Cyprus taxation on benefit in kind
1. Benefit in kind
Cyprus benefit in kind is considered a benefit provided due to employment or provision of office regardless of whether it is received, in cash or in-kind, in accordance with the terms of the employment contract or as a gratuity.
Cyprus benefit in kind is provided to employees, full-time or part-time, former employees of companies, persons who hold or are considered to hold office or members of their own family.
Benefit in kind is provided:
- For employees when there is an employer-employee relationship, by the nature of his duties, with or without an employment contract
- For company directors, persons performing duties similar to those of directors, whether or not they are called by a different name, persons in whose instructions directors of companies are accustomed to act, persons holding a position in the company from which they exercise control, persons (other than those listed above) who hold office
Βenefit in kind is taxed like the salaries or any other remuneration and is declared in the employee’s salary as well as in the Cyprus company employer’s return TD 7. The cost incurred by the employer for the benefit in kind is deducted if there is a cost.
2. Benefit in kind in cars
In case the benefit in kind is related to private car expenses because the legislation does not allow expense as deductible for the employer, an amount equal to the value of the benefit in kind as an expense will be deducted. For this purpose, the relevant tax form in relation to cars should be completed.
Car-related benefits include cars owned by the company and/or leased/used by employees or officers for private use and lump sums paid to employees or officers in connection with the use of their own cars within the framework for the performance of their duties.
Providing the use of the company’s private car, the use of commercial vehicles (vans), or cash benefits for the use of the employee’s car is considered a benefit in kind when the element of private use exists and the car is made available to a specific person or is available for use outside usual working hours or not kept on the premises of the employer (company or partnership) at night or on weekends or when it is often used for private purposes
The use of cars in the context of performing tasks e.g., drivers/messengers/distributors are not considered to have a benefit in kind. There is no benefit in kind for persons who use their employer’s car, whether privately owned or not while performing their duties, but it is not allowed to use it outside the usual working hours, regardless of whether it is possible to park it near their private residence.
3. Calculation of benefit in kind in cars
The benefit in kind calculation is calculated using the following formula
% Value of private use * (Value of car use + Value of Repairs and Maintenance + Value of fuel) where
% Value of private use
|% of Value of private use
Car use value
17% (or 8% if the car is over six years old) * Car value. If the car is rented then the value of use is the amount of rent plus the value of fuel plus the value of maintenance and repairs
Repair & Maintenance Value
3% (if the value of the car is <= € 28,000, otherwise 4%) * Value of the car
4. Calculation of the value of the benefit in kind in a private car for an itinerary between two points only
When a car is used mainly for business purposes and mainly concerns a route between two points, i.e., delivery of goods or transport of customers or other employees, then when calculating the value of the benefit in kind, it can be reduced by 20% if the appropriate form has been completed and approved by the Cyprus Tax Department.
5. Calculation of the value of the benefit in kind of private use of a commercial car (van type) In case employees use a commercial car for business purposes and have the possibility for private use, the value of the benefit in kind is determined as a lump sum of € 500 per year regardless of the type, model, or year of manufacture/registration of the car.
6. Payment of benefit in kind based on the kilometers traveled When the benefit in kind is granted to the employee who uses his private car in the company based on the distance traveled, i.e., the costs are covered according to an agreed price per kilometer traveled, then the amounts do not constitute a benefit in kind if the following are met:
- the rate of repayment for each kilometer traveled does not exceed 25 cents per kilometer (according to the Circular of Travel Allowances issued by the Department of Public Administration and Personnel);
- payments cover only the business element of the year
- a detailed travel record is kept, which is available for inspection by the Cyprus Tax Department for at least six years
If any of the above conditions are not met, the total amount paid will be considered as the value of the benefit in kind and will be taxed.
7. Use of assets, including accommodation The use of assets owned by the business or rented or leased on a long-term basis by the business and made available to employees or officers for their private use such as accommodation, boats, airplanes, furniture, machinery, etc. is considered a benefit in kind.
8. Other benefits in kind
The following benefits in kind are taxed under special schemes
- Compensation (either cash or coupons/credit cards)
- An employee uses a business car and repays in installments in order to acquire it.
- Benefit in kind in relation to the use of the real estate
- Disposal of assets at subsidized prices
- Repayment of personal bills (utility services, school fees)
- Disposal of goods free of charge
- Sale of discounted goods and services such as travel, meals, business advice, etc.
Under certain conditions, the following are not considered benefits in kind
- Generally, when the payment or compensation to the employee is made against actual expenses supported by proof of payment and does not apply when lump sums are paid
- In houses belonging to legal entities that do not carry out any economic activity
- Homes available in cases of public office
- Homes available as part of security measures or better performance of duties
- Goods or services that are manufactured or processed or used as part of the activities of the employer or affiliate company.
- Issuance of airline tickets if the employer belongs to the aviation industry
- Stock – Shares Purchase Plans
- Compensation payment – Business trips
- The total cost of business trips or participation in educational programs abroad
- Free or sponsored meals for all staff in the business building
- Gifts to employees under € 300 provided the employer does not claim the cost as an expense
- Payment of compensation by the employer for the purchase of tools
- Employee vacations
- Fixed or mobile phones and provision of telephony services (only when done against actual receipts).
- Use of computers and other related equipment, including the provision of Internet services.
- Custody and entertainment services for the children of employees provided at the employer’s premises
- Goods or services that are manufactured or processed or used as part of the activities of the employer or associated company’s business are consumed within its premises by employees during a business day.
- Newspapers, magazines, and/or subscriptions or websites when related to the nature of the business
- The contributions paid by the employer regarding the membership of the employee in a professional body provided that the membership is deemed necessary for the performance of the employee’s work and the employer is the person who basically benefits from the payment.
- Insurance or compensation paid by the employer against the personal liability of officers or employees related to their duties.
- Prizes under conditions
- Sponsored meals for all staff in the business building
- Expenses (tuition, cost of books, maintenance/distribution costs if the knowledge/skills acquired are necessary for the performance of duties
- Special uniforms, necessary during the execution of work
- The provision of vehicles for carrying of employees at their workplaces
- The provision to an employee or the payment of a relatively small amount by an employee to use recreational areas such as gyms, swimming pools, tennis courts, golf courses, etc.
- Payment of compensation, up to a lump sum of € 9,000 for relocation costs
- Expenses include the actual expenses incurred by the employer for the registration of the specific employee in all public departments such as the Department of Social Security, Tax Department, Department of Immigration, etc. under certain conditions
10. Benefit in kind on directors / shareholders debit balances
For both Cyprus and non Cyprus tax resident individuals, benefit in kind equal to 9% per annum is levied on the monthly balance of loans or other financial facilities granted to an individual, director or shareholder (including the spouse and relatives up to the second degree of kindred
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