To prevent excessive debt financing and to ensure that debt financing used in or resulting from certain specific intra-group transactions will only be deductible if there is a valid commercial reason for obtaining the loan, the Corporate Tax Law places certain restrictions on the deductibility of interest expenditure.
General interest deduction limitation rule:
Businesses may deduct net interest expenses up to 30% of their profits before interest, tax, depreciation, and amortization (EBITDA), excluding any exempt revenue, if their net interest expenses exceed a threshold that will be determined by the Minister. Any excess net interest expense may be carried forward and applied over the following ten tax periods.
The general interest deduction limitation regulation will not apply to businesses with net interest expenses below the threshold that the Minister will determine.
For banks and other financial institutions, insurance companies, and private persons, the general interest deduction limitation rule will not be applicable.
Specific interest deduction limitation rule:
The interest on a loan from a Related Party that is used to finance income that is exempt from CT is not deductible unless the taxpayer can show that the main goal of getting the loan and carrying out the transaction was not to gain a CT advantage.