Reference rates for Notional Interest Deduction for 2018

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 uplifted by three percentage points. The bond yield rates to be used are as at 31 December of the year preceding the year of assessment.

The Cyprus Tax Department has recently announced the 10-year government bond yields at 31 December 2017, which will be used as the basis for the notional interest deduction for the 2018 tax year, for the countries below. For countries whose bond yield is lower than that of Cyprus the reference rate will be the Cyprus rate of 4.881 per cent.