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Tax News: Limitation of interests from 2024
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When computing the tax base for the year 2024 it is necessary to consider a new interest cost limitation rule in line with Art. 17k of the Slovak Income Tax Act (“SITA”) which is applied in preference to the still valid thin capitalization rules (Art. 21a SITA).
Who applies the interest cost limitation rule?
The limitation of the tax deductibility of interest costs applies to all legal entities, not only to related.
The exception relates to legal entities whose business activity is focused on debt financing, such as banks, insurance companies, asset management companies and other entities, precisely defined by SITA.
The interest cost limitation rule applies to the interest cost in preference to the thin capitalization rule (Art. 21a SITA), which applies to the related companies only.
The thin capitalization rule (Art. 21a SITA) does not apply if the taxpayer increases the tax base based on the new interest cost limitation rule (Art 17k SITA).
Adjustment of the tax base
The limitation of the tax deductibility of interest costs applies to the taxpayers whose net interest costs (the amount by which expenses for the credits and loans received exceeds the amount of interest income and other income economically equal to interest income) exceed EUR 3,000,000.
In such a case, the tax base will be increased by the amount by which the net interest costs exceed 30% of the so-called "tax EBITDA", i.e. tax base increased by net interest costs and tax depreciation costs included in the tax base.
Extended definition of interests
Expenses (costs) for credit and loans are considered interest costs related to all types of debt, other costs economically equal to the interests, expenses incurred in connection with achieving financial funds (e.g. also interest on bonds, interest on financial lease, fees for guarantees, other fees related to loans and credits).
Also interests that are included in the acquisition price of asset or own costs will be limited by the interest cost limitation rules.
Deductibility from the tax base
Net interest cost not included in the tax base due to above-mentioned provisions can be deducted from the tax base during next five consecutive tax periods at the latest.
Transitional provisions
This provision will be applied to the net interest costs incurred on the basis of contracts concluded after 31 December 2023, or amendments concluded after 31 December 2023 to contracts concluded before this date.
NOTE - application on amended contracts concluded until 31 December 2023
For the purpose of application of this provision, it is necessary that amendments from 1 January 2024 to contracts concluded until 31 December 2023 are considered primarily in the context of their subject and content.
If the amendment has an impact on conditions relevant for the application of the provision of interest cost limitation (e.g. change of the interest rate, the person of the borrower, extension of the loan maturity period, early repayment of the loan, which was not agreed in original contract), it is considered as amendment to the contract, regardless of the form of the legal document containing these changes. Thus, the provision on limitation of the interest cost may under such situation apply also on contracts concluded until 31 December 2023
However, if the subject of the adjustment are changes in facts that do not have a relevant impact on the application of the provision on the interest costs limitation (e.g. change of address of the registered office, etc.) they are not considered as an amendment to the contract according to the transitional provision. |
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FOR MORE INFORMATION PLEASE CONTACT US PRE VIAC INFORMÁCIÍ NÁS NEVÁHAJTE KONTAKTOVAŤ office.bratislava [at] fal-con.eu () |
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