Further to our previous newsfeeds on this, the Cyprus Tax Department issued an announcement on 23 May 2023 concerning the 10-year government bond yield rates as at 31 December 2020, 2021 and 2022 for a number of countries. These rates need to be considered for the Notional Interest Deduction (NID) to which equity injected in to Cyprus companies is entitled. Those countries are:
1. Albania 10.New Zealand
2. Bahrain 11.North Macedonia (Skopje)
3. Colombia 12.Oman
4. Georgia 13.Pakistan
5. Indonesia 14.Qatar
6. Japan 15.Tunisia
7. Malaysia 16.Turkey
8. Malta 17.Uruguay
The announcement adds that no 10-year government bond has been identified as at 31 December 2020, 2021 and 2022 for some states, therefore, the reference rate to be used for the purposes of granting tax allowance for NID purposes is that of the 10-year government bond of Cyprus. Those states are the following:
1. Bosnia and Herzegovina 3. Kuwait
2. Iraq 4. Moldova
The rates can be found on the website of the Cyprus Tax Department by clicking here.
It is reminded that equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital or share premium is eligible for an annual NID for tax purposes. The deduction is calculated as a percentage (reference rate) on the new equity. The relevant reference rate is the yield of the 10 year government bond (as at December 31 of the previous tax year) of the country where the funds (the new equity) are invested in the business of the company, plus a 5% premium.
The NID is deducted from the taxable income of a company for as long as the new equity financing is used in its operations. The deduction is subject to a number of conditions, including a taxable-income limitation.