Introduction to Notional Interest Deduction (NID)
Legal Framework of NID
• Cyprus tax-resident companies
• Cyprus permanent establishments (PEs) of non-Cyprus tax residents
Key Regulatory Approvals:
• The EU Code of Conduct Group (Business Taxation) and ECOFIN assessed Cyprus’s NID regime as “not harmful” (November 2020).
• Cyprus Tax Authorities (CTA) Circular 2016/10 provides further clarifications and calculation examples.
How NID Works
Key Components of NID:
1. New Equity
1. Reference Interest Rate
1. Deduction Cap
1. Annual Eligibility
1. Effective Tax Rate Reduction
1. New Equity
Eligible Forms of New Equity:
• Paid-up share capital (ordinary, preference, redeemable, or convertible shares)
• Share premium
• Loans payable or other debt instruments converted into share capital
• Shareholder credit balances converted into share capital
• Non-refundable capital contributions
• Realized reserves (post-2015) converted into share capital
1. Reference Interest Rate
1. Deduction Cap
1. Annual Eligibility & Duration
1. Anti-Abuse Provisions
Example Calculation
Recent Developments & Future Changes
Conclusion