The New Cyprus Notional Interest Deduction In Practice

As part of a package of tax incentives aimed at stimulating investment and economic activity, Law 116(I) of 2015 amending the Income Tax Law introduced a notional interest deduction ("NID") on new equity capital (paid-up share capital and share premium) injected into companies and permanent establishments of foreign companies on or after January 1, 2015 for the purpose of financing business assets and operations.

I. NID Basics

The NID is a deduction against taxable profit, calculated by applying a reference rate to the new equity. The reference rate is the higher of the 10-year government bond yield of Cyprus or the country in which the assets funded by the new equity are utilized, in each case plus 3 percentage points. The bond yield rates to be used are as at December 31 of the year preceding the year of assessment.