Starting from 1 January 2018, in determining the amount of interests as deductible for CIT purposes, the 4:1 debt equity ratio will no longer be used. The amount of “surplus interest expenses” exceeding 30% of the EBITDA (earnings before interest, taxes, depreciation and amortisation) will now be considered as non-deductible for CIT purposes.
Surplus interest expenses is the difference between the interest expenses and interest income.
Interest expenses not deducted as per the above requirements are carried forward for future tax periods, provided that not more than 50% of direct or indirect ownership of the share capital or voting rights of the company are transferred.
The thin capitalization rules do not apply to banks, non-banking lending financial institutions, insurance and leasing companies