Notional Interest Deduction

1 Introduction

1.1 The implementation of the Notional Interest Deduction ("NID") rule in Cyprus since July 2015 has created a powerful tool to local and international organisations seeking new options to finance their operations. By using NID, businesses have the opportunity to deleverage and realise a new, tax efficient return on new equity, via the deduction of a 'notional' interest expense against their taxable income.

1.2 Equity financing in Cyprus can therefore constitute a very useful alternative to debt financing (thus avoiding the use of, now inefficient, offshore financing parents of the Cypriot company). The use of NID can achieve effective tax rates in Cyprus of as low as 2.5%.