What is Notional Interest Deduction and When Does it Apply?

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Background: Cyprus Companies
The reputation of Cyprus as an international financial centre has grown significantly over recent years. Cyprus is an attractive jurisdiction for trading and holding companies and offers a number of tax incentives.

Companies enjoy a 12.5% rate of tax on trading and a zero rate of capital gains tax. In addition Cyprus has over 50 double tax treaties to assist with international tax structuring.

Tax Residency
A company that is managed and controlled from Cyprus is considered to namibia mobile database be tax resident in Cyprus.


Cyprus tax resident companies and Cyprus permanent establishments (PEs), of non-Cyprus tax resident companies, are entitled to a Notional Interest Deduction (NID), on the injection of new equity used to generate taxable income.

NID was introduced by Cyprus in 2015, to reduce discrepancies in the tax treatment of equity financing compared to debt financing, and to promote an incentive for capital investment in Cyprus. NID is deductible, in the same manner as interest expenses, but it does not trigger any accounting entries as it is a ‘notional’ deduction.