Notional Interest Deduction allowance

Nicosia – The Cyprus Tax Department has announced the interest rates to be used for the Notional Interest Deduction (NID) allowance for the tax year 2016.

The Tax Department issued on 28/4/2016 a notification relating to the interest reference rate of the 10-year government bond as at 31 December 2015, for the purpose of applying Article 9B of the Income Tax Law N118(I)/2002 Notional Interest Deduction for the current tax year.

A NID is allowed on new equity funds introduced into a Cyprus tax resident company that are used for the operations of the company. The NID should be calculated on the basis of the ‘reference interest rate’ which is equal to the yield on the 10-year government bond of the country where the new funds will be/are invested, plus 3%, with the minimum rate being the yield on the 10-year government bond of Cyprus plus 3%.

You may refer to the below reference interest rates below as published by the Tax Department:


Based on the Tax Department’s notification, it transpires that the minimum reference interest rate to be used for NID purposes for the tax year 2016 should be 6,685% being 3,685% yield on the 10-year Cypriot government bond plus 3% as dictated by Article 9B of the Income Tax Law.