What is NID?
The Notional Interest Deduction (NID) is a powerful tax incentive that allows Cypriot companies to reduce their taxable profits through a notional interest deduction calculated on new equity capital injected into the company.
How Does It Work?
If a shareholder contributes, for example, €100,000 as new equity and the applicable NID interest rate is 7%, the company is entitled to deduct €7,000 from its taxable profits.
The deduction cannot exceed 80% of the company’s total taxable profits for the year.
Advantages
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Reduction of corporate income tax
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Encourages the use of equity financing instead of debt
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Can be combined with the IP Box regime for further tax optimization
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Ideal for startups, holding companies, and technology-driven businesses
Example
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Share Capital: €60,000
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Profits: €40,000
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NID Interest Rate: 7.98%
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NID Deduction: €4,788
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Taxable Profit: €35,212
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Corporate Tax (12.5%): €4,401
Conclusion
NID is an excellent tax optimization tool and one of the key reasons why Cyprus is considered an attractive jurisdiction for company formation.
Contact us to learn how you can effectively apply NID to your business structure.
