In accordance to the Interpretative Circular 14, the Cyprus Tax Department clarifies that as per Article 5(2)(f) when a company grants a loan or financial facility to:

• its shareholder physical person
• its director physical person
• the spouse or relative of up to second degree of its director or

shareholder is deemed as obtaining a benefit equal to 9% on the average balance of the loan or financial facility at the end of each month.

This monthly benefit is also deemed to arise for non-Cyprus tax resident shareholders or directors and as from 1/1/2018 is calculated for the whole year irrespective of the actual days exercising physical duties in Cyprus.

The benefit is considered as income arising in Cyprus and increases a person’s taxable income.

If the benefit is more than the tax free amount of €19.500, then the company must calculate the income tax payable by this person and pay it through the Pay-As-You-Earn (PAYE) system.