Wear and Tear Allowances
Overview
Capital allowances (wear and tear allowances) are deductions from chargeable income that compensate for the gradual loss of value of business assets. These allowances are given as a percentage of the cost of acquisition and represent a significant tax relief for capital investments in plant, machinery, buildings, and other business assets. They are governed by Article 10 of the Income Tax Law (ITL) and the notification issued under former Article 52A (which remains in force under Article 47).
The tables below set out the standard annual capital allowance rates as approved by the Cyprus Tax Authorities.
Buildings
| Asset | Annual Rate | Notes |
|---|---|---|
| Commercial buildings & flats | 3% | Useful life 33 years. Rate applies to new buildings; rates are amended for second-hand buildings |
| Industrial buildings | 4% | Useful life 25 years |
| Agricultural buildings | 4% | Useful life 25 years |
| Hotel buildings | 4% | Useful life 25 years |
| Metallic greenhouse structures | 10% | |
| Wooden greenhouse structures | 33⅓% |
Historical Accelerated Rates (2012–2018)
Industrial and hotel buildings acquired during tax years 2012–2018 (inclusive) were eligible for accelerated depreciation at 7% per annum. Buildings for agricultural and livestock production acquired during 2017–2018 were also eligible at 7%. For acquisitions after 1 January 2019, the standard 4% rate applies.
When a building is sold, the new owner can continue to claim allowances based on the original cost (not the purchase price) for the remaining useful life of the building.
Plant and Machinery
| Asset | Annual Rate | Notes |
|---|---|---|
| Plant and machinery (general) | 10% | General rate for all plant and machinery not specifically listed elsewhere |
| Furniture and fittings | 10% | Office and commercial furniture, fixtures |
| Industrial carpets | 10% | |
| Boreholes | 10% | |
| Agricultural machinery and tools | 15% | Farm equipment (standard rate; see also enhanced 25% agricultural rate below) |
Historical Accelerated Rates (2012–2018)
Plant and machinery (excluding private saloon cars) acquired during tax years 2012–2018 (inclusive) were eligible for accelerated depreciation at 20% per annum (excluding assets already eligible for a higher rate). For acquisitions after 1 January 2019, the standard 10% rate applies.
Vehicles and Means of Transportation
| Asset | Annual Rate | Notes |
|---|---|---|
| Commercial motor vehicles | 20% | Vans, trucks, and other commercial vehicles |
| Motor cycles | 20% | |
| Armoured motor vehicles | 20% | E.g. used by security services |
| Specialised railway machinery | 20% | E.g. locomotive engines, ballast wagons, container wagons, container sleeper wagons |
| Excavators, tractors, bulldozers, self-propelled loaders, petrol company drums | 25% | Heavy construction and industrial vehicles |
| Forklifts and loading vehicles | 25% | |
| New airplanes | 8% | |
| New helicopters | 8% |
Ships and Vessels
| Asset | Annual Rate | Notes |
|---|---|---|
| New cargo vessels | 8% | |
| New passenger vessels | 6% | |
| Motor yachts | 6% | |
| Steamers, tugs and fishing boats | 6% | |
| Sailing vessels | 4.5% | |
| Ship motor launches | 12.5% | |
| Used cargo/passenger vessels | Varies | Over their remaining useful economic life in accordance with the class certificate |
Other Assets
| Asset | Annual Rate | Notes |
|---|---|---|
| Computer hardware & operating systems | 20% | Servers, desktops, IT infrastructure |
| Application software (> €1,709) | 33⅓% | 3-year write-off |
| Application software (≤ €1,709) | 100% | Fully written off in year of acquisition |
| Televisions and videos | 10% | |
| Wind power generators | 10% | |
| Photovoltaic systems | 10% | Standard rate; see also enhanced 20% green rate below |
| Tools in general | 33⅓% | Loose tools and implements |
| Videotapes (video club property) | 50% |
Intangible Assets
The treatment of intangible assets for capital allowance purposes operates under Article 11(1)(λ) of the ITL, with important 2026 clarifications:
| Intangible Asset Type | Annual Rate | Notes |
|---|---|---|
| Definite useful life | Varies | Amortised over the useful life in a reasonable manner, in accordance with accepted accounting principles, with a maximum period of 20 years |
| Indefinite useful life | 5% | New from 2026 Deemed useful life of 20 years is now assigned, resulting in a 5% annual allowance |
Key Rules for Intangible Assets
- Election: A taxpayer may elect to claim all or only part of the available deduction in any given tax year
- Unclaimed allowances: Amounts not claimed in prior years are redistributed evenly over the remaining useful life period and can be claimed in future years
- Assets contributed for shares: New from 2026 Where intangible assets are contributed to a company in exchange for the issuance of new share capital, the capital expenditure eligible for allowances cannot exceed the fair market value of the asset at the date of contribution. No allowance is granted if the fair market value is not substantiated to the satisfaction of the Commissioner
- Goodwill excluded: Goodwill (fame and commercial patronage) is explicitly excluded from intangible asset allowances under this provision
- IP regime assets: Intangible assets that benefit from the Cyprus IP Box regime cannot also claim standard capital allowances under this provision on the same cost base
Enhanced Allowances — Energy Efficiency and Green Assets
Extended to 2030 Enhanced capital allowances are available for qualifying green and energy efficiency expenditure incurred during tax years 2023 to 2030. These allowances apply in place of the standard rates where the enhanced rate is higher. A taxpayer may elect, in the year the expenditure is incurred, not to claim the enhanced rate and instead use the standard rate.
| Category | Enhanced Rate | Qualifying Expenditure |
|---|---|---|
| Building Energy Efficiency | 7% | Thermal insulation of horizontal structural elements, wall and structural insulation, replacement of window frames and fittings |
| Technical Energy Systems, Renewables & Batteries | 20% | Hot water pipe insulation, heat recovery systems, energy management systems, high-efficiency CHP installations, photovoltaic systems (net billing or standalone), battery energy storage systems |
| Electric Vehicles | 33⅓% | New electric vehicles of categories M2, M3, N (including N1, N2, N3), M-type registered as taxis, and EV charging stations (AC Category 1 or DC Category 2). Vehicle must qualify as “new” per VAT law provisions |
Green Investment Benefit: These enhanced allowances are part of Cyprus’s commitment to environmental sustainability and the EU green transition. Businesses investing in energy-efficient technologies and renewable energy can benefit from substantial tax relief while supporting climate objectives. Additionally, the cost of commissioning an energy saving study by a qualified energy expert or energy auditor is a fully deductible expense against business income (Article 11(1)(μ)).
Enhanced Allowances — Agricultural and Livestock Farming
New from 2026 Accelerated capital allowances at the rate of 25% per annum are introduced for investments in machinery and facilities relating to agricultural and livestock farming.
Important exclusion: Machinery and facilities relating to irrigation are explicitly excluded from the accelerated 25% rate. Irrigation assets continue to be depreciated at the standard applicable rate.
Claiming Capital Allowances
Capital allowances are claimed as deductions against chargeable income in the tax return. The following principles apply:
- Acquisition Cost Basis: Allowances are calculated on the original acquisition cost of the asset, including installation and setup costs. For assets contributed in exchange for share capital, the cost base is limited to substantiated fair market value at the date of contribution
- Pool System: In many cases, assets are grouped into pools (plant and machinery, motor vehicles) and allowances are calculated on the pool balance rather than individual assets
- Disposal Proceeds: When an asset is disposed of, proceeds are deducted from the relevant pool, potentially affecting future allowance claims
- Part-Year Use: Allowances may be apportioned if an asset is acquired or used for only part of the tax year
- Private Use Restriction: For assets with mixed private and business use (e.g. motor vehicles), the Commissioner may determine the private-use proportion and allowances are limited to the business-use portion only
Employee Restriction
An individual in salaried employment is not entitled to claim capital allowances on assets they own personally, unless: (a) the employment contract specifically requires the employee to use that asset in performing their duties, and (b) no compensation or other allowance is paid to the employee for such use.
Non-Deductible Vehicle Costs
The following are not deductible:
- Expenses of a private motor vehicle (the full amount is disallowed)
- Interest on borrowings to acquire a private motor vehicle, or any other asset not used in the business, for a period of 7 years from the date of acquisition
Balancing Allowances and Charges
When an asset is disposed of, the relationship between its original cost, accumulated allowances, and disposal proceeds may trigger a balancing adjustment:
- Balancing Allowance: If disposal proceeds are less than the written-down value (tax base), a balancing allowance (additional deduction) is granted for the difference
- Balancing Charge: If disposal proceeds exceed the written-down value, a balancing charge is made (added to taxable income), limited to the total allowances previously claimed
Exclusions and Limitations
Capital allowances are not available on:
- Land and land improvements (with limited exceptions for industrial buildings on the land)
- Assets acquired for personal use (unless used wholly in business)
- Goodwill and commercial patronage (explicitly excluded from intangible asset allowances)
- Intangible assets where the fair market value has not been substantiated to the Commissioner’s satisfaction
- Assets used exclusively in non-business activities
Interaction with Other Tax Reliefs
Taxpayers should be aware that capital allowances interact with other tax provisions:
- R&D Super Deduction (120%): The additional 20% R&D deduction applies on qualifying R&D expenses, including capitalised expenses on which capital allowances are granted (tax years 2025–2030). However, expenditure on the acquisition of property, plant and equipment (PPE) — including employee residences — on which Article 10 capital allowances are claimed, cannot also benefit from the R&D deduction provisions
- IP Box Regime: Intangible assets benefiting from the Cyprus IP Box regime cannot also claim standard capital allowances on the same cost base. A Super Deduction cannot be claimed on expenses relating to an asset benefiting from the IP regime
- Group Relief: Balancing allowances may form part of the overall loss position and be relieved against group profits through the group loss relief mechanism
Disclaimer
Please note that the information provided here is for general guidance only and does not constitute professional tax advice. Tax laws and interpretations are subject to change, and individual circumstances can significantly affect tax obligations and benefits. Capital allowance calculations can be complex, and proper documentation is essential for substantiating claims.
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