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EY Romania: în 2018, the gov't wants to narrow the deduction of business loan interests and financing
Beginning next year, the gov't wants to narrow the deduction of business loan interests and financing, according to a draft law amending the Tax Code posted on the Public Finance Ministry (MFP)'s website, Alexander Milcev, EY Romania partner, Tax and Legal practice leader, said.
There are certain thresholds. The figure I've seen: interests up to EUR 200,000 are deductible. It is not a problem for a small or medium-sized enterprise, but if we talk about a bank or a very large company, be it with foreign or running on Romanian private capital, there could be a petty sum, especially if the loans amount to hundreds of euros are involved and the annual interest rates are worth millions or tens of millions of euros, Alexander Milcev said.
He added that the reason why the gov't wishes to enforce these measures as of 2018 without any prior consultations with the business milieu is unknown.
According to him, a lot of financing instruments carry interest rates and the interests are small, yet in order to draw capital, such as the stock exchange, the company must promise the investors higher revenues, and not at the current level of interest rates, which is 1-2 pct.
Sometimes, for a multinational company with a very good credit rating, it is way cheaper to borrow from a credit bank with 1-2 pct in USD instead of issuing bonds or underwriting new shares at the stock exchange with the promise to win a higher percentage. Investors want 5-6 pct, significantly higher than what a simple deposit can offer, so the bank loan for the one who is looking for financing could be more attractive, Milcev concluded.