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Rates for calculating Notional Interest Deduction for new equity capital introduced in 2015 and 2016

In July 2015 the Cyprus government introduced a notional interest deduction (“NID”) on new equity capital (paid-up share capital and share premium) injected into companies and permanent establishments of foreign companies on or after 1 January 2015 for the purpose of financing business assets, calculated by applying a reference rate to the new equity. The reference rate is the higher of the 10-year government bond yield of Cyprus or the country in which the assets funded by the new equity are utilized, in each case plus three percentage points. The bond yield rates to be used are as at 31 December of the year preceding the year of assessment.

Earlier this year the Cyprus Tax Department announced the 10-year government bond rates at 31 December 2014, which will be used as the basis for the NID for the 2015 tax year, for Cyprus, Germany, India, Romania and Russia. It subsequently announced the corresponding rates at 31 December 2015, as well as a rate for Ukraine, which will be used as the basis for the NID on capital introduced during 2016. The Tax Department has now announced rates at 31 December 2015 for four further countries, namely the Czech Republic, Latvia, Poland and the United Arab Emirates, on which the NID on capital introduced in 2016 will be based. The NID for capital introduced during 2015 to finance assets used in any of these countries or in Ukraine will be based on the rate for Cyprus.

For completeness all the bond rates announced so far are listed below:

 

31 December

 

2014

2015

Cyprus

5.037

3.685

Czech Republic

-

0.499

Germany

0.540

0.568

India

7.860

7.758

Latvia

-

1.104

Poland

-

2.937

Romania

3.570

3.703

Russia

13.730

9.570

Ukraine

-

9.622

United Arab Emirates

-

7.490

Based on the above, the NID rates for the 2015 and 2016 tax years are as follows:

 

2015

2016

Cyprus

8.037

6.685

Czech Republic

8.037

6.685

Germany

8.037

6.685

India

10.860

10.758

Latvia

8.037

6.685

Poland

8.037

6.685

Romania

8.037

6.685

Russia

16.730

12.570

Ukraine

8.037

12.622

United Arab Emirates

8.037

10.490