Are there any other tax issues that foreign lenders should be aware of when lending into your jurisdiction (for example, will any income become taxable in your jurisdiction solely because of a loan to or guarantee and/or grant of security from a company in your jurisdiction)?
Lending & Secured Finance
There are no other tax issues that foreign lenders should be aware of when lending into Croatia.
There are no such tax issues.
No particular tax issues generally arise on the provision of a loan, guarantee or security.
However, from the point of view of a borrower, the provision of a guarantee/security for the benefit of a related party may affect the application of the Finnish interest barrier rules. For example, if a company pledges an intra-group receivable as a security for a loan taken by a related party, that loan will de facto be recharacterized as a related-party loan, which may have an impact on the deductible amount of interest expenses.
In general, income of a foreign lender will not become taxable in Germany solely because of a loan to or guarantee and/or grant of security from a German company.
An exception may apply to interest payments to foreign lenders on loans which are secured by German real estate (or heritable building rights or ships). Such payments are subject to tax under German domestic laws (please see above), but Germany’s taxing right is frequently excluded under applicable tax treaties.
Moreover, the income of a foreign lender can become taxable in Germany if it is allocable to a German permanent establishment (including a permanent representative) of that lender.
Under Spanish law, there is no provision which establishes the generation of income solely because of a loan to or guarantee and/or grant of security from a company, apart from the interest agreed by the parties.
Notwithstanding, note that the following tax issues could arise from a loan:
- Spanish government has recently passed a new rule applicable to mortgage loans (Real Decreto-ley 17/2018, de 8 de noviembre, por el que se modifica el Texto refundido de la Ley del Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados, aprobado por el Real Decreto Legislativo 1/1993, de 24 de septiembre), by virtue of which the lender of a mortgage loan is subject to stamp duty (the tax rate varies between 0.5% and 1.5% of the mortgage loan’s amount).
- All transactions carried out by related parties shall be valued at arm’s length. Otherwise, Spanish tax authorities are entitled to modify the interest agreed by the parties and therefore to issue the corresponding tax adjustments, unless the parties justify the agreed interest rate is in compliance with the arm’s length principle and would have been the rate agreed by independent parties.
Since, the obligation to pay income tax arises when there is income, the mere execution of a loan agreement, guarantee, or security agreement does not in itself result in income tax liability. However, the execution of these documents is subject to documentary stamp tax as discussed in item 9.
There are no particular tax issues that foreign lenders not having a permanent establishment in Sweden should be aware of when lending into Sweden (such as that any income would become taxable in Sweden solely because of a loan to or guarantee and/or grant of security from a company in Sweden).
Income or franchise taxes of general application may be imposed on a lender if that lender makes a loan available from, or carries its portion of the loan on the books of, or receives any amount payable there under at, any facility office located in Turkey or which is incorporated or organised or has its principal office in Turkey (a "Resident Finance Party"). Interest, commission and fees to be paid by a borrower to a Resident Finance Party and any income realised by such Resident Finance Party is subject to Banking and Insurance Transactions Tax ("BITT").
In addition, loans extended by Turkish banks and financial institutions are exempt from Resource Utilisation Support Fund ("RUSF") (applicable rate of RUSF has been set as 0%). Any foreign currency loan made available to a Turkish resident (other than banks and financial institutions) from abroad having an average maturity falling (i) short of 1 year would result in the accrual of RUSF at a rate of three (3) per cent.; (ii) between 1 year to 2 years would result in the accrual of RUSF at a rate of one (1) per cent.; and (iii) between 2 years to 3 years would result in the accrual of RUSF at a rate of zero point five (0.5) per cent. over the principal amount of that loan, unless such loan has been extended by a lender lending through a facility office in Turkey. Turkish Lira loans made available to Turkish residents by foreign financial institutions are subject to 1% RUSF if the average maturity is less than a year and 0% if the maturity is longer than a year.
A foreign lender should monitor the location, nature and frequency of its U.S.-related activity and consider whether U.S. law would treat the foreign lender as having a trade or business (or permanent establishment where a tax treaty is applicable) within the United States.
A foreign lender should also be aware that U.S. tax treaties generally do not apply at the U.S. state and local tax level, which means a foreign lender that is not subject to U.S. federal income tax because it does not have a U.S. permanent establishment may nonetheless be subject to tax in a state where it earns interest if it earns the interest in connection with a trade or business in the United States and has nexus to a relevant state.
Safe for Swiss withholding tax which may be due in relation to (i) granting a loan to a Swiss borrower or a loan guaranteed or secured by a Swiss entity (see question 15 above), (ii) the enforcement of up-/cross-stream guarantees or security interests (see question 11 above) and (iii) in relation to security interest over real estate located in Switzerland (see question 15 above), there are no other material tax issues. For the sake of completeness, note that cantonal stamp duties may apply as a result of entering into financing and security agreements.
The grant of a loan to, or guarantee and/or grant of security by a company in the UK should not, of themselves, bring a foreign lender within the scope of UK tax (although as discussed above, payments to foreign lenders may be subject to deduction of UK income tax).
However, UK stamp duty could be payable on the transfer of certain loans and UK stamp duty reserve tax could be chargeable in respect of an agreement to transfer certain loans. That said, provided the loan constitutes loan capital and does not have certain equity-like features (such as convertibility, results-dependency and/or an excessive rate of interest), the loan should be exempt from both UK stamp duty and UK stamp duty reserve tax. This is known as the 'loan capital exemption'. There are other exemptions from UK stamp duty and UK stamp duty reserve tax that may be available where the loan capital exemption does not apply.
No UK stamp duty or UK stamp duty reserve tax should generally be payable on the grant of security over assets. A liability to UK stamp duty, UK stamp duty reserve tax or other UK taxes may arise on enforcement of security over certain assets (e.g. shares or securities of a UK company or UK real estate).
Note also that results-dependent interest may be characterised as a distribution of a corporate borrower and not deductible for UK corporation tax purposes. Whilst there is an exemption from such treatment, such exemption only applies where the recipient of the payment is within the charge to UK corporation tax. There are, however, exemptions applicable for certain margin ratchets which apply to both domestic and foreign lenders. The deductibility of interest payments may also be impacted by the UK anti-hybrid rules which apply in certain circumstances and may be applicable in a cross-border context.
Any income of a foreign lender will not become taxable in Jersey solely because of a loan to or guarantee and/or grant of security from a Jersey company and a lender is not nor will it be deemed to be resident, domiciled or carrying on business in Jersey by reason only of the execution, performance and/or enforcement of a loan agreement, guarantee or security agreement.
Persons, including corporations, partnerships, trustees and bodies of persons, which carry on any trade, profession or business in Hong Kong, are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. The questions of whether a business is being carried on in Hong Kong and whether profits are derived from Hong Kong are largely questions of fact.
An offshore company can be considered to be carrying on business in Hong Kong through an agent, if that agent has authority to, and does, commit the company to legally binding contracts, whether or not decisions to do so are taken only by staff of the company located outside Hong Kong.
Solely because of a loan to an Austrian company, income other than interest will not become taxable. Direct foreign investment generally does not require government approval. However, there are certain restrictions on the acquisition of real estate, which principally apply to non-EEA citizens who intend to acquire residential and rural property. There are no limits on foreign equity investment.
Secured and unsecured loans are not considered taxable income in Mexico. Mexican trusts (fideicomisos) are usually transparent for tax purposes with respect to the settlor transferring assets to trust estate.
Mexican financial institutions may be obligated to comply with Foreign Account Tax Compliance Act (FATCA) provisions.
Mexican law offers certain tax incentives for FIBRA (real estate investment trust) investors.
Bosnia & Herzegovina
In general, there are no additional taxes to be paid. However, the tax treatment of enforcement and any extra income from proceedings may apply, but it is highly dependent on the concrete case circumstances.