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.
NID - Notional Interest Deduction was introduced in 2015 in Cyprus to provide tax relief to all Cypriot companies and enterprises that use equity and not debt, to finance their investments. The NID - Notional Interest Deduction is provided to companies resident of Cyprus and to entities that do business in Cyprus. Notional Interest Deduction - NID is an annual deduction from the taxable profits of a Cypriot company which is calculated based on the interest rate as mentioned above multiplied by new capital that is introduced, owned, and used for the purposes of the Cypriot company.
The Notional Interest Deduction - NID is limited to 80% of the taxable income of a Cypriot company. The Notional Interest Deduction - NID allows Cypriot companies to reduce their tax rate in Cyprus from 12.5% to 2.5%, thus gaining a significant tax advantage. According to Cyprus taxation laws, Cyprus companies that are originally financed by own funds / equity are given notional Interest deduction (NID). This means a reduction of the overall effective tax rate of a Cyprus Company depending on the level of Cyprus Company capitalization. The notional Interest deduction (NID) is granted annually for as long as capital is used for business purposes in the Cyprus Company.