The Cyprus tax authorities have issued a circular on the practical application of the provisions introduced in 2015 for a notional interest deduction (NID). As explained in a previous news item, NID is available in respect of new equity capital introduced into companies and permanent in Cyprus from the beginning of 2015 for the purpose of financing business assets. NID is calculated by reference to government bond rates and is limited to 20% of the profit before NID.
The circular sets out the legal basis for the NID, and explains the underlying concepts, definitions and basic principles of calculating NID and their application in practice, including several worked examples. It clarifies a number of issues which had not previously been considered in detail.
The circular makes clear that as an overriding principle, no NID will be allowed if in the opinion of the tax authorities the main purpose of the underlying transactions was to reduce the liability to tax and there was no substantial economic or commercial purpose.
Our tax specialists will be pleased to provide further information on the notional interest deduction and other tax matters.
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