Taxation of Interest

  • Interest earned from financing activities is taxed as ordinary business income at a rate of 12.5% (after deducting all business expenses).
  • Transfer pricing

In case of financing companies, having back-to-back loan arrangements between related companies, should charge interest at an arm’s length basis. To determine the rate that will be acceptable by the tax authorities, a Transfer Pricing study needs to be performed. The study should determine the rate that independent entities would have charged taking into account the risks undertaken.

  • If interest does not qualify as business income, then it is subject to SDC at a rate of 30%.

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