The Notional Interest Deduction (NID) with retrospective effect as from 1st January 2020 rules have been amended by the Cyprus Income Tax (Amending) Law 66(I)/2020.
The new Law provisions that the NID Reference Rate is defined as the interest rate of the 10 year government bond yield of the country in which the new equity is invested (as published annually) increased by 5% instead of 3% that was applicable in prior years.
The interest rate of the Cyprus 10-year government bond will only be used in the event where the country in which the new equity is invested has not issued any government bond up until December 31 of the year prior to the year in question.
Definition of “old equity”
With retrospective effect as from 1st January 2021 new equity will no longer include any equity derived directly or indirectly from reserves that existed on December 31, 2014 regardless of whether or not it is related to new assets used in the business.
The matching principle clarified
With retrospective effect as from 1st January 2015 the law has been amended as follows:
- the matching principle between the new equity and the net taxable income that arises from such equity and the application of the 80% deduction on every stream of income separately; and
- a restriction of NID in the event of a net allowable loss resulting from the introduction of new equity.
This was to align the tax law provisions with Circular 2016/10 issued by the Cyprus Tax Department on the practical implementation of the NID rules.