Cyprus Tax Mistakes SMEs Make Before Year-End - And How to Fix Them

Preparing for year-end is stressful enough for SMEs without the added pressure of unexpected tax issues. Yet many Cyprus-based businesses-local SMEs, startups, and foreign-owned companies-tend to fall into the same traps every year.

The good news? Most Cyprus tax mistakes are easy to avoid once you know what to look for. This guide walks you through the most common issues and offers simple, practical ways to fix them before closing the year.

The Most Common Cyprus Tax Mistakes SMEs Overlook in Their Year-End Process

1. Leaving Tax Planning Until the Last Minute

Many SMEs only begin thinking about their tax position in December. By then, opportunities to reduce tax liability-legally and efficiently-are limited.

How to fix it:

• Review your expected profits before year-end.

• Plan allowable deductions (e.g., bad debt write-offs, provisions).

• Consider whether certain expenses or investments should be brought forward.

• Review the tax treatment of director/shareholder transactions.

  
  

Early planning helps you avoid surprises and gives you time to adjust your financial position strategically.

2. Not Reconciling Accounting Records With VAT and Payroll

A common source of errors occurs when accounting records do not match VAT returns, payroll submissions, or social insurance filings.

Why it matters:

Inconsistencies create red flags for tax authorities and often lead to assessments or penalties.

How to fix it:

• Reconcile your general ledger with VAT declarations.

• Ensure payroll journals match actual submissions to Social Insurance and GESY.

• Check that benefits, allowances, and reimbursements are correctly classified.

This is also the best time to confirm whether you have the proper VAT treatment for intra-EU and international invoices.

3. Forgetting to Review Director’s Current Accounts

One of the most overlooked Cyprus tax mistakes relates to director/shareholder balances. A debit balance may trigger deemed benefits-and therefore tax exposure.

How to fix it:

• Ensure that director current accounts do not end the year in debit.

• If they do, take action early (e.g., dividend declaration, salary allocation).

• Review loan agreements and ensure they are properly documented.

4. Misclassifying Expenses or Missing Deductible Items

SMEs often record expenses incorrectly or fail to deduct allowable items, inflating their tax bill unnecessarily.

Common examples:

• Missing entertainment expense limits

• Not claiming capital allowances

• Incorrect treatment of motor vehicle expenses

• Deducting non-allowable expenses

• Missing employer contributions

How to fix it:

Perform a detailed expense review and ensure that each major category follows the correct tax treatment under Cyprus tax law.

5. Not Assessing Whether You Meet Substance Requirements

Foreign-owned and international businesses operating through Cyprus entities often overlook annual substance review-leading to risk of non-compliance with the Cyprus Tax Department and international authorities.

Key considerations:

• Do you have local management and control?

• Are board minutes, resolutions, and decisions properly documented?

• Are accounting and tax records maintained in Cyprus?

• Does the business have sufficient economic activity?

If not reviewed, this may expose the company to challenges from foreign tax authorities.

6. Failing to Calculate Provisional Tax Accurately

Underestimating provisional tax leads to a payment shortfall-and penalties. Overestimating creates unnecessary cash outflow.

How to fix it:

• Reforecast your results before the 31 December deadline.

• Adjust provisional tax payments accordingly.

• Ensure you do not leave reconciliation until the final tax computation stage.

7. Not Preparing for Your Audit Early Enough

Even if your audit starts after year-end, poor preparation can delay your management accounts and tax return submissions.

Common SME mistakes:

• Missing supporting documents

• Unreconciled balances

• Manual adjustments not posted into the accounting system

• Lack of clarity on revenue recognition, loan agreements, or related-party transactions

Starting early avoids delays and helps keep compliance deadlines intact.

8. Ignoring CRS, FATCA, and AML Compliance Requirements

Businesses-especially those with international clients-sometimes overlook their annual regulatory obligations.

Why it matters:

These requirements are enforced at bank level, and non-compliance may cause banking delays, account restrictions, or reporting issues.

How to fix it:

• Confirm whether your entity has CRS/FATCA reporting obligations.

• Maintain proper documentation for AML and investor/UBO identification.

• Review internal procedures at least once a year.

How LCK Financial Services Helps SMEs Avoid These Tax Mistakes

At LCK, we work closely with SMEs, startups, and international companies to ensure they are audit-ready, tax-ready, and fully compliant all year round-not only at year-end.

Because LCK provides both accounting and audit services, your records are always aligned, complete, and supported with the right documentation, ensuring:

• Accurate year-end tax planning

• Proper VAT, payroll, and expense treatment

• Compliance with CRS, FATCA, AML, and substance requirements

• Smooth audit preparation and timely filing

• Continuous support from a team that understands your business

With the right controls-and the necessary ethical boundaries-we make tax compliance a seamless experience.

If you’d like support with your 2025 planning or a pre-year-end tax review, our team is ready to help.