When a company borrows money from its shareholder, director or a sister company, tax law treats the loan more strictly than an ordinary bank loan. The interest must reflect what independent parties would agree, the transaction falls under transfer pricing, and part of the interest may not be tax-deductible at all. This article compares how Slovakia and the Czech Republic handle intra-group loans in 2026, because although the principle is shared, the thresholds differ.
Who counts as a related party?
Both countries define related (associated) parties similarly. In Slovakia, Section 2 of the Income Tax Act treats as dependent persons close family members and economically or personally connected persons – a connection arises at a direct or indirect share of more than 25 % in capital, voting rights or profit. In the Czech Republic, Section 23(7) of the Income Tax Act defines capital-linked persons at a stake of at least 25 % in capital or voting rights, plus otherwise connected persons and close persons.
In practice the circle is the same in both countries: a shareholder lending to their own s.r.o., a parent and its subsidiary, or two companies owned by the same person. A shareholder loan is only one way of financing a company; we compared the alternatives in our article on putting money into your s.r.o.
Why must the interest be „at arm’s length”?
Both jurisdictions apply the arm’s length principle. In Slovakia it is set out in Section 17(5) of the Income Tax Act, in the Czech Republic in Section 23(7). If the agreed price differs from what unrelated parties would agree and the taxpayer cannot justify the difference, the tax authority increases the tax base accordingly. For a loan this means the interest may be neither too low nor too high – both shift taxable profit to the wrong place.
Since 2015 Slovakia applies the principle to purely domestic related parties as well, not only cross-border relationships. The Czech Republic has long applied it to both.
How do you set the interest rate?
The usual approach is the comparable uncontrolled price method: the agreed interest is compared with what the borrower would obtain from a bank or another independent lender on comparable terms. The rate can also be derived from a reference rate plus a margin reflecting the borrower’s risk profile, the currency, maturity and collateral.
Crucially, neither country publishes a fixed „safe harbour” rate that the tax office would automatically accept. The rate must always be supported by a comparison. In the Czech Republic, advance certainty is available only through a binding ruling under Section 38nc.
Are interest-free loans a problem?
An interest-free or only symbolically priced loan departs from the arm’s length principle, because an independent lender would not lend for free. In Slovakia the tax office may impute market interest income to the lender and increase its tax base even though no interest was actually received. In the Czech Republic the borrower’s benefit from an interest-free loan is exempt only up to CZK 100,000 per year for a company; above that it is taxable income. Either way, interest-free arrangements must be justified and documented.
How is the deductible interest capped?
Here the systems diverge. Slovakia uses a thin-capitalisation rule (Section 21a): interest on loans from related parties is deductible only up to 25 % of EBITDA. On top of that, the ATAD rule in Section 17k (in force since 2024) disallows net borrowing costs above 30 % of tax EBITDA, but only once they exceed EUR 3 million.
The Czech Republic caps thin capitalisation by a debt-to-equity ratio of 4:1 (6:1 for banks and insurers) for loans from related parties under Section 25(1)(w), while the ATAD rule in Section 23e limits excess borrowing costs to the higher of 30 % of tax EBITDA or CZK 80 million. For most small and medium companies the decisive test is the 25 % EBITDA cap in Slovakia and the 4:1 ratio in the Czech Republic.
What documentation is required?
In Slovakia, a loan is a significant controlled transaction once the principal exceeds EUR 50,000, which triggers a wider scope of transfer pricing documentation under the Ministry of Finance guideline. Every intra-group loan, including interest-free ones, belongs in the documentation. How the short, basic and full versions differ is explained in our overview of transfer pricing documentation.
In the Czech Republic, standalone documentation is not generally mandatory, but a separate appendix to the corporate tax return – the „Overview of transactions with related parties” – must be filed by companies exceeding at least one threshold: assets above CZK 40 million, net turnover above CZK 80 million, or more than 50 employees. In both countries, a company without evidence supporting the interest rate is in a weak position during a tax audit.
Do you borrow within a group or from a shareholder in Slovakia or the Czech Republic and need certainty that the interest and documentation are set up correctly? We are happy to review the transaction and prepare audit-proof supporting documents.
FAQ
Does a loan between related parties have to bear interest?
It generally should. The arm’s length principle requires related parties to agree terms comparable to those between independent parties. In Slovakia the tax office may impute market interest income to the lender on an interest-free loan; in the Czech Republic the borrower’s benefit from an interest-free loan is exempt only up to CZK 100,000 per year for a company. Interest-free arrangements must be justified and documented.
Is there a fixed „acceptable” interest rate?
No. Neither Slovakia nor the Czech Republic publishes a binding safe-harbour rate. The rate must be supported by a comparison with market conditions – what a bank would charge a comparable borrower, or a reference rate plus a risk margin. In the Czech Republic advance certainty is available only through a binding ruling under Section 38nc.
Where do the two countries differ most?
Mainly in the deductibility caps. Slovakia limits interest from related parties to 25 % of EBITDA, while the Czech Republic uses a 4:1 debt-to-equity ratio. The ATAD backstop is 30 % of tax EBITDA in both, but applies only above EUR 3 million of net borrowing costs in Slovakia and CZK 80 million in the Czech Republic.