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Cyprus: Notional interest deduction, new reference rate rules

Cyprus: Notional interest deduction, new reference rate

The notional interest deduction rules have been amended by the Cyprus Income Tax (Amending) Law 66(I)/2020.

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Previously, the notional interest deduction 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 31 December of the previous tax year), whichever is the higher, increased by 3%. 

The amendment provides that the reference rate for the notional interest deduction is defined as the interest rate of the 10-year government bond yield of the country where 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 the country in which the new equity is invested has not issued any government bond up until 31 December of the year prior to the year in question.

The amendment is effective retroactively as of 1 January 2020.

Read a June 2020 report prepared by the KPMG member firm in Cyprus and that includes a table of reference rates

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