.

Again, if the Provisional Tax (as above) paid throughout the year is less than 75% of the final taxable income then a 10% additional tax is added on the difference to the tax liability payable.

Would there be any surcharges for not paying the tax installments by the dates noted above?

5% penalty (one off) on each instalment due amount (if applicable)

Interest of 1.75% per annum.

Therefore you are requested to calculate your company’s estimated taxable income for 2022 and please communicate with us if you want us to assist with the calculation of provisional tax payable or handle the payment of the tax instalments before the due dates.

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