8 September 2016 – The Cyprus Tax
Department has published a number of clarifications on the
application of Notional Interest Deduction (NID).
NID allows Cyprus companies to reduce their tax liability to as
low as 2,5% from the normal 12,5% through deducting deemed interest
expense on new capital introduced and used for business
purposes.
The clarifications relating to the application of Article 9B of
the Income Tax Law 118(I)/2002, as amended, on NID, were published
on 26 July 2016, through Circular No. 2016/10, dated 18 July 2016,
(hereinafter "the Circular").
The NID provision was introduced back in July 2015, effective as
from 1 January 2015, and provides that companies (including
permanent establishments of foreign companies) are entitled to a
NID on the new equity introduced in the company and used for
business purposes. The NID is equal to the "reference interest
rate" multiplied by the "new equity" that is
introduced and used by a company in the carrying
