By Nexora Cyprus editorial team · General information — seek advice for your circumstances
The rule
Cyprus's Interest Limitation Rule (Article 11A Income Tax Law 118(I)/2002) caps net deductible borrowing costs at the HIGHER of (a) 30% of EBITDA or (b) €3,000,000 (de minimis). Any excess interest is NON-DEDUCTIBLE in the current year — but can carry forward up to 5 years.
EU Anti-Tax-Avoidance Directive I (Directive 2016/1164) introduced common base-erosion rules across the EU, including the interest-limitation rule in Article 4. Cyprus transposed this into Article 11A of the Income Tax Law from 1 January 2019. The rule is permanent and aligned with the OECD BEPS Action 4 framework.
Net borrowing costs (interest expenses minus interest income) deductible up to 30% of TAX-ADJUSTED EBITDA (earnings before interest, tax, depreciation, amortisation, adjusted for non-deductible items).
Net borrowing costs UP TO €3,000,000 are fully deductible regardless of the 30% EBITDA cap. This carves out most SMEs and mid-market Cyprus entities. Only entities with net interest above €3M are practically affected by the cap.
ATAD Article 4 allows an optional GROUP-RATIO override — entities part of a consolidated group can deduct interest up to the group's overall interest-to-EBITDA ratio if higher than 30%. Cyprus has implemented this option. Useful for highly-leveraged groups where the standalone Cyprus entity's ratio would otherwise be capped.
Non-deductible interest in Year 1 carries forward to Years 2-6 (5-year window). Each subsequent year's cap is recalculated; carried-forward interest is added to that year's deductible amount, still subject to the new year's cap.
Cyprus Tax Department documents and Cyprus Tax Reform 2026 material publish the controlling material for this topic. Check the current law, form, circular or portal instructions before acting; this article is general information and the live official material prevails.
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Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws change frequently. Consult a qualified Cyprus adviser for guidance specific to your situation. The information on this page is general guidance only and does not constitute legal, tax, accounting, immigration or financial advice. Specific advice should be obtained based on the facts of each case.
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Read each reference alongside the claim it accompanies and check current amendments before relying on it. General information — seek advice for your circumstances.
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