Cyprus Capital Allowances & Wear and Tear in 2026: Rates by Asset, Balancing Charges and Used-Asset Rules

Every euro a Cyprus company spends on plant, computers, vehicles or buildings is capital — it cannot simply be expensed in the year of purchase. Instead the Income Tax Law grants an annual wear-and-tear allowancethat spreads the cost across the asset's working life and reduces the profit taxed at the corporate rate.Income Tax Law N.118(I)/2002, Article 10

This guide sets out the rate for each asset class, how the claim works mechanically each year, what happens when you sell an asset (the frequently misunderstood balancing charge), and how second-hand or imported equipment is treated. Rates cited here are the standard statutory percentages; where an accelerated or asset-specific rate applies we say so. Because these figures move with amending laws and annual notifications, confirm the exact rate for a specific asset with an ICPAC-licensed accountant before filing.

What are capital allowances in Cyprus?

Capital allowances — called wear-and-tear allowances in Cyprus — are statutory deductions that let a business write off the cost of a fixed asset against its taxable income over a set number of years, replacing the accounting depreciation that is added back in the tax computation.

The mechanism is straightforward. Accounting depreciation in the IFRS financial statements is disallowed for tax; in its place the company deducts the wear-and-tear allowance at the rate the law prescribes for that asset class. The allowance is generally calculated on a straight-line basis — a fixed percentage of the original cost each year until the asset is fully written down. Because the allowance is a deduction from chargeable income, it feeds straight into the profit taxed at the reformed 15% corporate tax rate that applies from 1 January 2026.Income Tax Law N.118(I)/2002 (deductions), Article 11

Two conditions must be met: the asset must be owned and used by the business in producing taxable income, and it must be capital in nature. Assets used to generate exempt income do not attract an allowance, and land — which does not wear out — is never depreciable.

What are the wear-and-tear rates by asset in 2026?

Rates are fixed by asset class and applied straight-line on cost. The headline figures are 10% for general plant and machinery, 20% for computer hardware, 33.33% for tools and application software, and 3-4% for buildings.

These are the standard permanent rates. The rate table is set out in notifications issued under the Income Tax Law, and specific categories — agricultural machinery, greenhouses, energy-saving and renewable equipment, and certain vessels — carry their own dedicated percentages, several of them accelerated. Where an asset does not fall neatly into a listed class, the accountant applies the closest prescribed category.Cyprus Tax Department, Income Tax legislation and notifications

How are buildings depreciated in Cyprus?

Commercial buildings depreciate at 3% per year and industrial, agricultural and hotel buildings at 4% per year, straight-line on the building cost only. The land beneath a building is never depreciable and must be stripped out first.

Two practical points cause most of the errors we see. First, a single purchase price for a property must be apportioned between land (no allowance) and building (allowance) — usually on a professional valuation, because tax authorities scrutinise an aggressive split. Second, industrial and hotel buildings acquired during the 2012 to 2018 window benefited from a temporary accelerated 7% rate rather than 4%; those assets continue on their original schedule, so a building bought in 2016 is not re-based to the standard rate today. Disposal of a building interacts with the separate capital gains regime on immovable property, covered in our Cyprus capital gains tax guide.Income Tax Law N.118(I)/2002, Article 10

How are plant, machinery, computers and software treated?

General plant and machinery attract 10%, computer hardware and operating systems 20%, and application software 33.33% — with low-value software often written off in full in the year of purchase.

The split between hardware and software matters because the rates differ sharply. A server counts as hardware at 20%; the accounting or ERP package running on it is application software at 33.33%. Bundled purchases should be broken out on the invoice so each element takes its correct rate. General machinery — production lines, workshop equipment, HVAC plant — sits at the standard 10%, meaning a ten-year write-off, unless it falls into a specially favoured class such as energy-saving or renewable-energy equipment, which carries a higher accelerated rate. For a technology or IP-heavy company, these allowances sit alongside the separate IP Box regime, which deals with the income from intangibles rather than the write-off of tangible kit.Income Tax Law N.118(I)/2002, Article 10

How are vehicles treated for capital allowances?

Commercial vehicles — vans, trucks, forklifts, tractors and similar — qualify for wear-and-tear allowances, typically at 20% (25% for certain heavy machinery). Private saloon (passenger) cars are specifically excluded from capital allowances.

The exclusion of private saloon cars is one of the oldest features of the Cyprus system and still surprises founders who buy a company car and expect to write it down for tax. A saloon car used by a director produces no wear-and-tear allowance and its running costs face restrictions; a genuine commercial vehicle used in the trade does qualify. Where a vehicle straddles the line, the classification on the fixed-asset register should match its actual use and be defensible on audit.Income Tax Law N.118(I)/2002, Article 10

How do I claim the allowance each year?

The allowance is claimed automatically in the annual tax computation: accounting depreciation is added back, the statutory wear-and-tear percentage is deducted, and the net figure flows into the TD4 corporate tax return supported by a fixed-asset register.

1. Record each asset at cost on the fixed-asset register, split by class and date of acquisition.
2. In the tax computation, add back the book depreciation charged in the IFRS accounts.
3. Deduct the statutory wear-and-tear allowance — cost multiplied by the prescribed rate — for each asset still within its write-off period.
4. Carry the resulting adjustment into chargeable income taxed at 15% from 2026.
5. Where the allowances create or deepen a loss, the excess feeds the five-year loss carry-forward.

Because the register and the tax computation are examined during the statutory audit, keeping the asset schedule clean is not optional — it underpins both the audit opinion and the TD4. See our Cyprus audit requirements guide for how the two connect.

What happens on disposal — balancing charges?

When you sell or scrap an asset on which allowances were claimed, a balancing statement compares the proceeds with the tax written-down value. Proceeds above that value give a taxable balancing addition (recapture, capped at allowances claimed); proceeds below it give a deductible balancing deduction.

The logic is symmetry. If the company deducted more allowances over the years than the asset actually lost in value, the excess relief is clawed back on sale as a balancing addition — but only up to the total allowances previously claimed, never more. If the company under-relieved — the asset was worth less than its written-down value — the shortfall is given as a balancing deduction in the year of disposal. For tangible business assets this recapture is taxed as ordinary income at the corporate rate. Note that the balancing-statement obligation on the disposal of certain intangible assets was removed for disposals from 2020, so the treatment differs between tangibles and IP.Income Tax Law N.118(I)/2002 (as amended, intangible assets 2020)

How do used and imported assets work?

Second-hand and imported assets qualify for wear-and-tear allowances on the price the current owner actually paid, provided the asset is used in the business. The buyer starts a fresh straight-line schedule on their own acquisition cost — they do not inherit the seller's written-down value.

This matters in three common situations. When one Cyprus company buys equipment from another, the buyer's allowance base is the arm's-length price paid, and the seller runs its own balancing statement on the disposal. When a company imports machinery, the allowance is based on the landed cost recorded in the accounts, including duty and delivery that form part of the capital cost. And when assets move between related parties, transfer-pricing rules require the price to be arm's length, or the tax authority can substitute a market value. Because used-asset purchases from connected companies draw scrutiny, keep the valuation and the invoice trail with the fixed-asset register.Income Tax Law N.118(I)/2002, Article 10

What are the common mistakes to avoid?

The recurring errors are depreciating land, mixing up hardware and software rates, forgetting the private-car exclusion, and ignoring the balancing charge on disposal.

• Depreciating land. Only the building qualifies; a valuation split is essential on any property purchase.
• Wrong asset class. Applying 10% to computers (which take 20%) or 20% to software (which takes 33.33%) understates the relief and misstates the register.
• Expecting relief on a saloon car. Private passenger cars attract no wear-and-tear allowance regardless of business use.
• Missing the balancing charge. Selling a written-down asset above its tax value triggers recapture that must be added back in the disposal year.
• Confusing book and tax figures. Accounting depreciation is always added back; only the statutory allowance reduces the tax base.