MIRA amends Thin Cap rules

On 27 December 2018, the MIRA issued Ruling B68 which amends Thin Capitalisation rules issued by the MIRA via Ruling B64.

Ruling B64, introduced back in 26 April 2018, concerns thin capitalisation rules with respect to the deduction of interest payments on loans and other debt instruments and financing arrangements. Ruling B68 raises the cap on the interest from 25% to 30% of the tax­-EBITDA. Tax EBITDA is based on the taxable profit for the period and is calculated before the deduction of loss relief, interest expense and capital allowances.

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Ruling B68 now permits interest payments made to banks, housing finance companies and leasing finance companies registered with the Maldives Monetary Authority and operated in the Maldives, to be deducted in full. The Ruling also allows interest payments to a bank or financial institution approved by the MIRA to be deducted in full, for debts used to finance health services and education services provided by a service provider registered with the relevant government authority

The Ruling requires lessees to classify leases as either operating or finance leases based on the classification test that applies to Lessors under IFRS 16 Leases. The leases classified as ‘operating lease’ would be deductible over the lease term on a straight-line basis in the computation of taxable profit.

The changes brought by Ruling B68 would be effective from tax year 2018 onwards.

This article was originally posted on the CTL strategies website. All credits to the original author.

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