Own enterprise, whether at the beginning of its operation or as a result of development, requires financial outlays. Sometimes, unfortunately, these sums are too large for the owner. In such a situation, one of the most popular solutions is a company loan in business activity. It is worth knowing how to account for this type of financial injection and how it affects the tax liabilities of the business.
When can a loan be called a corporate loan?
The concept of a bank loan should be understood as - in accordance with the definition contained in the Banking Law - an agreement concluded between a bank and a borrower for a specified period of time, in which the bank undertakes to provide the other party with a specific amount of money for a specified purpose. The borrower, on his part, undertakes to use the sum received in accordance with the agreed terms and to return it, including interest and commission.
There are various types of loans on the market, including specialized ones, intended directly for business purposes. However, owners of small enterprises without legal personality who are not required to set up a separate corporate account can take out a business loan under their personal account. It is important, however, that the funds obtained in this way must be allocated to the purposes of business activity.
Importantly, although the purpose of the loan is generally indicated in the loan agreement, one should not forget to document the actual transactions covered by the loan funds. Only if the taxpayer has evidence of the expenses financed in this way, he does not have to worry about negative consequences on the part of tax authorities.
Business credit and taxes
The credit is in principle a fully returnable benefit. Therefore, in the context of income tax, neither incurring it will constitute income, nor a repayment - a tax cost.
On the other hand, interest on the loan is treated differently, as well as bank commissions and expenses related to securing the loan. In line with the position adopted by the tax authorities, the taxpayer may consider such expenses as corporate costs and thus reduce his taxable income.
Interest on the loan can actually be counted as tax deductible costs, however, under one, most important condition - it must be paid. When posting interest to the tax revenue and expense ledger, the taxpayer does not take into account the interest resulting from the repayment dates specified in the schedule in the contract, but the actual payment date. In accounting practice, the payment of interest is most often booked using an internal ID, supplemented with a printout from the entrepreneur's bank account.
It is also worth mentioning that sometimes interest is settled slightly differently in the case of a loan taken out to purchase or manufacture a fixed asset. If the entrepreneur settles the loan installment before entering the equipment into the company's fixed assets register, their value will increase the initial value of the fixed asset and will be settled under depreciation write-offs. Importantly, in this case, exceptionally, the date after which interest should be posted will not be the date on which it was paid, but the date included in the repayment schedule.
Start a free 30-day trial period with no strings attached!
Loans in foreign currencies
One of the credit options is a loan indexed with a foreign currency exchange rate. Such a loan is taken in the Polish currency converted into a foreign currency. Although the loan installments are repaid in Polish zlotys, their amount depends on the change in the foreign currency exchange rate.
Although - as mentioned at the beginning - the loan is neutral in the tax context, in the case of an indexed loan, income or costs may arise. Depending on the exchange rate, the borrower may return to the bank an amount higher or lower than the amount received at the time of concluding the loan agreement. Income will arise when the bank is returned to the bank with a value lower than the amount of the loan received. On the other hand, the entrepreneur has to deal with the cost in the opposite situation - when the sum of the returned funds turns out to be higher than the amount of the loan received.
Importantly, settlements related to exchange rate fluctuations refer only to capital installments. However, they do not in any way apply to interest on the loan.
Another type of loan is a loan granted in a foreign currency and repaid in that currency. In this case, there may also be additional costs and revenues, but this time they will be caused by exchange rate differences. Such differences arise if the exchange rate of the currency in which the loan was taken changes between the date of granting the loan and the date of its repayment.
Therefore, the taxpayer's expense will be the difference resulting from the fact that the loan was repaid at a rate higher than the rate on the date of receipt of the loan amount. On the other hand, the situation is the opposite - when the exchange rate was lower on the day the loan was repaid than on the day it was received.
As can be seen, although, in principle, business loans remain tax-neutral, in practice, there are costs and revenues associated with them, and which require settlement. Therefore, the taxpayer, deciding on this form of financing his business, should carefully read the available options and decide which loan will be the most profitable and convenient for him.