Article 9(B) of the Income Tax Law of 2002 as amended provides for a notional interest deduction for tax purposes on new equity capital (paid-up share capital and share premium) injected into companies and permanent establishments of foreign companies on or after 1 January 2015 to finance business assets, calculated by applying a reference rate to the new equity.
The reference rate is the higher of the 10-year government bond yield of Cyprus or the country in which the assets funded by the new equity are utilized, in each case plus three percentage points. The bond yield rates to be used are as at 31 December of the year preceding the year of assessment.
The Tax Department has already published the bond yields and reference rates for most of the major investment destinations, including Cyprus, Germany, United Arab Emirates, United Kingdom, India, Latvia, Ukraine, Poland, Romania and Russia.
It has now announced the bond yields for three further countries, Greece, Italy and Kazakhstan, at 31 December 2015 and 2016, which will be used to calculate the notional interest deduction for the tax years 2016 and 2017 respectively.
|Bond yield at 31 December 2015||Bond yield at 31 December 2016|
As the bond yield rate for Italy at both year-ends is lower than the rate for Cyprus, the Cyprus rate of 3.685% at 31 December 2015 and 3.489% at 31 December 2016 is used to calculate the NID for Italy, resulting in the following reference rates for the three countries:
|Tax year 2016||Tax year 2017|