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13.2. Thin-capitalization and other Restrictions to Interest Deduction

There are no thin-capitalization rules under DRC tax legislation. However, the deduction of interest charges may be limited or disallowed under a number of tax law provisions as follows:

  • Interest paid to shareholders of companies other than stock companies are deductible only if not excessive;
  • Interest paid to non-resident shareholders or other non-resident persons who are directly or indirectly related to the person in any way are deductible only if (a) the principal is repayable within 5 years at most, and (b) the interest rate does not exceed the average annual financing rate used by credit institutions in the country of residence of the lender.

The new 2018 Mining law further introduced a rule whereby interest paid by the holder of a mining title to a non-resident are deductible only if (a) the loan was effectively used for a mining investment, and (b) the interest rate applied does not exceed the average annual financing rate used by credit institutions in the country of the lender, as confirmed by data provided by the DRC Central Bank.

The transfer pricing rules also refer to the requirement for financing transactions to be at arm’s length (see below).