Notional Interest Deduction Regime on ‘New Equity'

Cyprus entities (including permanent establishments of foreign companies in Cyprus) are entitled to a Notional Interest Deduction (NID) on new equity which has been introduced to a business on or after 1 January 2015; with the NID being a multiple of a ‘reference interest rate' ¹ and such ‘new equity'.

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Cyprus entities (including permanent establishments of foreign companies in Cyprus) are entitled to a Notional Interest Deduction (NID) on new equity which has been introduced to a business on or after 1 January 2015; with the NID being a multiple of a ‘reference interest rate' ¹ and such ‘new equity'.

Notably, NID granted on new equity cannot exceed 80% of the taxable profit before allowing the NID, and is not available in the event of losses.

In essence, the NID regime greatly reduces the effective tax rate of interest income to around 2.5%, where such new equity, within certain parameters and whilst observing specific anti avoidance provisions, has been utilised to carry out business, such a group finance operations.

¹  Calculated on the effective interest earned on the current 10-year bond yield of the country in which the new equity is invested (+3%), with the minimum rate being that of Cyprus (+3%)

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