Practical Guidance On Calculating Notional Interest Deduction

Corporate Tax, Cyprus

Introduction

The Tax Department has issued guidance on the application of the provisions introduced in 2015 for a notional interest deduction.(1) A notional interest deduction is available for new equity capital introduced into companies and permanent establishments in Cyprus from the beginning of 2015 to finance business assets.(2) It is calculated with reference to government bond rates and is limited to 20% of the profit before the notional interest deduction.

The guidance sets out the legal basis for the notional interest deduction and explains the underlying concepts, definitions and basic principles of calculating the deduction and its application in practice, with worked examples illustrating various hypothetical scenarios. The guidance also clarifies a number of issues which had not previously been considered in detail, the most important of which are outlined below.