How a group funds a subsidiary and how cash comes back are tax decisions as much as treasury ones. Interest can reduce the subsidiary's taxable profit but is capped, commonly at 30% of EBITDA; dividends, interest, royalties and service fees each attract different withholding taxes and deductibility tests. Exit and share sales raise their own charges, including exit taxes when assets or residence move.
Debt or equity, and the interest cap
Funding a subsidiary with intra-group debt creates deductible interest in the subsidiary and taxable interest income in the lender. To stop excessive debt eroding the tax base, EU Member States must limit net borrowing costs to 30% of EBITDA, and may allow a de minimis of up to EUR 3 million. Many countries outside the EU apply similar earnings-based limits, and some still use older thin capitalisation ratios.
Before choosing debt, model the subsidiary's EBITDA against expected interest: interest above the cap is not deductible in the year, although some countries allow carry-forward. Interest must also be at an arm's-length rate, and withholding tax may apply when it is paid abroad.12
Choosing how to move profits: dividends, interest, royalties and service fees
Each payment type has a different tax profile. Dividends are paid from after-tax profit and are often exempt for corporate shareholders, but may suffer withholding tax. Interest, royalties and service fees are generally deductible for the payer if at arm's length, but are taxable for the recipient and frequently subject to withholding tax. Saudi Arabia, for example, withholds 5% on dividends and interest and 15% on royalties paid to non-residents, and between 5% and 20% on service fees depending on the type of service, with treaty relief available in some cases.
The right mix depends on the payer's tax rate, the recipient's tax position, treaty rates, interest caps, transfer pricing support and whether VAT or GST applies to the charge. Charges with no real service or intangible behind them are the first to be challenged.34
Exit taxes and share sales
When a company moves assets, its tax residence or a permanent establishment's business out of an EU Member State, ATAD requires the state to tax the difference between market value and tax value, with instalment deferral available in some intra-EU cases. Share sales are taxed differently by country: some exempt gains on substantial holdings, others tax gains by non-residents on local shares, particularly in land-rich companies. Check both domestic law and the relevant treaty before planning a sale, and plan the holding structure with a future exit in mind.5
| Market | Interest limitation | Withholding on payments abroad |
|---|---|---|
| EU (ATAD minimum, incl. Germany and France) | 30% of EBITDA; optional de minimis up to EUR 3 million | Set nationally (not researched in this part) |
| Saudi Arabia | Not confirmed | Dividends 5%, interest 5%, royalties 15%, services 5% to 20% (domestic rates) |
| United States (federal) | Section 163(j); post-2025 changes not confirmed | Not researched in this part |
| India | Interest limitation under the Income-tax Act, 2025 not confirmed | Not researched in this part |
| UK | Corporate interest restriction not confirmed | Not researched in this part |
| UAE | General interest limitation not confirmed | Not confirmed |
Decisions to make
- Fund the subsidiary with debt or equity?12Compare the deduction value against the interest cap, withholding tax on interest and the lender's tax on interest income.
- Which payment type should carry profit back to the parent?34Withholding rates differ by payment type and treaty; deductible charges need arm's-length support and a real service or intangible.
- Could a future reorganisation trigger an exit tax?5Moving assets, residence or a branch business out of an EU Member State triggers a market-value charge.
Documents usually needed
- Intra-group loan agreements with arm's-length interest analysis
- EBITDA and interest capacity forecasts per entity
- Service, licence and cost-sharing agreements with transfer pricing documentation
- Tax residence certificates and treaty relief forms for withholding reductions
- Valuation evidence for asset transfers and exits
Common mistakes
- Funding a start-up subsidiary with debt it cannot deduct because its EBITDA is low or negative.
- Charging management fees without evidence that services were actually provided.
- Applying a treaty withholding rate without the residence certificate or forms the payer's country requires.
- Forgetting that intra-group service charges may also attract VAT or GST under the reverse charge.
- Planning a relocation of assets or residence without modelling the exit tax.
Questions businesses ask
Our German subsidiary has EUR 2 million of net interest and EUR 4 million EBITDA. Is the interest deductible?
Under the ATAD minimum, net interest is deductible up to 30% of EBITDA, which would be EUR 1.2 million, but Member States may allow up to EUR 3 million regardless of EBITDA. The German domestic figure and rules decide the answer.12
What does Saudi Arabia withhold on royalties paid abroad?
The domestic rate is 15%, which some treaties reduce.3
What this guide does not yet confirm
These points need checking with a qualified local professional before you rely on them.
- US federal section 163(j) changes under 2025 legislation (reported return to an EBITDA-based limit) could not be confirmed on an official page.
- India's interest limitation provision under the Income-tax Act, 2025 (successor to section 94B of the 1961 Act), its section number and thresholds were not confirmed.
- The UK corporate interest restriction and the UAE general interest deduction limitation were not confirmed on an official page because of fetch rate limits.
- Domestic withholding rates for India, the UAE, Singapore, the UK, the US, Germany and France were not researched in this part; Saudi rates rely on a secondary source.
- Capital gains treatment of share sales in each market (participation exemptions, non-resident gains, indirect transfer rules) was not confirmed.
Sources and review status
Each statement is numbered to the source it was checked against. We use official sources where we can, and each statement says whether it was checked against an official or a secondary source. Sources last checked on 18 October 2026. None of it has been professionally reviewed yet: it is research checked against official and secondary sources by WONE Global, not legal or tax advice.
Under ATAD, exceeding borrowing costs are deductible in the period incurred only up to 30% of the taxpayer's EBITDA. Article 4(1); exceeding borrowing costs are net interest expense. Member States may add carry-forward, group-ratio and standalone-entity reliefs.
ATAD allows Member States to permit deduction of exceeding borrowing costs up to EUR 3 million regardless of the EBITDA limit. Optional de minimis under Article 4(3)(a); each Member State sets its own figure up to that amount.
Saudi Arabia's domestic withholding tax rates on payments to non-residents are 5% on dividends, 5% on interest (loan charges) and 15% on royalties, with lower rates available under some tax treaties. Payments from Saudi sources to non-residents; treaty relief depends on the treaty and procedure.
Secondary source; ZATCA's Income Tax Law and Implementing Regulations could not yet be checked.
Saudi withholding tax on payments for services to non-residents ranges between 5%, 15% and 20% depending on the type of service. Management fees, technical and consulting services and other services each have specified rates.
Secondary source; confirm the rate for the specific service in ZATCA's Implementing Regulations.
Under ATAD, a taxpayer moving assets, its tax residence or a permanent establishment's business out of a Member State is taxed on the market value of the transferred assets less their value for tax purposes. Exit taxation under Article 5(1); deferral by instalments is available in some intra-EU/EEA cases.
Questions on this topic
5 statements on financing, profit repatriation and exit
