Temporary Tax Obligation
General information in relation to provisional tax declaration
A. Income tax assessment
Taxpayers must submit a provisional tax return prior to August 1st of each year based on the estimated current year’s profit. Provisional tax payments must be made on the estimated current year profit in two equal installments, on 1st August and 31st December. If the profit declared for provisional tax purposes is less than three quarters (3/4) of the profits as finally determined, the taxpayer must pay, in addition to the normal tax, an amount equal to one-tenth (10%) of the difference between the final and the provisional tax. Estimated income can be revised (upwards/downwards) any time prior to December 31st, the date the last provisional payment is due.
Following the submission of the provisional income tax declaration a company may submit a revised declaration at any time until 31 December, through which it can revise its estimated taxable profits either upwards or downwards depending on its anticipated results by the 31 December. However, note that a revised provisional tax declaration may not result in a refund of the provisional tax already paid, such as refund will be assessed by the Cyprus tax authorities upon their examination of the submitted final income tax return of the company. It is therefore very important that the company bases its provisional tax declaration on a conservative estimate of its taxable profits.
In the event where it appears from your computation that you have tax payable, you are not required to submit the temporary tax return.
A final payment must be made on August 1st of the following year of assessment (for tax year the final payment must be made by August 1st), so as to bring the total installment payments to the level of the actual liability due (as per the actual tax liability determined).
B. Interest and penalties
If a company fails to make the relevant instalment payment by the end of the month from the date the payment is due as indicated above, there is interest of the tax instalment due at 4,5% per annum which is calculated on a monthly basis (e.g. if the 1st instalment payment is not made by the 31st August 2014, there is interest of 4,5% times 1/12 as the payment has been delayed for one month).
In addition to the above interest charges, if there is any delay in the payment of any of the aforementioned instalments of provisional tax declaration, there will be a 5% flat penalty on the tax due that should have been paid with any of these instalments. Such a 5% penalty charge does not carry any interest charges.
Finally, if the provisional tax declared is proven to be less than 75% of the actual tax payable to be derived from the actual income tax return to be submitted to the Cyprus tax authorities at the end of the year, a 10% penalty will be imposed on the net tax payable.
C. Information requested by our firm
The information required by our firm in order to assist you with the preparation and submission of the aforementioned declaration is:
- Estimated income for the company for the year from:
– trading/consulting/other activities
– interest income
– royalty income etc
(there is no need to include any dividend income or profits from disposals of shares and other securities such as debentures, bonds, futures/forwards, units in open-end or close-end collective investment schemes or other corporate “titles”).
- Profit & Loss forecast for the year ending 31 December:
– Total estimated expenses (excluding expenses relating to the acquisition of shares, bonds, debentures etc) in order to arrive at the resulting net estimated profit or loss for the year
– Any estimated foreign withholding/income tax paid/to be paid by the company upon the receipt of certain types of income.
We would be happy to assist you in calculating your temporary tax. For that reason kindly furnish us with an estimation of your profit. We remain at your disposal for any queries you may have in relation to the above.