Notional Interest Deduction

Cyprus in order to attract more direct investments and import of new capitals to existing establishments grands Notional Interest Deduction on any new capitals imported in the establishment after the 1st of January 2015.

Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital or share premium is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as an interest rate on the new equity, and cannot exceed 80% of the taxable profit derived from assets, financed by new equity. The relevant interest rate is the yield on 10 year government bonds ( as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company plus a 3% premium (subject to a minimum amount which is the yield on the 10 year Cyprus government bond as at the same date plus a 3% premium).

The amount of notional interest cannot exceed the 80% of the tax income of the company, as this will be identified according to law, before the interest deduction. If Notional Interest is below the 80% of the taxed income, then the whole amount of the interest is deducted. 

The tax deduction is applied to Tax Resident companies, as well as to non-Tax Residents owning a permanent office in the republic of Cyprus.

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