Main amendment

The Cyprus tax reform introduces clarifications regarding the tax treatment of interest income earned by individuals and companies.

Under the revised framework:

• interest income earned by individuals is subject to the provisions of the Special Defence Contribution Law (SDCL) and is exempt from Income Tax, while

• interest income earned by companies is subject to the Income Tax Law (ITL) and is exempt from Special Defence Contribution.

The amendment provides greater clarity regarding the taxation of interest income and confirms the separate treatment of individuals and legal persons under the two tax regimes.

Technical clarification

Interest income of individuals

Interest income accruing to individuals is exempt from Income Tax and falls within the scope of the Special Defence Contribution Law, subject to the applicable SDC rules.

The exemption also applies to interest income earned by:

• certain funds and collective investment vehicles referred to in the legislation

• local authorities

• public organisations

• entities classified as part of the general government sector

Interest income of companies

Interest income earned by companies is subject to the Income Tax Law and therefore forms part of the company’s taxable profits.

At the same time, such interest income is exempt from Special Defence Contribution, ensuring that it is taxed only under the corporate income tax framework.

Exception for public law entities engaged in economic activity

The exemption from Income Tax does not apply to interest income earned by legal persons governed by public law that carry out economic activities.

In such cases, the interest income remains subject to the relevant provisions of the Income Tax Law.

Collective investment undertakings

The law also clarifies that interest income earned by collective investment schemes, whether open-ended or closed-ended, is not considered interest income that is exempt from Income Tax.

This ensures that the appropriate tax rules continue to apply to such investment structures.

Practical impact

The amendment brings greater certainty and clarity to the tax treatment of interest income in Cyprus.

By clearly distinguishing between the taxation of individuals and companies, the revised provisions reduce potential uncertainty regarding the applicable tax regime and prevent overlapping tax treatments.

Overall, the clarification can be considered a positive development for both taxpayers and tax administration, as it simplifies the interpretation of the relevant rules.