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Tax alert - Amendment to NID Rules

Tax alert Amendment to NID Rules

The Cyprus Notional Interest Deduction (NID) rules have been amended by the Cyprus Income Tax (Amending) Law  66(I)/2020 under which the following provisions are amended:

The NID Reference Rate

Up until the amending law, the NID Reference Rate was defined as the interest rate of the 10 year government bond yield of the country in which the new equity is invested (as published annually) or of Cyprus (as at 31st December of the previous tax year), whichever is the highest, increased by 3%. 

The amendment provides that the NID Reference Rate is defined as the interest rate of the 10 year government bond yield of the country in which the new equity is invested (as published annually) increased by 5%. The interest rate of the Cyprus 10-year government bond will no longer be used as a comparison but will only apply in the event where the country in which the new equity is invested has not issued any government bond up until December 31 of the year prior to the year in question.

The amendment is in force as of January 1, 2020.

In this respect, the revised NID Reference Rates for 2020 are as follows:

 

Interest rate of 10-year government bond yield

NID Reference Rate 2020 (New)

Abu Dhabi

2,514

7,514

Argentina

10,253

15,253

Armenia

8,064

13,064

Austria

0,016

5,016

Belarus (US$)

5,350

10,350

Belgium

0,086

5,086

Bulgaria

0,257

5,257

Canada

1,699

6,699

China

3,130

8,130

Croatia

0,621

5,621

Cyprus

0,536

5,536*

Czech Republic

1,569

6,569

Dubai (US$)

3,160

8,160

Egypt

13,518

18,518

Egypt (US$)

6,382

11,382

Finland

0,043

5,043

France

0,115

5,115

Germany

-0,210^

4,79

Greece

1,431

6,431

Hong Kong

1,699

6,699

Hungary

2,017

7,017

India

6,557

11,557

Ireland

0,120

5,120

Isle of Man

1,712

6,712

Israel

0,960

5,960

Israel (US$)

2,520

7,520

Italy

1,404

6,404

Kazakhstan (€)

0,996

5,996

Kazakhstan (US$)

2,566

7,566

Kenya

12,180

17,180

Latvia

0,136

5,136

Lithuania

0,169

5,169

Luxembourg

-0,087^

4,913

Morocco

2,420

7,420

Mauritius

4,260

9,260

Netherlands

-0,060^

4,94

Nigeria

11,563

16,563

Norway

1,540

6,540

Poland

2,109

7,109

Romania

4,398

9,398

Russia

6,270

11,270

Russia (US$)

2,605

7,605

Saudi Arabia

2,839

7,839

Serbia

2,778

7,778

Singapore

1,730

6,730

Slovakia

0,192

5,192

Slovenia

0,267

5,267

South Africa

9,018

14,018

Spain

0,463

5,463

Sweden

0,145

5,145

Switzerland

-0,454^

4,546

Taiwan

0,670

5,670

U.S.A.

1,919

6,919

Ukraine (US$)

6,504

11,504

United Kingdom

0,817

5,817

Vietnam

3,459

8,459

 

*The Cyprus rate should be used only in the event in which the country in which the new equity is invested has not issued any government bond.

^ Marked countries have a negative interest rate.

Definition of “old equity”     

Up until the amending law, “new equity” (on which NID is allowed as a deduction) is defined as any equity introduced in the business on or after January 1, 2015 and includes issued fully paid share capital and share premium but does not include amounts which have been capitalized and result from a revaluation of movable or immovable property or retained earnings (prior to December 31, 2014) and “old equity” is defined as equity that existed on December 31, 2014. The definition of new equity does not include any equity introduced into the business after January 1, 2015 which is derived directly or indirectly from reserves that existed on December 31, 2014 but are not related to new assets used in the business.

The amendment provides that new equity will no longer include any equity derived directly or indirectly from reserves that existed on December 31, 2014 regardless of whether or not it is related to new assets used in the business.

The amendment is in force as of January 1, 2021

 

Clarifications to the matching principle

The law has been amended retrospectively to align the tax law provisions with Circular 2016/10 issued by the Cyprus Tax Department on the practical implementation of the NID rules.

In this respect the amending law introduced in the Cyprus Income Tax Law:

  1. the matching principle between the new equity and the net taxable income that arises from such equity and the application of the 80% deduction on every stream of income separately; and
  2. a restriction of NID in the event of a net allowable loss resulting from the introduction of new equity.

The amendments apply retrospectively as of January 1, 2015.

The above communication replaces any related material issued previously in 2020.

For any further information required, please do not hesitate to contact us.

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