Provisional (or "temporary") tax is the Cyprus system of paying tax on your current year's income in advance, before the year is even over. It is not a separate tax: it is an early payment of the same income tax you will ultimately owe, calculated from your own estimate of your taxable income for the year. Companies and individuals with taxable income not fully collected at source may have to make this estimate. The ordinary payment pattern is two instalments; a defined new-activity exception introduced for 2026 uses one December instalment. Get the estimate too low and a 10% surcharge can follow. This guide explains the dates, the 75% rule, the surcharge mechanics and how to estimate sensibly, with a worked example.
Provisional tax sits inside the wider compliance year alongside VAT, payroll and the annual return. For the full schedule see our 2026 tax calendar, and for the obligations a Cyprus company carries each year see company annual obligations.
What provisional tax actually is
Provisional tax is an advance payment of the year's income tax, based on the taxpayer's own estimate of current-year taxable income — not on last year's result, and not on a figure the Tax Department imposes. You forecast your own profit (or taxable income), apply the relevant rate, and pay that amount during the year itself. When the year closes and the real figures are known, the provisional payments are credited against the actual liability, and any difference is squared up afterwards.
Because it is built on a self-made estimate, provisional tax rewards realism. Estimate accurately and the system is painless. Estimate too low and you risk the surcharge; estimate too high and you simply lend the state money interest-free until a refund comes through. The whole skill lies in landing the estimate close to — but safely above — the eventual figure.
It helps to keep the cash-flow purpose in mind. Tax authorities everywhere prefer to collect tax as income is earned rather than in a single lump sum long after the year ends. For salaried employees that happens automatically through monthly withholding; for companies and the self-employed, provisional tax is the equivalent, spreading the year's tax across two payments inside the year itself. Treated that way — as two scheduled prepayments rather than an unexpected demand — it becomes a routine part of managing working capital rather than a compliance shock at year-end.
Who has to pay it
Provisional tax can apply to companies and to individuals with taxable income not fully collected at source, subject to the rules for their category. The clearest cases are the self-employed and people with rental income, where no employer withholds tax during the year. Employees whose tax is collected in full through PAYE generally have nothing to pay provisionally on that salary, because the tax is already being deducted month by month. An employee with significant other income — rents, freelance fees, foreign income not taxed at source — may still owe provisional tax on that part. The principle is consistent: where tax is not already being collected as the income arises, the system asks you to pay it in advance via the provisional mechanism.
The deadlines and instalments
The ordinary provisional-tax process has two instalments, both falling within the tax year being taxed. The statutory dates are 31 July and 31 December of the same year. These are the ordinary-rule dates; the new post-30 June exception is explained below.
| Stage | When | What happens |
|---|---|---|
| Estimate | By 31 July | Forecast current-year taxable income; calculate the tax |
| 1st instalment | 31 July of the tax year | Pay half the estimated tax |
| Revision window | Up to 31 December | Revise the estimate up or down if the year is running ahead of, or behind, plan |
| 2nd instalment | 31 December of the tax year | Pay the remaining (or adjusted) half |
| Balancing payment | With the annual return | Settle any remaining tax by self-assessment |
The balancing payment — the difference between the provisional tax already paid and your actual liability — is settled later, via self-assessment when the annual return is filed. For companies, the corporate return (TD4) for tax year 2026 is due by 31 January of the second year after the tax year, and the balancing payment is made with it. Interest may also apply on amounts paid late or underpaid, so the balancing payment should be settled on the self-assessment deadline, not left to drift.
The 2026 exception for a start after 30 June
Cyprus's 2026 tax reform amended Article 24 for specified taxpayers who begin relevant activity or earn the relevant income after 30 June of a tax year. The Tax Department's reform briefing names a Cyprus company incorporated or registered after that date, a foreign company registered in Cyprus or becoming Cyprus tax resident after it, and an individual first receiving income other than employment income on which provisional tax is due after that date. Qualifying taxpayers submit the provisional computation and pay one instalment by 31 December of that same year.
This is not a general option for an existing company with a quiet first half. Verify the incorporation, registration or tax-residence date and the actual start of the relevant income against the amended law. For example, a company incorporated in September 2026 and earning taxable income later that year may fall within the one-instalment procedure; an established company with its largest invoice in September does not qualify merely because the invoice came late. Check any separate administrative payment grace against an official notice rather than treating it as a change to the statutory due date.
The 75% rule and the 10% surcharge
The single rule that catches taxpayers out is the 75% rule. It governs whether your estimate was "close enough" or whether a penalty applies.
If the provisional taxable income you declared turns out to be less than 75% of your final (actual) taxable income, a 10% surcharge is charged on the difference between the final tax due and the provisional tax paid or payable. In plain terms: under-estimate by more than a quarter and you pay a 10% penalty on the resulting tax gap.
Note carefully what the test compares. The 75% threshold is measured against income — declared provisional income versus final taxable income — but the 10% surcharge is then applied to the tax shortfall, not to the income shortfall. So the safe zone is to declare provisional income of at least 75% of what you realistically expect to earn. Stay on or above that line and no surcharge can arise, however the year turns out.
The system gives you a second chance to get there. If the year runs ahead of expectations, you can revise the estimate upward before 31 December and increase the second instalment accordingly, lifting your declared figure back above the 75% line. This mid-year review is the most valuable habit in the whole process: it is the moment a genuinely good year can be brought back inside the safe zone before the surcharge ever applies.
How the surcharge plays out
The cost of under-estimating depends entirely on how far below 75% you fall. The table below shows the same company with a final taxable profit of €160,000 (final tax €24,000 at 15%) under three different provisional estimates.
| Estimated income | % of final | Provisional tax paid | 75% rule | Surcharge |
|---|---|---|---|---|
| €120,000 | 75.0% | €18,000 | Met | €0 |
| €100,000 | 62.5% | €15,000 | Missed | €900 (10% × €9,000) |
| €60,000 | 37.5% | €9,000 | Missed | €1,500 (10% × €15,000) |
The pattern is clear: the surcharge is not a fixed penalty but scales with how badly the estimate undershot. Declaring even slightly under the 75% line tips you into the charge, so the practical target is to aim a little above it. Note too that the surcharge bites only when the final result exceeds the estimate by more than a quarter — a year that comes in on or below your estimate never triggers it, however cautious the forecast was. This asymmetry is deliberate: the rule penalises material under-declaration, not honest forecasting error in the taxpayer's favour, which is why a modest cushion above 75% is the sensible default rather than a precise bet on the exact outturn.
A company estimates €100,000 of taxable profit for the year and pays provisional tax on that figure — €15,000 at 15%, in two equal instalments of €7,500 on 31 July and 31 December. The year turns out far stronger: actual profit is €160,000, giving a final tax liability of €24,000. Because the declared €100,000 is only 62.5% of the final €160,000 — below the 75% threshold — a 10% surcharge applies to the tax shortfall (€24,000 − €15,000 = €9,000), an extra €900. Had the company revised its estimate up to at least €120,000 (75% of €160,000) before 31 December and topped up the December instalment, the declared figure would have stayed on the 75% line and the €900 surcharge would never have arisen. After paying €18,000 of revised provisional tax, the remaining balancing payment would be €6,000 (€24,000 − €18,000), with no under-estimation surcharge in this example.
How to estimate sensibly
The goal is to land just above 75% of the final figure without tying up more cash than necessary. A disciplined approach gets you there:
- Base it on real data. By July you usually have roughly half a year of actuals — annualise them realistically rather than guessing.
- Review again before December. Mid-year is the moment to revise upward if the business is running ahead of plan, so the second instalment carries the correction.
- Don't wildly overpay. Overpaid provisional tax is refunded, but only after the return is processed — that is your cash tied up with the Tax Department in the meantime.
- Companies: model at 15%. Use our corporate tax calculator to forecast the liability; for personal income the personal income tax bands apply.
One practical point is the difference between businesses with steady, predictable income and those whose results are lumpy. A company on long-running contracts can usually forecast its full-year profit by July with confidence and set both instalments on that basis. A business that earns the bulk of its income late in the year — seasonal trades, or a consultancy whose largest invoices land in the fourth quarter — should be more conservative in July and lean on the December revision once the picture is clearer. The 31 July estimate does not have to be perfect; it has to be defensible at the time it is made, with the December review carrying the correction. Keeping management accounts reasonably current through the year is what makes both estimates straightforward rather than guesswork, and is the single best protection against an avoidable surcharge.
Self-assessment and the balancing payment
Provisional tax never settles your liability on its own — it is only a payment on account. Once the year ends and the real figures are known, you complete the self-assessment on your income tax return and pay the balancing payment: the remaining tax after crediting the provisional instalments. For companies, this is done with the corporate return (TD4), now due by 31 January of the second year after the tax year. If your provisional payments exceeded the final liability, the difference is refunded after the return is processed. Settle the balancing payment on the self-assessment deadline, because interest can accrue on tax paid late or underpaid. For the corporate picture overall, see corporate tax in Cyprus 2026.
Getting it right
Provisional tax is simple in principle but unforgiving of a low estimate. Estimate current-year taxable income from records, review it by 31 December, use the correct ordinary or one-instalment schedule, and reconcile the final balance. The 75% rule addresses under-estimation; late-payment consequences are separate. Manage it badly and you either pay a penalty on the shortfall or hand the Tax Department an interest-free loan you have to wait to get back.
We calculate, file and manage provisional tax for clients all year — and flag mid-year when the estimate needs revising to stay above the 75% line. Get in touch, or see our tax compliance service.