Notional Interest Deduction (NID) regime in Cyprus

During July 2015, Republic of Cyprus introduced the Article 9B in the Income Tax Law (ITL), titled, “deduction on new equity”. According to this new Article, with effect from 1 January 2015, Cyprus tax resident companies are entitled to a notional interest deduction (NID) upon the introduction of new equity employed in the production of taxable income.

The NID regime was introduced to encourage Cypriot businesses to strengthen their equity base. While companies leveraged with debt would generally deduct accrued interest expenses, the NID allows Cypriot taxpayers funded with equity to claim a deduction of notional interest expense, computed as a percentage of any equity introduced after 2015. 

 The NID is effectively a notional interest tax deductible expense that arises upon the introduction of new equity employed in the production of taxable income by a Cyprus company. The fact that it is a notional expense, it means it does not trigger any accounting entries and therefore it does not affect the accounting profit/loss. It is considered just as a tax adjustment.