Tax Considerations – Notional Interest Deduction (NID)

Notional Interest Deduction (NID)

  • As per the provisions of the recently voted legislation a Cyprus company is entitled to a Notional Interest Deduction (“NID) on “new equity”.
  • New equity introduced to a company as from January 1, 2015 in the form of paid-up share capital or share premium.
  • The new equity can be represented by assets other than cash.
  • NID Deduction = New equity x NID interest rate.
  • NID interest rate = Yield of 10-year government bonds +3% premium
  • The NID deduction cannot exceed 80% of the taxable profit as calculated before NID
  • Therefore a Newly Established Fund (AIF), could potentially qualify for the Notional Interest Deduction resulting to tax optimization.
  • Nonetheless, the proposed structure should be carefully examined from a tax perspective in order to assess the availability of the NID regime in view of the anti-avoidance clauses introduced in the NID regime.