Circular 54: Clarification of the 10% additional tax for other income other than employment income

Written by Marios Panayides
24 November, 2021

On 19 October 2021 the Commissioner of Taxation issued a Circular, which makes clarification in relation to the imposition of a 10% additional tax for employees with income other than employment income.

The Circular refers to Article 24 and 26 of the Assessment and Collection of Taxes Law, which provides that a taxpayer who has taxable income other than employment income must prepare and submit a provisional tax declaration and settle the tax liability in two instalments.

In addition, the Circular also refers to Article 26 of the Assessment and Collection of Taxes Law which states that if the temporary/provisional taxable income is less than 75% compared to the actual taxable income an imposition of 10% additional tax will apply. So, the test here is with reference to the taxable income declared and not the tax paid.

The case scenario that the Circular would like to address is for 

  • employees
  • who have paid over 75% of their provisional taxes as compared to their actual taxes through their employer (via PAYE)
  • but have not declared the taxable income and hence do not satisfy the test of Article 26 that the taxable income is over 75% of the actual taxable income

In this case, since they have not made any declaration of their provisional taxable income, pursuant to Article 26, an additional 10% tax will be imposed. The Circular steps in to confirm that the Tax Department will place more importance and mainly look at the test from the perspective of the provisional to actual taxes paid and will disregard the taxable income test of Article 26.

Furthermore, the Circular clarifies that, when the amount of income tax related to other income exceeds 75% of the tax attributable to that income and is paid as part of the PAYE deduction calculated by the employer then the 10% additional tax will not apply.

In cases where the taxpayer suffered, through employment withholding income tax corresponding to such other taxable income which exceeds 75% of the actual final tax on such other income the Circular states that:

  • During the examination of the individual’s income tax return, for the purposes of issuing an Income Tax assessment, the 10% additional tax will not be imposed.
  • In cases where tax assessment has been issued and the 10% additional tax has been imposed then the individual can submit an objection.

For more details see the Circular 54 (The Circular).

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