On 16 June 2020, an amending Income Tax Law (ITL) was published with respect to the Notional Interest Deduction (NID). The revised NID provisions provide increased tax benefits for Cyprus companies financing their operations through new capital and are in line with the recommendations of the European Commission.

Reference rate

The amendment provides that the NID Reference Rate is defined as the interest rate of the 10 year government bond yield of the country in which the new capital is invested increased by 5% (whereas before it was 3%). The interest rate of the Cyprus 10-year government bond will no longer be used as a comparison but will only apply in the event where the country in which the new capital is invested has not issued any government bond up until December 31 of the year prior to the year in question.

The amendment is in force as of January 1, 2020.

Pre-existing reserves

Furthermore, the amendment provides that new capital will no longer include any capital derived directly or indirectly from reserves that existed on 31 December 2014 (pre-existing reserves) regardless of whether it is related to new assets used in the business.

This amendment is in force as of January 1, 2021.

How can we help?

We are at your disposal to discuss the above amendments with you and to assess their impact on your corporate tax results and overall structure.