Cyprus: Changes in the Rules of Notional Interest Deduction

June 26, 2020

On June 16, 2020 the Cyprus Government Gazette published amendments to the Cyprus Income Tax Law (ITL) (Law 66 (I)/2020) concerning the rules for deducting conditional interest (notional interest deduction – NID).

Starting from 2015, Cyprus companies, as well as permanent representative offices of foreign companies in Cyprus, can use the deduction of conditional interest deduction (notional interest deduction) when calculating income tax. This deduction is equal to the product of new investments in the authorized (additional) capital of the company and the conditional interest rate. New investments in capital means authorized or additional capital paid after January 1, 2015 (both in monetary and non-monetary form). The notional interest rate is the interest rate on a 10-year government bond of a country in which new investments were eventually involved, increased by a statutory surcharge. Before the changes were made (until 2020), the surcharge was 3%.

At the same time, the minimum deduction amount is calculated based on the income rate on the 10-year government bond of Cyprus, increased by a surcharge. This deduction is not allowed if it exceeds 80% of the company’s taxable profit. Therefore, this deduction can’t generate a loss.

So, what has changed?

  1. Starting from January 1, 2020, the income premium on the country’s ten-year government bond will increase from 3% to 5%, with no minimum base rate.
  2. If the country where the funds are used has not issued any government bonds before December 31 of the previous tax year, the “base rate” is determined based on the yield of a ten-year Cyprus government bond (as at December 31 of the previous tax year) plus 5%.
  3. Starting from January 1, 2021, in order to apply the deduction, a Cyprus company must be invested with “new capital”, i.e. funds that were not at its disposal before January 1, 2015 must be invested.
Most Read News

January 24, 2020

Professional Tax – new tax for Cyprus companies

At the end of 2019 Cyprus municipalities introduced a new tax for Cyprus companies called Professional Tax.

July 10, 2020

Cyprus: Since 1 of July Contributions to the GESY Fund Have Increased

From March 1, 2020, contributions to the Fund of the state health insurance system of Cyprus GESY were supposed to grow as part of the second stage of the reform of this system.

May 18, 2020

CRS and FATCA: extension of reporting deadlines

In 2020, the deadlines for submitting financial statements in accordance with CRS and FATCA standards has changed.

December 03, 2019

Happy Lawyer’s Day!

December 3 is the lawyer's day in Russia. Congratulations to our colleagues on their professional holiday!

September 28, 2021

Mishcon Forms Association With Hong Kong Firm, Bolstering Asia Investment Law.com

London-based Mishcon de Reya has launched its second international office in Hong Kong, a little over a year after its overseas debut in Singapore.  The firm has entered into an association with Hong Kong disputes and investigations [...]

May 08, 2020

CySec: Changes of the Due Date for Some Obligations in Cyprus

The financial regulatory agency of Cyprus (CySec) has changed some due date obligations for issuers, providers and funds: The due date for the obligation of issuers to publicise the annual financial statements for 2019, is postponed for the 30 of June 2020. The due date for [...]

February 24, 2019

Amendments to Cyprus Company Law

The Cyprus Department of Registrar of Companies and Official Receiver (ROC) announced amendments to the Cyprus Company Law.

April 15, 2020

Professional consulting support of our specialists

Taking into account the current situation, our clients have a lot of different issues that require professional consulting support on-line.