This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our PRIVACY POLICY for more information on the cookies we use and how to delete or block them.
  • Tax Newsletter – 16th June: Amendments to the provisions of the Law for Notional Interest Deduction (NID)

Tax Newsletter – 16th June: Amendments to the provisions of the Law for Notional Interest Deduction (NID)

Angelos Petrou , Senior Manager Tax Department |

01 July 2020

The Cyprus Parliament has voted into Law on the 16th of June 2020 amendments in respect of the Notional Interest Deduction (NID). These revised provisions aim to enhance the tax benefit provided to Cyprus entities which use new equity for their financing activities. The amendments were based on the formal recommendations made by the European Union.

The relevant amendments to the Law are as follows:

Refence rate Used

Applicable until 31/12/19

The yield of the 10 year Government bond (as at 31 December of the year preceding the tax year the NID is claimed) of the country in which the new equity is invested plus 3%. The minimum reference rate is the yield of the Cyprus 10 year Government bond (as at 31 December of the relevant year) plus 3%.

 As from 1/1/20 (per the relevant amendment)

The yield of the 10 year Government bond (as at 31 December of the year preceding the tax year the NID is claimed) of the country in which the new equity is invested plus 5% (therefore no minimum reference rate no longer applicable).

Definition of New Equity

Applicable until 31/12/19

The definition of new equity includes equity introduced into the business of the Cyprus entity on or after 1 January 2015, excluding equity created from the capitalisation of pre-existing reserves existing on 31 December 2014, unless the equity created from such pre-existing reserves is invested/used in assets resulting in taxable income.

As from 1/1/20 (as per the relevant amendment)

The definition of new equity includes equity introduced into the business of the Cyprus entity on or after 1 January 2015 (therefore reserves that existed before 1 January 2015 can no longer be considered new capital if capitalised).

Clarification on NID cap rate being 80% of taxable profits

Clarification is now provided that the calculation of the NID cap of 80% on the taxable profits is in respect of the profits arising directly from the use/investment of the new equity.  NID cannot be claimed against profits not matched as arising directly from the new equity).

 

Our Tax Teams are at your disposal to discuss the above-mentioned amendments and assess any impact to your business.