Loans between you and your Cyprus company: the 9% rule, transfer pricing, and the new 10% SDC
Money moves between founders and their companies constantly — you cover the company’s first expenses personally, the company later covers a personal one of yours, a chunk sits in a “director’s account” that nobody has looked at since the audit. Every one of those movements has a tax character in Cyprus, and two of the rules involved are among the least known and most mechanically enforced in the system: the 9% deemed benefit on money you owe the company, and — new for 2026 — the 10% SDC on disguised distributions.
Here’s both directions of the street, with the reform-era rules and the transfer-pricing overlay that applies whenever you and your company transact.
Direction one: you borrow from the company
When an individual director or shareholder (or their spouse, or a relative up to the second degree) owes the company money, Cyprus deems them to receive a benefit of 9% a year on the outstanding balance, computed monthly. That benefit is treated as income — collected through the company’s payroll (PAYE) rather than waiting for your annual return — and any interest you actually pay the company reduces it euro-for-euro. The 2025 reform kept the rule and widened it: from 2026 it also reaches indirect shareholders, closing the holding-company workaround. Non-residents are caught in full for the year, without day-counting relief.
The practical sting isn’t usually a deliberate loan — it’s the drifting debit balance: personal expenses paid on the company card, transfers “to be sorted later,” dividends taken informally before being declared. At audit time all of it lands in the director’s account, and if the year-average balance was, say, €40,000, you’ve earned yourself a deemed benefit of €3,600 taxed at your marginal rate — for money that was yours all along, structured badly.
If you need money out, the deliberate routes are cheaper: salary or dividends, properly declared. If the balance already exists, the classic year-end fix is declaring a dividend that clears it. What doesn’t work is ignoring it — the 9% accrues monthly and your auditor is obliged to find it.
New for 2026: the disguised-distribution SDC
The reform abolished the old deemed-dividend regime but added a targeted replacement: SDC at 10% on value quietly extracted by shareholders. Two situations are squarely in scope: personal use of company assets (the company car that’s really yours, the company-owned apartment you live in — assessed on market value and the share of personal use) and transfers of company assets to shareholders below market value (the difference is taxed). Assets you donated to the company are excluded, and this SDC is non-refundable.
How the new 10% charge interacts with the old 9% benefit on plain cash balances is not yet spelled out in published guidance — the 10% rule is drafted around assets and undervalue transfers rather than loan accounts. Until the Tax Department clarifies, treat the two as parallel hazards: cash balances → 9% income benefit; asset use and sweetheart transfers → 10% SDC. Structures that would rely on the gap between them deserve professional advice, not optimism.
Direction two: you lend to the company
Founders funding their own company is the normal case, and Cyprus is relaxed about it — no thin-capitalisation prohibition on shareholder loans, no approval process. The tax questions are about the interest:
- If you charge interest: interest paid to a non-resident lender leaves Cyprus with no withholding tax. Paid to a Cyprus-resident domiciled individual, the company must withhold 17% SDC at source and remit it by the end of the following month (non-doms: no SDC). The company deducts the interest, subject to the usual limits.
- If you charge nothing: interest-free shareholder loans are common and not prohibited — but once you hold 25%+ of the company, the loan is a controlled transaction under Cyprus transfer pricing rules: arm’s-length interest can be imputed, the loan is disclosable in the Summary Information Table regardless of size, and for balances that matter the safe-harbour margins (or documentation) come into play. For a founder’s modest working-capital loan the practical exposure is small; for a six-figure back-to-back arrangement it isn’t.
The paperwork that makes both directions safe
| Situation | Minimum paper trail |
|---|---|
| Company lends to you | Board resolution, written terms, the 9% benefit run through payroll (or interest actually charged) |
| You lend to the company | Simple loan agreement (amount, term, rate), board acceptance, SIT disclosure with the TD4 |
| Expenses paid personally for the company | Expense claims booked promptly — a credit balance in your favour is harmless; an unreconciled one isn’t |
| Company assets you use personally | Either market-rate arrangements, or the 10% SDC assessed and paid knowingly |
None of this is heavy — a page or two per arrangement. The pattern, as everywhere in Cyprus compliance, is that the penalties attach to informality, not to the transactions themselves. Founders get burned by balances nobody documented, not by loans everybody signed.
Monolog shows your director’s account balance in real time — every personal card swipe and reimbursement lands there as it happens — so the 9% conversation happens in March when it’s a €2,000 balance, not at the audit when it’s €40,000. Related-party loans flow straight into the SIT module.
Frequently asked questions
What is the 9% rule on director loans in Cyprus?
An individual director or shareholder (or spouse/relative to the second degree) who owes money to the company is deemed to receive a benefit of 9% a year on the balance, computed monthly and taxed as income through the company's payroll. Interest actually charged reduces it. From 2026 the rule also covers indirect shareholders.
Does the 9% rule apply to non-residents?
Yes — non-resident directors and shareholders are caught in full for the year on their debit balances, without apportionment for days spent outside Cyprus.
What is the new 10% SDC on disguised distributions?
From 2026, SDC of 10% applies where shareholders (or connected persons) use company assets privately — assessed on market value and the personal-use share — or acquire company assets below market value. It replaced the abolished deemed-dividend regime as the anti-extraction rule, and it's non-refundable.
Can I lend money to my Cyprus company interest-free?
Yes — it's common and not prohibited. But at 25%+ ownership it's a controlled transaction: it must be disclosed in the Summary Information Table with the tax return regardless of size, and arm's-length interest can be imputed for material balances, with safe harbours available below the documentation thresholds.
Is there withholding tax on interest my Cyprus company pays me?
Paid to non-residents: no. Paid to a Cyprus-resident domiciled individual: the company withholds 17% SDC at source and remits it by the end of the following month. Cyprus-resident non-doms receive interest free of SDC (GESY applies).
Sources & further reading
- KPMG Cyprus — The Cyprus Tax Reform (9% benefit extension, 10% SDC on disguised distributions)
- PwC Worldwide Tax Summaries — Cyprus: income determination (deemed benefit)
- Elias Neocleous & Co — taxation of deemed benefits on loans to directors and shareholders
- PwC Cyprus — Tax Facts & Figures 2026 (SDC on interest)
- Grant Thornton Cyprus — tax reform package (disguised distributions)
This guide is general information, not tax or legal advice. Rules, rates, and deadlines change — the facts here were last verified in July 2026. Confirm anything that matters for your company with a licensed Cyprus advisor before acting on it.