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Cyprus: Implications of EU directive limiting interest deductions

Cyprus: EU directive limiting interest deductions

Under the EU Anti-Tax Avoidance Directive (ATAD or the directive concerning an interest limitation rule) as transposed in Cypriot income tax law, certain “excessive” borrowing costs are deductible in the tax period in which they are incurred but only up to 30% of the taxpayer’s earnings before interest, tax, depreciation and amortisation (EBITDA), as adjusted.

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The directive’s legal provisions transposed into Cypriot tax law include certain “opt outs” in relation to:

  • De minimis threshold—that is, borrowing costs up to €3 million can be deducted
  • Stand-alone entity exemption (not being part of a group of companies)
  • Grandfathering of loans concluded before 17 June 2016
  • Exclusion from scope of long-term infrastructure projects that are considered to provide, upgrade, operate and/or maintain a large-scale asset that is in the interest of the general public
     

Read a September 2019 report prepared by the KPMG member firm in Cyprus

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