On 9 February 2018, the Cyprus Tax Department issued Interpretative Tax Circular 18 clarifying that the additional tax of 10% imposed in the case of low self-assessment, shall be calculated after taking into account any foreign tax suffered. It is further clarified that the foreign tax constitutes temporary tax paid for the purposes of the temporary tax calculations. This tax treatment would apply on the way forward and for any cases under examination.

Our Take

This is a positive development which will simplify the procedure for the calculation of the 10% additional tax in cases of foreign taxes. Until today, foreign taxes were not taken into account for the purposes of the additional 10% tax. As this was unfair to taxpayers, the Tax Department by practice (not law) was effectively treating foreign tax the same as a temporary tax. Now the circular clarifies the situation and provides certainty to taxpayers.