The Cypriot Tax Department, on the 3rd of February, 2022, issued an announcement that included a ten-year government bond yield rate as of 31st of December, 2021 for various countries (included on the table mentioned below) with regards to the Notional Interest Deduction (NID) on equity. In order to determine the reference interest rate for the purpose of claiming NID for the 2022 tax year, these yield rates are required to be utilized.
Below is a summary of the key NID provisions along with the applicability of the 10-year government bond yield rates.
Notional Interest Deduction
As of 1st of January 2015, Cyprus tax resident companies along with those foreign companies that have a permanent establishment in Cyprus, which further carry on or involve a business, are legally allowed to claim a NID on their equity capital which has been introduced on or after the 1st of January, 2015.
The NID is subtracted from the company's taxable income for the particular relevant year (depending on any restrictions) for the time period during which the company utilizes the equity for the purpose of continuing with its activities. The NID is dependent on various conditions, which may include a taxable income limitation as well.
The NID certainly equals the multiple of the “new equity” and the “reference interest rate” (as explained below).
When we talk about “Reference interest rate”, it means the ten-year government bond yield as of
31st of December of the previous year of the country's tax year in which the investment of new equity is made which is increased by around 5%. Ten-year government bond yield rates as of 31st of December 2021 (applicable for the tax year for 2022)
|Country||Yield rate||Country||Yield Rate|
|British Virgin Islands||N/A*||Morocco||2.239|
|Czech Republic||2.797||Saudi Arabia||2.932|
|Egypt (US$)||7.570||South Africa||9.799|
|Hong Kong||1.524||Ukraine (US$)||8.902|
|Hungary||4.484||United Arab Emirates||N/A*|
|Ireland||0.237||Isle of Man||1.502|
* There are currently no government bond yield rates for the above indicated countries.