The Cypriot Tax Department issued an announcement listing the 10-year government bond yield rates as of 31 December 2021 for various countries with respect to the Notional Interest Deduction (NID) on equity. These yield rates are to be used to determine the reference interest rate for claiming NID for the 2022 tax year. The rates can be found here. The key NID provisions are summarized here.
NID is calculated by multiplying the New Capital introduced in the company with a Reference Rate. By way of a restriction, the NID deduction cannot exceed 80% of the taxable income generated via the application of the new capital funds and the total income generated by all the assets and activities resulting from New Capital funds.
To whom NID applies
NID can be claimed by all Cyprus tax resident companies and Permanent Establishments of non-resident companies. NID can also be applied to companies redomiciling to Cyprus on or after January 2015 as well as companies shifting their management and control (i.e. tax residence) to Cyprus.
Certain anti-avoidance and limitation provisions exist, including a general anti-avoidance rule whereby the Tax Commissioner may disallow the deduction of NID in case that actions or transactions took place without any commercial reasoning other than the intention to erode the tax base.