Cyprus

Personal allowances

Charitable contributions to approved charities (with receipts) are deductible.

Also deductible for PIT purposes, subject to an overall maximum deduction of 1/5 of the chargeable income, are the total of life insurance premiums (the deductible annual life insurance premium is restricted to 7% of the insured amount), employee contributions to the social insurance fund, individual pension, provident fund contributions (the deductible pension/provident fund contribution is restricted to 10% of remuneration), employee medical fund contributions (the deductible medical fund contribution is restricted to 2% of total incomes subject to income tax), and employee contributions to GHS (see General Health System in the Other taxes section for more information).

Business deductions

For PIT purposes, generally, expenditure wholly and exclusively incurred for the generation of taxable income is deductible against the individual’s income. Such expenditure should be supported by invoices and relevant receipts or other supporting documents.

Research and development (R&D) expenses

As of 20 July 2022, expenditure for scientific research and for R&D (as recognised by international accounting standards) that is incurred by a person (i.e. legal entities and individuals) that: (i) carries on a business and (ii) has the economic ownership of the intangible asset that arises, or it’s possible to arise, from incurring such expenditure is deductible for IT Law purposes.

Any such expenditure of capital nature is tax amortised in a reasonable manner over its useful economic life (as per accepted accounting principles) with a maximum period of 20 years.

For any such expenditure incurred during the years 2022, 2023, and 2024, an additional allowance is granted equal to 20% of the expenditure incurred, which (i) cannot be claimed in parallel with the 80% allowance on net profit under the Cyprus nexus IP regime (i.e. cannot be claimed in parallel with New Cyprus IP Box) and (ii) a person may elect, for each tax year, to waive claiming (in whole or in part).

Employee deductions

For PIT purposes, generally, any employment-related expense of the employee (including contributions to trade unions or other professional bodies) is deductible, unless reimbursed by the employer. Travelling expenses between home and work are not deductible.