Publications

Strategies for extracting profits from owner-managed companies: Benefits-in-kind

on . Posted in Articles. Hits: 5997

What are benefits in kind? In general, these are direct or indirect benefits, which you as an employee or executive director of your company receive in addition to your salary. Some benefits in kind are taxable while others are not. The most common benefits you can claim from your company are: health insurance, company car, mobile, job-related benefits, accommodation, childcare, school tuition, travel and entertainment allowance, cheap or interest-free loan.

Fortunately or not, the Cyprus Income Tax Law 118(I)/2002 has only two instances mentioning the taxation of benefits in kind, both equally vague and unhelpful, so determining what is taxed is not straight forward and much of it boils down to your particular circumstances and a good professional tax advice.

Business and personal implications
The business rational of using benefits in kind is in the freedom of your company to structure and provide a taxable or non-taxable benefits.

The taxable benefits will be an allowable expense and reduce the company’s tax base. However, Cyprus social insurance legislation implies that taxable benefits in kind are insurable earnings and social insurance contribution must be pain by both, the employer and the employee. Furthermore, where the company pays an expense for your benefit or use, it will not be able to claim the input VAT, which adds to the total cost of this strategy. Although, this particular VAT implication can be sidestepped, the benefits in kind remain one of the tricky parts of Cyprus income tax and hard to generalise.

Benefits in kind form part of your emoluments and you will have to pay social insurance as well as income tax.

Tax effectiveness
Similar to salary and bonus remuneration, the tax effectiveness of the benefits in kind is good up to a point; however, contrary to salary and bonuses, the choice of benefits can make a bug difference in the overall cost.

Tags: tax strategies

Do you find the information useful
contact us
what we do
  • Taxation
  • Financial advisory
  • Corporate
  • Audit & accounting
our office
  • Quantia Advisors Ltd
  • 2B Massari Str | 2548
  • P.O. Box 17144 | 2261
  • Nicosia, Cyprus
To provide you with the best possible experience on our website, we use cookies, as described here.
By closing this banner, or continuing to browse our websites, you consent to the use of such cookies and agree to the Terms of Use.
Get help with tax

We want to help you in the best possible way.
Feel free to contact our tax advisor if you do not understand something about your tax. For simple queries, you can use our life chat support.

Hiring professional help
We are licensed Cyprus CPA firm and qualified to provide tax services such as, filing your Provisional Income Tax, Self-Assessment, Corporate Tax, VAT and VIES or providing advice if you run your own business or handing your tax affairs if you are an expat.
Recent amendments to the Cyprus Income Tax issued by the IRD, state that as of the tax year 2017, Income Tax Returns for individuals are accepted only electronically. Learn More