Cyprus details guide to NID calculation
The NID concession was introduced in 2015 to provide tax incentives to companies using equity rather than debt capital to fund their investments.
The NID deduction is available for Cyprus tax resident companies and permanent establishments of non-Cyprus tax resident companies that do business here.
NID is an annual deduction that is calculated as: the reference interest rate (RIR) multiplied by the new capital (NC) owned by the company that is used to operate the company. The deduction is capped at 80% of the company’s taxable income, potentially allowing companies to reduce the corporate tax rate they face in Cyprus from 12.5% to 2.5%.
The RIR is fixed for each tax year and is the rate of return on 10-year government bonds (as at 31 December of the immediately preceding tax year) of the country in which the company invests NC, plus a 3% premium. Effective January 1, 2020, this 3% premium has been increased to a 5% premium.
The lowest RIR is the rate of return on Cyprus 10-year government bonds plus the applicable premium.
The RIR is based on the bond yield in the official currency of the respective country of investment.
The RIR will be based on the bond yield in that other currency if:
- the asset is denominated in a currency different from the official currency of the respective country of investment (for example, investments are made in an asset located in country A, denominated in the currency of country B);
- the respective investment government has issued bonds in a different currency (for example, government A has issued government bonds denominated in currency B).