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.
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.