March 20, 2023
Cyprus Tax Authority publishes 10-year government bond yield rates for NID purposes
On 16 March 2023, the Cypriot Tax Department issued an announcement that lists the 10-year government bond yield rates as of 31 December 2022 for a number of countries (listed in the table below) with respect to the Notional Interest Deduction (NID) on equity. These yield rates should be used to determine the reference interest rate for claiming NID for the 2023 tax year.
The key NID provisions and the applicability of the 10-year government bond yield rates are summarized below.
Notional Interest Deduction
As of 1 January 2015, Cyprus tax-resident companies (as well as foreign companies with permanent establishments in Cyprus) that carry on a business are entitled to claim a NID on their equity capital introduced on or after 1 January 2015.
The NID is deducted from the company's taxable income for the relevant tax year (subject to any restrictions) for the period of time during which the company used the equity in carrying on its activities. The NID is subject to a number of conditions, including a taxable-income limitation.
The NID equals the multiple of the "reference interest rate" (as defined below) and "new equity."
"Reference interest rate" means the 10-year government bond yield of the country in which the new equity is invested, as of 31 December of the year preceding the tax year, increased by 5%.
10-year government bond yield rates as of 31 December 2022(applicable for 2023 tax year)1
* There are currently no government bond yield rates for the above indicated countries.
For additional information with respect to this Alert, please contact the following:
EY Cyprus Advisory Services Limited, International Tax and Transaction Services, Nicosia
1 The Cypriot Tax Department updates the list during the year. As such, it is advisable to check their website for announcements of new additions to the list. Please visit: Tax Department | Announcements (mof.gov.cy).