February 16, 2021
Cyprus Tax Authorities publish 10-year government bond yield rates for NID purposes
On 12 February 2021, the Cypriot Tax Department issued an announcement which lists the 10-year government bond yield rates as at 31 December 2020 for a number of countries (listed on the table below) 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 2021 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), which 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 taxable income of the company for the relevant tax year (subject to any restrictions) for the period of time during which the equity is used by the company for the carrying on of 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 as at 31 December of the year preceding the tax year of the country in which the new equity is invested increased by 5%.
For information on the amendments to the NID rules, see EY Global Tax Alert, Cyprus amends Notional Interest Deduction rules, dated 5 June 2020.
10-year government bond yield rates as at 31 December 2020 (applicable for 2021 tax year)
* 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:
Ernst & Young Cyprus Limited, International Tax and Transaction Services (ITTS), Nicosia