The Lower House of Parliament adopted the amended final version of thin capitalization rules after approval by the Higher House of Parliament on 29 August 2014 and it is very likely new legislation will enter into force from 1 January 2015.
This new law revised Article 16 (Corporate income tax law), which retained general thin capitalization rules, and it would replace the previous 3:1 debt-to-share capital ratio with a lower debt-to-equity ratio of 1:1. The new regulations will be much broader any indirectly or directly related entity which for the purposes of this method means a minimum shareholding of 25% (generally parent and sister companies’ fall within the legislation). According to the draft law, interest expense deduction of loans (both related and unrelated parties) would be restricted to 50% depending on a taxpayer’s operational profits.
