- Ukraine’s Cabinet of Ministers approved draft law No. 16036 on September 7, 2026.
- The proposal caps excess borrowing-cost deductions at 30% of EBITDA from January 1, 2028.
- A €500,000 threshold and five-year carryforward would still apply under the new test.
Ukraine’s Cabinet of Ministers approved draft law No. 16036 on September 7, 2026, broadening limits on the borrowing costs companies can deduct from taxable profit. The proposed rule would cover all debt obligations, not only foreign or related-party loans.
The measure would take effect on January 1, 2028. Businesses would have time to adjust financing arrangements before the wider test begins.
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Under the proposal, excess borrowing costs could be deducted only up to 30% of EBITDA. The restriction would apply whether the creditor is resident or nonresident, and whether the parties are related or unrelated.
A €500,000 threshold remains. The cap would not apply when borrowing costs do not exceed the equivalent of €500,000.
The policy targets arrangements in which companies use large interest expenses to suppress reported earnings and reduce corporate income tax. Reporting on the proposal describes the intended result as preventing companies from using debt expenses to “artificially reduce taxable profit.”
The new test reaches debt the old categories left outside
The proposed calculation defines excess borrowing costs as the difference between borrowing expenses and interest income. Only the amount falling within the earnings-based ceiling would remain deductible.
The draft does not introduce a new thin-capitalization-style distinction. Instead, it moves toward a general test covering the source and ownership relationship of the debt.
That change removes two common boundaries from the current approach. A company could not avoid the restriction merely because its lender is Ukrainian rather than foreign, or independent rather than related.
| Proposed rule | Treatment |
|---|---|
| Creditor’s location | Resident and nonresident creditors covered |
| Relationship between parties | Related and unrelated parties covered |
| Borrowing-cost threshold | No cap up to the equivalent of €500,000 |
| Deduction ceiling | Excess costs tested against 30% of EBITDA |
| Unused limits | Carry forward for five tax years |
The transition leaves businesses a runway before the broader test begins
The Ministry of Finance of Ukraine published the draft on August 12, 2026. The government approved it on September 7, 2026, and the proposed operating date remains January 1, 2028.
Interest amounts still unrecognized under the existing rules at the end of 2027 would move into the new regime. They would then continue to face testing under the proposed ceiling.
The transition rules also distinguish between two types of unused amounts. Unused borrowing-cost limits could be carried forward for five tax years, while previously unrecognized borrowing costs could be carried forward without a time limit under the proposal.
The government’s timetable gives taxpayers time to review debt-funded structures before the broader restriction applies. The practical issue will be whether existing interest deductions remain usable after the transition.
The proposal follows the EU’s interest-limitation model
The Ministry is advancing the measure as an implementation of EU ATAD Article 4. The legal reference is Council Directive (EU) 2016/1164, which includes limits on excess borrowing costs as part of the bloc’s anti-avoidance framework.
The proposal therefore presents the change as an EU-aligned tax rule rather than a stand-alone increase in the corporate tax rate. Ukraine already uses borrowing-cost limitation concepts in profit-tax administration, but the draft would broaden them materially.
The current approach focuses on narrower categories. The proposed system would operate as a comprehensive EU-style Interest Limitation Rule across debt types.
A separate related-party package would widen the anti-avoidance push
The borrowing-cost measure sits within a broader reform effort involving related-company transactions. The Ministry said some companies can reduce prices in dealings with affiliated enterprises, including sales to a “subsidiary” company, to show lower profits in Ukraine.
“Today, some companies can artificially lower prices in transactions between related enterprises — for example, selling goods or services to a ‘subsidiary’ company at a reduced price to show lower profits and pay less tax in Ukraine.”
The Ministry also said the draft law “closes the main loopholes that allow this” and would apply clearer “arm’s length” rules to related-company transactions, including some domestic dealings.
Transfer-pricing tightening appears in a separate draft law. Together, the measures point to a wider effort to limit profit suppression through both financing costs and related-party pricing.
The rule’s reach will no longer depend on whether a lender is foreign or related. That gives companies until 2028 to assess debt structures against a single, broader test.
