The Cyprus Notional Interest Deduction (NID) allows companies to deduct a notional interest on new equity capital injected into the business. The deduction is calculated by reference to a reference rate plus a margin and is available in respect of qualifying new equity used in the business for the production of taxable income.
Used correctly, the NID can reduce the effective tax rate on equity-financed activities materially below the headline 12.5% corporate income tax rate. Used carelessly, it triggers anti-abuse adjustments, particularly where the equity is sourced from related parties without economic substance.
Practical conditions:
— The capital must be 'new' and contributed after 1 January 2015.
— It must be used in the production of taxable income.
— The general anti-abuse rule and specific anti-avoidance provisions apply.
With the introduction of Pillar Two and the EU Minimum Tax Directive for in-scope groups, NID planning now sits alongside GloBE modelling. Corpora's tax team designs structures that remain robust under both Cyprus law and OECD/EU minimum-tax overlays.
