Tax Implications of Company and Individual Loans

According to Article 5(Z) of the Cyprus Income Tax Law, whenever a company grants a loan or any other financial facility, including cash withdrawals (excluding balances arising from commercial transactions), to directors, direct or indirect shareholders, their spouses, or relatives up to the second degree of kinship, the recipient is deemed to receive a monthly benefit in kind (“ВІК”).

It should be noted that up to the year 2025, Article 5(Z) did not capture indirect shareholders.

The deemed monthly benefit is calculated at a rate of 9% per annum on the outstanding balance of the loan or other financial facility at the end of each month, including any cash withdrawals made during the month.

The tax calculated on such monthly benefit must be assessed and remitted in accordance with the Cyprus PAYE withholding regulations.

In addition, as per the Circular 14 issued by the Cyprus tax department on 14 November 2017, the Cyprus tax department clarifies that the BIK also applies to non-tax resident individuals irrespective of the time spent in Cyprus.

On a separate note, it should be noted that the BIK applies only to loans considered passive in nature. There are currently discussions with the Cyprus Tax Department on whether the BIK should still apply to individuals, given that from 2026 onwards company interest income is treated as active and subject to corporation tax.