Deduction on New Equity (Article 9B), was introduced on the 16th of July 2015 with effective date the 1st of January 2015. According to this new article, all Cyprus tax resident companies and Cyprus permanent establishments of non-tax resident companies are allowed a notional interest deduction (NID) if they introduce new equity to their companies for the production of taxable income.

This deduction is granted annually, for as long as the equity is used in the company. On the 18th of July 2016, the Cyprus Tax Authorities issued a following circular (2016/10) with more details and practical examples of the application of the new law, since the initial article 9B was considered broad.


  • NID was introduced to assist with the non-equal treatment between equity finance and debt finance, along with promoting capital investments in Cyprus. Before NID, debt financing was in general considered as tax deductible; while on the other hand equity financing was not.
  • NID is a new tool that enables local and international companies to obtain a tax efficient return on their new, qualifying equity.
  • To support and boost small and medium-sized companies.
  • Can be used simultaneously with other incentives in Cypriot tax law such as intellectual property regime.


NID = New Equity * NID Reference Interest Rate.

In order to reach the amount of allowable tax deduction, new equity must be multiplied by the reference interest rate.

All elements of the above formula are explained in detail below:

New Equity is defined as any one of the below:

  • Any paid-up share capital (ordinary, preference, redeemable, convertible) and/or share premium added after the 1st of January 2015
  • Loans payable converted into issued share capital
  • Shareholders’ credit balance converted into issued share capital
  • Non-refundable capital contribution converted into issued share capital
  • Any realized reserves that existed before 01/01/2015, that were converted into issued share capital, will be qualified as new equity only in the event that it can be proven that before conversion the reserves were employed for assets of non-taxable activity, while after conversion the reserves will be employed for assets of taxable activity.

New equity can be injected into the company either in cash or in kind. In the event that the new equity is in the form of an asset, the new equity must not be higher than the market value of the asset.

All the above forms of new equity must be used to generate taxable income to either:

  • A Cyprus tax resident company.
  • A permanent establishment maintained by a non-Cyprus tax resident entity in Cyprus

NID reference interest rate: Is defined as the 10 year government bond yield, (as of 31 December of the previous tax year) of the country in which the new equity has been injected, increased by 3% premium. NID is subject to a minimum. This minimum is the 10 year Cyprus Government bond plus 3% premium. The Cyprus Tax Department annually publishes the 10-year government bond yields for a number of countries that is helpful in reaching reference rates.


The following rules apply to the calculation of the above formula:

  • NID must not exceed 80% of the company’s/Permanent Establishments taxable income that was generated from the new equity. This taxable income is calculated before the application of NID.
  • NID should be calculated each year since variables such as reference rates and taxable income will be different each year.
  • This interest deduction is notional; therefore no accounting entry is accounted for and there is no effect on the company’s accounting profit or loss.


Please see below a simple illustration example of how to reach the NID amount that will be used in the tax computation:

A company has introduced new equity of €2,000,000

NID reference interest rate to be used is: 9%

Taxable profit (Before NID) = €400,000

NID: New Equity * NID Reference interest rate: €2,000,000 * 9% = €180,000

Taxable profit after NID: €220,000.