Calculation of thin capitalization

Thin Capitalization Rules: GLS Law Company Consultations

Thin capitalization (TC) refers to the taxation rule for interest on loans. It is often used as a means to combat tax evasion. It’s noteworthy that the size of the loans is typically significantly larger than the capital of the organization — more than 3.5 times larger.

If thin capitalization interests you, our experts can calculate the interest limit. This needs to be done correctly, as otherwise, TC could be considered a method of tax optimization or even an attempt to evade taxes. This is where companies might encounter problems with regulatory authorities.

Contact our professionals to order consulting services and learn more about the thin capitalization rules. Subsequently, we can make the correct calculation of limits for you, using appropriate formulas and coefficients.

Conditions for Applying Thin Capitalization Rules

The thin capitalization rule usually applies to the debt of a company arising before:

• A Ukrainian organization recognized as an affiliated person of a foreign company.
• A foreign firm that owns more than 20% of the statutory capital of a Ukrainian company.

Note that there are conditions under which the thin capitalization rules do not apply. For example, the calculation is not conducted for the amount of interest accrued in favor of:

• Financial companies engaged solely in leasing activities.
• International credit companies, if the fulfillment of debt obligations is secured by state guarantees.
• Various financial organizations or foreign banks.

Features of Applying the Thin Capitalization Rule

There are several nuances regarding the application of thin capitalization by Ukrainian organizations. Let’s consider the main ones:

• All interest on debt obligations accrued to non-residents can be accounted for in the tax records at no more than 30% of the amount for the reporting period.
• Sometimes, the amount of interest expenses for controlled transactions is determined based on the “arm’s length” principle. In such a situation, the thin capitalization rules apply only to this specific amount.
• In the portion of depreciation deductions, interest capitalized as part of the cost of non-current assets can be considered.

How to Order a Thin Capitalization Calculation from GLS Law Company

If you have questions about the thin capitalization rules, reach out to our agency. The lawyers at GLS Law Company offer a wide range of services in the field of company taxation. For example, experts study the current changes in the thin capitalization rules, assess their impact on your specific business, and more.

Leave a request on our website or call our lawyers at the contact numbers. You can also contact us via messengers like Viber, Telegram, WhatsApp. During a personal consultation, we will discuss with you the details of the order and the approximate price of the services.