Amendments to the notional interest deduction (NID) rules in Cyprus were approved on 16 June 2020. One of the main changes concerns the determination of the applicable NID rate.
Under the prior rules, the NID rate is based on the higher of the Cyprus 10-year government bond yield or equivalent bond yield of the country in which the assets funded by the new equity are utilized, increased by 3%. Under the new rules, the NID rate is equal to the 10-year government bond yield of the country in which the assets funded by the new equity are utilized, increased by 5%. The bond yield rate of the country is no longer compared to the Cyprus rate, although if there is no equivalent bond yield in the relevant country, the Cyprus 10-year government bond yield is used, increased by 5%. The change in rules applies retroactively from 1 January 2020.
In addition to the change in the NID rate determination, the definition of new equity is clarified to refer to equity investments introduced into a business on or after 1 January 2015, but excluding any equity derived directly or indirectly from reserves that existed prior to 1 January 2015, regardless of whether or not it is related to new assets used in the business. This change is effective from 1 January 2021.
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