Notional Interest Deduction Rate

coins-948603_640Notional Interest Deduction Rate (NID) Calculations Concerning Equity Capital Implemented in 2015 & 2016

The government of Cyprus implemented a Notional Interest Deduction (NID) in July 2015. The NID concerns equity capital, paid up share premium and share capital, introduced in foreign companies’ permanent establishments and companies intended for financing assets on 1 January 2015 and onwards. The NID is calculated using a reference rate for the new equity.  Furthermore, the reference rate is actually the highest Cyprus government bond yield over a decade or the foreign country, where the assets funded are used by the new equity, whereby three percentage points are added. The bond rates that are utilized are the rates depicted on 31 December of the year following the year the assets are assessed.

The Tax Department of Cyprus recently publicized the decade bond rates as depicted on 31 December 2014. The rate will be utilized to calculate the NID for the tax year of 2015 for the following countries: Cyprus, India, Romania, Russia and Germany. The Tax Department also announced the rates that will be used to calculate the NID for Ukraine as it was set on the 31st December 2015, which will be used for the 2016 tax year. Moreover, the Cyprus Tax Department also added four additional countries (United Arab Emirates, the Czech Republic, Poland and Latvia) whereby the NID will be calculated for the 2016 tax year.

The NID concerning any capital implemented in 2015 used to finance assets in any of the aforementioned countries will be calculated using the Cyprus rate.

The rates announced so far are outlined below:

31 December 2014 31 December 2015
Cyprus 5.037 3.685
Czech Republic 0.499
Germany 0.540 0.568
India 7.860 7.758
Latvia 1.104
Poland 2.937
Romania 3.570 3.703
Russia 13.730 9.570
Ukraine 9.622
United Arab Emirates 7.490

 

According to the aforementioned, the NID concerning the Tax Years

2015 and 2016 are as follows:

31 December 2015 31 December 2016
Cyprus 8.037 6.685
Czech Republic 8.037 6.685
Germany 8.037 6.685
India 10.860 10.758
Latvia 8.037 6.685
Poland 8.037 6.685
Romania 8.037 6.685
Russia 16.730 12.570
Ukraine 8.037 12.622
United Arab Emirates 8.037 10.490