Cyprus Notional Interest Deduction (NID): A Valuable Tax Incentive for Businesses

Cyprus offers an attractive tax incentive for companies financing their operations through equity rather than borrowing: the Notional Interest Deduction (NID).

With Cyprus’s corporate income tax rate now at 15% from 1 January 2026, NID remains an important tax-planning opportunity for businesses operating in Cyprus.

What is NID?

Introduced in 2015, NID allows qualifying companies to claim a tax deduction on new equity introduced into their business, such as paid-up share capital or share premium.

Unlike conventional interest expenses, the deduction does not require the company to pay interest. Instead, a notional interest amount is calculated on the qualifying equity invested in income-generating business activities.

How does it work?

The deduction is calculated using a reference interest rate based on the 10-year government bond yield of the country where the new equity is invested, plus 5 percentage points.

The deduction is limited to 80% of the taxable profit generated by the qualifying equity.

This means that, where the maximum deduction applies, the effective corporate tax rate on those qualifying profits could be reduced from 15% to just 3%.

A practical example

Consider a Cyprus company with:

• €1,000,000 in qualifying new equity.

• €100,000 in taxable profit generated by that investment.

• An assumed NID reference interest rate of 8%.

The calculated NID would be €80,000, reducing taxable profit from €100,000 to €20,000.

At the 15% corporate tax rate, the company’s tax liability would fall from €15,000 to €3,000 — a potential annual tax saving of €12,000.

This is an illustrative example. Actual eligibility and deductions depend on the company’s circumstances and applicable reference rates.

How can COSMOSERVE and UHY assist?

At COSMOSERVE and UHY, we assist businesses with Cyprus company formation, corporate structuring, tax planning and ongoing compliance.

Our specialists can assess whether NID may apply to your company and help you structure and document qualifying equity investments appropriately.

Considering investing in or expanding your business through Cyprus? Contact our team to explore the opportunities available.

This article provides general information and should not be considered tax advice. NID eligibility is subject to statutory conditions, anti-avoidance provisions and the specific circumstances of each company.