In accordance with Article 14 paragraph, 3 of Profit Tax Act, the Minister of Finance has declared that the arm’s length interest rate on loans between related parties is 3.96% per annum, effective 1 January 2019. Stated interest rate decreased from the previous year when it was 4,55%.
The rate at 3,96% is the minimum interest rate to be charged when a taxpayer lends loans to affiliated person – non-resident. If such rate is not charged (or have been charged less) then interest rate (or the difference between the lower interest and the interest at the prescribed rate) should be added to the PD form as an increase in the tax base. This rate also applies to loans received from related person – non-resident. If interest is paid to non-resident at a rate higher than 3,96%, the difference above the interest rate is also added to the PD form as an increase in the tax base.
The rate at 3,96% is also applied for loans between related persons – residents if one of them has preferential tax position (i.e. pays profit tax at rates below the prescribed rate or is exempt from taxation of income tax) or has in the tax period the right to transfer tax losses from previous tax periods.