Interest rate on parent loans
What interest rate should we pay on a loan from our parent?
The situation
Related party loans should carry arm's length terms.
The law
- Income Tax Law (related party transactions): Related party dealings must be at arm's length and disclosed in the return; Tax Authority can recompute income
- Income Tax Law (thin capitalisation): Debt to equity of 2:1 for deducting interest on related party loans
What it means for you
Benchmark the rate against similar bank loans. Even an arm's length rate is limited by the 2:1 thin capitalisation rule. Interest WHT is currently suspended in most cases.
What to do
- Benchmark the rate.
- Sign a loan agreement.
- Check the 2:1 limit.
- Document.
We can do this for youRelated party pricing, return disclosure and thin capitalisation review: OMR 750