Limitation of interest costs tax-deductibility

Limitation of interest costs tax-deductibility

Limitation of interest costs tax-deductibility
Legal entities that finance or plan to finance their business activities to a significant extent from external sources have the last few months to evaluate and consider the implications of the changes in the income tax law regarding the limitation of tax-deductible interest costs and prepare for the changes before the new rules take effect.

The new regulation, limiting the extent of tax-effective interest costs, becomes effective from January 1, 2024. New rules will apply for interest costs paid based on new contracts (loan agreements, loan contracts, issued bonds, financial lease agreements, etc.) as well as to amendments to existing loan agreements made after December 31, 2023.

The limitation on the tax deductibility of interest costs will apply to taxpayers whose net interest costs (calculated as the positive difference between interest costs and interest income) exceed the amount of 3,000,000 EUR. In such a case, the taxpayer will be obliged to increase the tax base by the net interest costs exceeding 30% of the value of the so-called tax EBITDA indicator.

Net interest costs excluded from the tax base of the respective tax period can be deducted from the tax base of next five consecutive succeeding tax periods. However, please note, the limitation of the total amount of deducted net interest costs in each tax period must be considered.

The thin capitalisation rule (§21a of the income tax law) remains effective, with the new rule limiting the tax deductibility of interest costs applied first. If the new rule is applied, the thin capitalisation rule will not be applied in the given tax period.

Tax advisory

Our expert

Katarína Ďuriačová
Katarína  Ďuriačová 
Tax Manager
Crowe Slovakia