Does my mid-market Cyprus Ltd hit Article 11A?

Most don't — the €3M de minimis means net interest below €3M is fully deductible. Affected: large interest-heavy structures (leveraged buyouts, real-estate vehicles, intragroup financing). Most SaaS / IT / consulting Cyprus Ltds have minimal third-party debt + are below €3M de minimis.

Can I avoid Article 11A through equity-funding?

Yes — equity funding doesn't have interest expense, so no Article 11A issue. Plus Cyprus NID (Notional Interest Deduction, Article 9B) provides a notional-interest deduction for new equity. Equity-funding-heavy structures avoid Article 11A entirely.

How does the carry-forward work in practice?

Disallowed interest carries forward up to 5 years. Each subsequent year's cap is recomputed; carried-forward interest can be utilised against future-year cap headroom. After 5 years, unused carry-forward expires.

Does the group-ratio override apply automatically?

No — elected by taxpayer. Cyprus group-level EBITDA + interest must be computed + supported by group financial statements. Where group ratio > 30%, election usually beneficial; where group ratio < 30%, standalone cap better.

What about transfer-pricing interaction?

TP rules first set arm's-length interest rate. Article 11A then caps the deductibility of that arm's-length-rate interest. Both layers apply. Non-arm's-length interest may face TP recharacterisation + Article 11A cap simultaneously.

Does IP Box affect the EBITDA base?

EBITDA for Article 11A is tax-adjusted EBITDA — adjusted for non-deductible items, depreciation add-backs, etc. IP Box deduction reduces taxable profit but doesn't directly affect EBITDA for Article 11A purposes. Verify the specific calculation methodology with Cyprus tax adviser.

What if my Cyprus Ltd has interest income > interest expense?

Net interest income (not net borrowing cost): no Article 11A issue. Article 11A applies only where net borrowing cost (expense > income) is positive. Intra-group lender entities + cash-rich structures often have net interest income + are unaffected.

Corporate Tax

Cyprus Thin-Capitalisation Worked Example 2026 — €5M Net Interest, EBITDA €10M, Cap Application

Q: What about transfer-pricing interaction?

TP rules first set arm's-length interest rate. Article 11A then caps the deductibility of that arm's-length-rate interest. Both layers apply. Non-arm's-length interest may face TP recharacterisation + Article 11A cap simultaneously.

Q: Does IP Box affect the EBITDA base?

EBITDA for Article 11A is tax-adjusted EBITDA — adjusted for non-deductible items, depreciation add-backs, etc. IP Box deduction reduces taxable profit but doesn't directly affect EBITDA for Article 11A purposes. Verify the specific calculation methodology with Cyprus tax adviser.

8 min readLast updated: May 2026

By Nexora Cyprus editorial team · General information — seek advice for your circumstances

Recap

Cyprus Article 11A ITL 118(I)/2002 (transposing ATAD I Article 4) caps net deductible borrowing costs at the HIGHER of (a) 30% of EBITDA or (b) €3,000,000 de minimis. Excess interest is non-deductible in current year + carries forward up to 5 years. Group-ratio override available where standalone ratio is below group ratio.

1. Worked example — HypoCo Ltd

HypoCo Ltd, a Cyprus Ltd in 2026:

Revenue: €40,000,000.
EBITDA (tax-adjusted): €10,000,000.
Interest expense (related-party loan): €5,500,000.
Interest income (deposit + intra-group): €500,000.
Net borrowing costs: €5,000,000 (€5.5M expense − €0.5M income).

2. Cap calculation

30% of tax-adjusted EBITDA = 30% × €10,000,000 = €3,000,000.
€3M de minimis: €3,000,000.
Higher of (€3M EBITDA cap, €3M de minimis) = €3,000,000.
Net borrowing costs €5,000,000 vs cap €3,000,000.
Deductible interest: €3,000,000.
Non-deductible (excess): €2,000,000.

3. Tax outcome

Deductible net interest: €3,000,000.
Carry-forward to Years 2-6: €2,000,000.
Taxable profit (before IP Box / other deductions): EBITDA €10M − Deductible interest €3M = €7M.
CIT at 15%: €1,050,000.
Carry-forward of €2M into Year 2 — utilised if Year-2 EBITDA + net-interest permits.

4. Group-ratio override scenario

If HypoCo Ltd is part of a consolidated group with higher group-level interest-to-EBITDA ratio:

Group consolidated EBITDA: €100,000,000.
Group consolidated net interest: €40,000,000.
Group interest-to-EBITDA ratio: 40% (higher than 30% standalone cap).
Group-ratio override: HypoCo can deduct up to 40% of its EBITDA = 40% × €10M = €4,000,000.
Improved deductible vs standalone €3M cap. Carry-forward shrinks to €1M.

5. Sub-€3M de minimis scenario

If HypoCo's net interest is only €2,800,000:

€3M de minimis kicks in — net interest below €3M fully deductible.
All €2,800,000 deductible.
Higher of (€3M EBITDA × 30% = €3M) or (€3M de minimis) = €3M ≥ net interest → fully deductible.
No carry-forward.
Practical: most mid-market Cyprus Ltds with net interest < €3M are unaffected by Article 11A.

6. Anti-abuse — financial undertakings

Financial undertakings (regulated banks, insurance companies, regulated investment firms) — partial / full exemption under ATAD II + Cyprus implementation.
Long-term public infrastructure projects — case-specific exemption.
Standalone entities (not part of consolidated group + no related-party borrowing) — partial exemption.
Real-economy industrial / production companies — fully subject.

Official verification starting points

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.

Frequently Asked Questions

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AuthorNexora Cyprus editorial teamLast updatedMay 2026

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.

— References linked in this article

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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Corporate Tax

Cyprus Thin-Capitalisation Worked Example 2026 — €5M Net Interest, EBITDA €10M, Cap Application

8 min readLast updated: May 2026

By Nexora Cyprus editorial team · General information — seek advice for your circumstances

Recap

1. Worked example — HypoCo Ltd

HypoCo Ltd, a Cyprus Ltd in 2026:

Revenue: €40,000,000.
EBITDA (tax-adjusted): €10,000,000.
Interest expense (related-party loan): €5,500,000.
Interest income (deposit + intra-group): €500,000.
Net borrowing costs: €5,000,000 (€5.5M expense − €0.5M income).

2. Cap calculation

30% of tax-adjusted EBITDA = 30% × €10,000,000 = €3,000,000.
€3M de minimis: €3,000,000.
Higher of (€3M EBITDA cap, €3M de minimis) = €3,000,000.
Net borrowing costs €5,000,000 vs cap €3,000,000.
Deductible interest: €3,000,000.
Non-deductible (excess): €2,000,000.

3. Tax outcome

Deductible net interest: €3,000,000.
Carry-forward to Years 2-6: €2,000,000.
Taxable profit (before IP Box / other deductions): EBITDA €10M − Deductible interest €3M = €7M.
CIT at 15%: €1,050,000.
Carry-forward of €2M into Year 2 — utilised if Year-2 EBITDA + net-interest permits.

4. Group-ratio override scenario

If HypoCo Ltd is part of a consolidated group with higher group-level interest-to-EBITDA ratio:

Group consolidated EBITDA: €100,000,000.
Group consolidated net interest: €40,000,000.
Group interest-to-EBITDA ratio: 40% (higher than 30% standalone cap).
Group-ratio override: HypoCo can deduct up to 40% of its EBITDA = 40% × €10M = €4,000,000.
Improved deductible vs standalone €3M cap. Carry-forward shrinks to €1M.

5. Sub-€3M de minimis scenario

If HypoCo's net interest is only €2,800,000:

€3M de minimis kicks in — net interest below €3M fully deductible.
All €2,800,000 deductible.
Higher of (€3M EBITDA × 30% = €3M) or (€3M de minimis) = €3M ≥ net interest → fully deductible.
No carry-forward.
Practical: most mid-market Cyprus Ltds with net interest < €3M are unaffected by Article 11A.

6. Anti-abuse — financial undertakings

Financial undertakings (regulated banks, insurance companies, regulated investment firms) — partial / full exemption under ATAD II + Cyprus implementation.
Long-term public infrastructure projects — case-specific exemption.
Standalone entities (not part of consolidated group + no related-party borrowing) — partial exemption.
Real-economy industrial / production companies — fully subject.

Official verification starting points

Related Guides

Frequently Asked Questions

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AuthorNexora Cyprus editorial teamLast updatedMay 2026

— References linked in this article

Read each reference alongside the claim it accompanies and check current amendments before relying on it. General information — seek advice for your circumstances.

Corporate Tax

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Our experts are ready to answer your questions.

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Initial discussion · No obligation

Cyprus Thin-Capitalisation Worked Example 2026 — €5M Net Interest, EBITDA €10M, Cap Application

1. Worked example — HypoCo Ltd

2. Cap calculation

3. Tax outcome

4. Group-ratio override scenario

5. Sub-€3M de minimis scenario

6. Anti-abuse — financial undertakings

Official verification starting points

Frequently Asked Questions

Cyprus Corporate Tax 2026: 15% Rate, 0% on Dividends & Capital Gains — Full Guide

Cyprus Dividend Tax Planning: SDC, Non-Dom, and the Holding Stack

Cyprus Transfer Pricing Rules: Arm's Length, Documentation & CBCR

Need Help With Your Cyprus Setup?

Cyprus Thin-Capitalisation Worked Example 2026 — €5M Net Interest, EBITDA €10M, Cap Application

1. Worked example — HypoCo Ltd

2. Cap calculation

3. Tax outcome

4. Group-ratio override scenario

5. Sub-€3M de minimis scenario

6. Anti-abuse — financial undertakings

Official verification starting points

Frequently Asked Questions

Cyprus Corporate Tax 2026: 15% Rate, 0% on Dividends & Capital Gains — Full Guide

Cyprus Dividend Tax Planning: SDC, Non-Dom, and the Holding Stack

Cyprus Transfer Pricing Rules: Arm's Length, Documentation & CBCR

Need Help With Your Cyprus Setup?

1. Worked example — HypoCo Ltd

2. Cap calculation

3. Tax outcome

4. Group-ratio override scenario

5. Sub-€3M de minimis scenario

6. Anti-abuse — financial undertakings

Official verification starting points

Frequently Asked Questions

01Does my mid-market Cyprus Ltd hit Article 11A?

02Can I avoid Article 11A through equity-funding?

03How does the carry-forward work in practice?

04Does the group-ratio override apply automatically?

05What about transfer-pricing interaction?

06Does IP Box affect the EBITDA base?

07What if my Cyprus Ltd has interest income > interest expense?

Cyprus Corporate Tax 2026: 15% Rate, 0% on Dividends & Capital Gains — Full Guide

Cyprus Dividend Tax Planning: SDC, Non-Dom, and the Holding Stack

Cyprus Transfer Pricing Rules: Arm's Length, Documentation & CBCR

Need Help With Your Cyprus Setup?

1. Worked example — HypoCo Ltd

2. Cap calculation

3. Tax outcome

4. Group-ratio override scenario

5. Sub-€3M de minimis scenario

6. Anti-abuse — financial undertakings

Official verification starting points

Frequently Asked Questions

01Does my mid-market Cyprus Ltd hit Article 11A?

02Can I avoid Article 11A through equity-funding?

03How does the carry-forward work in practice?

04Does the group-ratio override apply automatically?

05What about transfer-pricing interaction?

06Does IP Box affect the EBITDA base?

07What if my Cyprus Ltd has interest income > interest expense?

Cyprus Corporate Tax 2026: 15% Rate, 0% on Dividends & Capital Gains — Full Guide

Cyprus Dividend Tax Planning: SDC, Non-Dom, and the Holding Stack

Cyprus Transfer Pricing Rules: Arm's Length, Documentation & CBCR

Need Help With Your Cyprus Setup?