The EU Code of Conduct Group (Business Taxation) (the “Group”) issued a report on 20 November 2020, which was approved by ECOFIN on 27 November 2020, through which the Cyprus Notional Interest Deduction (NID) regime has been assessed as “not harmful”.
By way of background, the Cyprus NID regime first came into effect on 1 January 2015, allowing Cypriot companies carrying out business activities to claim a notional tax deduction against taxable income generated through application of new equity. Since 2018, the EU Code of Conduct Group had carried out a review of the NID regimes of all EU Member States from a harmful tax perspective. Based on the Group’s recommendations, the Cyprus Parliament approved and enacted into law certain amendments to the provisions of the NID regime in June 2020.
Following these amendments, the Group published its decision to classify the Cyprus NID regime as not harmful in its report dated 20 November. The relevant report can be found here.
The NID regime is a powerful tool enabling companies to deleverage by replacing debt with equity financing. The positive outcome of the Group’s review should serve to dispel and doubts or concerns as to the continuation of the regime for the foreseeable future.