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 used, in each case plus three percentage points. The bond yield rates to be used are as of December 31 of the year preceding the assessment year.

The Tax Department recently announced the 10-year government bond yields as of December 31 2017, which will be used as the basis for the notional interest deduction for the 2018 tax year for the following countries.

 

Bond yield rate

at the end of 2017

Reference rate for 2018

Austria

0.563%

4.881%

Canada

2.079%

5.079%

China

4.268%

7.268%

Croatia

2.453%

5.453%

Cyprus

1.881%

4.881%

Czech Republic

1.65%

4.881%

Estonia

0.715%

4.881%

France

0.78%

4.881%

Germany

0.423%

4.881%

Greece

4.073%

7.073%

Hungary

2.031%

5.031%

India

7.571%

10.571%

Italy

2.005%

5.005%

Luxembourg

0.637%

4.881%

Netherlands

0.501%

4.881%

Norway

1.579%

4.881%

Poland

3.385%

6.385%

Ireland

0.811%

4.881%

Romania

4.314%

7.314%

Russia

7.59%

10.59%

Russia

3.822%

6.822%

Serbia

5.968%

8.968%

Slovakia

0.815%

4.881%

Slovenia

0.843%

4.881%

South Africa

8.78%

11.78%

Spain

1.558%

4.881%

Sweden

0.54%

4.881%

United Kingdom

1.188%

4.881%

United States

2.406%

5.406%

For countries whose bond yield is lower than that of Cyprus, the reference rate will be the Cyprus rate of 4.881%.

For further information on this topic please contact Philippos Aristotelous at Elias Neocleous & Co LLC by telephone (+357 25 110 110) or email (philippos.aristotelous@neo.law). The Elias Neocleous & Co LLC website can be accessed at www.neo.law.

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