Feb 22, 2018
2018 Interest Rates for NID Announced by the Cyprus Tax Authorities
The Cyprus Tax Authorities have recently announced the 2018 interest yield rates of the 10-year government bonds for the purposes of the Notional Interest Deduction (NID) as per paragraph 9B of the Cyprus Income Tax Law 118 (I) 2002, as amended.
As a reminder, with effect from 1 January 2015 Cyprus amended its Income Tax Law and introduced for tax purposes an annual NID on new equity of companies.
A deemed interest deduction is allowed on funds introduced into a Cyprus tax resident company in the form of shareholders equity which is termed as “new equity” and which funds are used for the operations of the company.
The deemed interest is calculated at a rate equal to the effective interest earned on the 10 year government bonds of the country where the funds are invested, plus 3%, with the minimum rate considered being the effective interest earned on 10 year bonds issued by the Republic of Cyprus, plus 3%.
“New equity” is defined as share capital and share premium to the extent that it has actually been paid in cash or in kind (for the latter at market value), introduced into the business after 1 January 2015. It does not include revaluation or any other reserves generated before 1 January 2015 and converted in to share capital.
A number of anti-avoidance provisions are included in the legislation, including a provision that, as with actual interest expense, deemed interest will be tax deductible only if it is used for financing assets used in the business. Another provision is that the deemed interest is capped at 80% of the taxable income of the company during the year before the deduction of the deemed interest expense.
According to the Cyprus Tax Authorities’ announcement, the new NID interest rates for tax year 2018 are the following:
Country | 2018 NID rates (i.e. the interest yield of the 10-year government bonds plus 3%) |
| Cyprus, Austria*, Czech Republic*, France*, Germany*, Ireland*, Latvia*, Luxembourg*, Netherlands*, Norway*, Slovakia*, Slovenia*, Spain*, Sweden*, UK* | 4,881% |
| Canada | 5,079% |
| China | 7,268% |
| Croatia | 5,453% |
| Greece | 7,073% |
| Hungary | 5,031% |
| India | 10,571% |
| Italy | 5,005% |
| Poland | 6,385% |
| Romania | 7,314% |
| Russia Russia (denominated in US dollars) | 10,590% 6,822% |
| Serbia | 8,968% |
| South Africa | 11,780% |
| USA | 5,406% |
| *The Cyprus NID interest rate is used as it is the minimum. |
Five countries have been announced as Non-Applicable for the purposes of the Notional Interest Deduction: Belarus, BVI, Kazakhstan, UAE, and Ukraine.
