Payment of first provisional tax installment for tax year 2020

05 Jul Payment of first provisional tax installment for tax year 2020

The deadline for the payment of the first provisional tax installment for tax year 2020 is the 31st of July 2020.

Provisional tax payment obligation
The provisional tax return requires the estimation of the provisional taxable profit for the current year and the payment of the respective provisional tax liability in two equal installments i.e. by 31 July 2020 and 31 December 2020. It is noted that, the final tax liability for the tax year 2020 should be settled by 1 August 2021.

The following persons should consider whether a provisional tax payment would arise based on their expected annual taxable income:
-Individuals with taxable income other than salaries, pensions, dividends and interest, and
-Companies with taxable income

Computation of Temporary Tax
The provisional tax is calculated on the profits that are expected to arise in the year 2020. Entities that expect no profit for 2020 do not have to submit provisional tax.

The provisional tax return is submitted electronically either through the JCCsmart website or through the tax portal (https://taxportal.mof.gov.cy) and the settlement of the provisional tax can be effected only electronically through JCCsmart website and/or tax portal.

Penalties for Late Submission
If any of the installments are not paid by the above due dates, interest is charged at the rate of 1, 75% per annum from the original due date (imposed on a complete month basis) plus a penalty of 5%.

Revised provisional tax calculation
A provisional tax return may be revised by a taxpayer at any time before 31 December of the year of assessment to which it relates. Is case of revision, the Commissioner of Taxation will need to be notified in writing by completing and submitting a revised provisional tax declaration.

Downward revision of the provisional taxable profit can be done only up to an amount that would create a provisional tax liability equal to the sum of payment already made up to the date of revision. This in effect would create a zero payable installment on the following due date of the year of assessment.

Upward revision of the provisional profit creates an increased provisional tax liability. This in effect results in underpayment relating to the installment previously paid, up to the date of revision. The underpayment needs to be settled by the following due date and it will carry interest at 1.75% p.a.

10% additional tax in case of underestimation
If the provisional taxable profit for 2020 is less than 75% of the final taxable profit computed based on the audited financial statements, then a 10% additional tax is added to the tax liability payable. For this reason, it may be more tax effective to execute payments through the provisional tax assessment system rather than submitting a nil return and pay the final tax together with a 10% additional tax in 2021.

Need help with provisional tax return?
Do not hesitate to contact us if you need more explanation about the provisional tax or assistance in calculating/submitting your provisional tax return.