Change of the arm’s length interest rate for loans between affiliated companies
Newsletter – 11.01.2024
On 28 December 2023, the decision on the interest rate for loans between affiliated companies was published in the Croatian Official Gazette no. 157/2023. The new rate for tax-deductible interest for 2024 has been set at 3.25 %; it also applies to existing loan agreements.
The amendment affects both, the tax deductibility of interest expenses on loans received and the recognition of interest income on loans granted between affiliated companies. The same applies to financing between resident affiliated companies, in case, in which an affiliated company makes use of a preferential tax treatment (reduced profit tax rate or profit tax exemption) or if an affiliated company is entitled to utilise tax losses from previous tax periods.
For the assessment of the arm’s length nature of financing between affiliated companies, the taxpayer may also use a different interest rate in addition to the interest rate published by the Minister of Finance, provided however that evidence can be given that the different interest rate is arm’s length and applicable to all financing agreements.