TAX NEWS – Changes in the limitation of tax deductibility of interest costs from 1 January 2024

In relation to the coming year end of 2023 we would like to bring to your attention the new provisions of Art 17k of the Slovak Income Tax Act („SITA“) related to the limitation of interest costs tax deductibility which will be effective from 1 January 2024.

 

The limitation of interest costs according to Art 17k SITA will be applied to all legal entities, not only to related. The aforementioned provision will be applied to interest costs in preference to the thin capitalization rules (Art 21a SITA), which are currently applied only to related companies.

 

In case of legal entities whose business activity is focused on debt financing, such as e.g. banks, insurance companies, asset management companies and other entities, precisely defined by SITA – an exception will apply and the aforementioned provision of interest costs limitation will not be applied to their expenses/costs.

 

The limitation of the tax deductibility of interest costs is applied 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.

 

For purposes of this provision, the extended definition of interests applies. 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). In contrary to the thin capitalization rules, interests that are included in the acquisition price of asset or own costs will be limited by the interest cost limitation rules.

 

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.

 

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.

 

It is good to keep on mind this provision when negotiating new terms of contract for financing, respectively the timing of conclusion the contracts or amendments.

 

In case of any additional questions, we are at your disposal.