Federal Law No. 25-FZ amending the thin capitalization rules was passed by the Parliament on 15 February 2016. As per the amended thin capitalization rules, interest on loans from banks and Russian companies will not be subject to the thin capitalization rules, under certain conditions. The Law No. 25-FZ also extends the scope of the thin capitalization rules to include loans from foreign related parties that do not hold a direct or indirect interest in a Russian borrower. The law sets forth that the interest expenses, which are not deductible for corporate income tax purposes under the thin capitalization rules, qualify as dividends and are taxed accordingly. The law will enter into force on 1 January 2017.
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