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06 October 2017
Article 9(B) of the Income Tax Law 2002, as amended, provides for a notional interest deduction for tax purposes on new equity capital (ie, paid-up share capital and share premium) injected into companies and permanent establishments of foreign companies on or after January 1 2015 to finance 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 utilised, plus three percentage points. The bond yield rates to be used are those as of December 31 of the year preceding the assessment year.
The Tax Department has already published the bond yields and reference rates for most of the major investment destinations, including:
The Tax Department recently announced the bond yields for Greece, Italy and Kazakhstan at December 31 2015 and 2016, which will be used to calculate the notional interest deduction for the 2016 and 2017 tax years, respectively.
|Bond yield at December 31 2015||Bond yield at December 31 2016|
As the bond yield rate for Italy at both year-ends is lower than the rate for Cyprus, the Cyprus rate of 3.685% at December 31 2015 and 3.489% at December 31 2016 is used to calculate the notional interest deduction for Italy, resulting in the following reference rates for the notional interest deduction.
|2016 tax year||2017 tax year|
For further information on this topic please contact Philippos Aristotelous at Elias Neocleous & Co LLC by telephone (+357 25 110 110) or email (email@example.com). The Elias Neocleous & Co LLC website can be accessed at www.neo.law.
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