A loan from a foreign contractor and the tax obligation
When developing their business activities, entrepreneurs classify the profitability of the sources of financing obtained funds in their portfolios. Fluctuations in the interest rates of credit products for entities conducting business activity in the country cause that entrepreneurs look for the possibility of obtaining capital from economic entities whose operations are located outside the country. What aspects of taxation should the Polish taxpayer take into account and when will the received loan from the foreign contractor be related to the payment of tax on civil law transactions?
What is a loan?
A loan is the making available to the borrower of funds of a certain amount, objects or financial instruments by a natural person or an entity conducting business activity under mutually agreed terms and conditions and for a specified and approved by both parties time of granting a given loan.
A loan and tax income
Pursuant to Art. 14 sec. 3 of the PIT Act, income from economic activity does not include, inter alia, collected payments or accrued receivables for the supply of goods and services that will be performed in the following reporting periods, as well as received or returned loans (credits), including those settled in kind, with the exception of capitalized interest on these loans (credits).
This means that received loans and credits, including a loan from a foreign contractor, do not constitute tax income in the light of tax on income earned by natural persons conducting business activity.
Does receiving a loan from a foreign contractor mean using the service?
A loan from a foreign contractor running a business and being an active VAT payer for the needs of a Polish entrepreneur running a business and being at the same time an active VAT payer constitutes import of services, in accordance with art. 28b of the VAT Act. However, before the entrepreneur classifies the received loan in this way, he will be obliged to establish several aspects of the implied transaction, because the entity granting the loan may also not be an active VAT taxpayer providing loans occasionally.
When should a received loan from a foreign counterparty be taxed with PCC?
According to the general rule, if a loan from a foreign contractor is subject to tax on civil law transactions, it is not subject to the VAT Act. Conversely, the loan agreement will not be taxable with PCC if it is subject to VAT Act. The confirmation of the above is the individual interpretation of 13 July 2011 of the Director of the Tax Chamber in Poznań, ref. No. ILPB2 / 436-79 / 11-2 / MK.
Going further, in accordance with Art. 1 clause 4 of the PCC Act, civil law transactions are subject to taxation with the PCC tax if their subject matter is:
things located on the territory of the Republic of Poland or property rights exercised on the territory of the Republic of Poland,
things located abroad or property rights exercised abroad, if the buyer is domiciled or established in the territory of the Republic of Poland and the civil law transaction has been performed on the territory of the Republic of Poland.
Taking the above into account, the following should be analyzed:
whether the loan will be granted at home or abroad and
whether the act of granting a loan by a foreign contractor will be subject to VAT or at least one of the parties is exempt from VAT for this activity.
If a foreign contractor who is not an active VAT taxpayer, but conducts business activity not based on granting loans and credits, performs an activity consisting in granting a loan to a Polish contractor, then:
if the contract between the lender and the borrower is signed outside the country, and on the date of its conclusion, the money will be deposited in a foreign bank account, then the entrepreneur will not have to tax this transaction with PCC tax,
if the signing of the loan agreement would take place in the country and the money on the date of conclusion of the agreement would be deposited in a Polish bank account, then the entrepreneur will have to tax the transaction with PCC.
The above position is confirmed by the individual interpretation of August 24, 2015 of the Director of the Tax Chamber in Katowice, ref. No. IBPB-2-1 / 4514-59 / 15 / MD.
Loan received from a foreign contractor as an import of services
As mentioned above, when we are dealing with a loan from a foreign contractor who is an active VAT payer and when he does not have a permanent place of business in the borrower's country, the Polish entrepreneur should recognize this activity as an import of services in accordance with Art. 28b of the VAT Act.
Pursuant to Art. 19a paragraph. 5 point 1e, in the case of the provision of loan services, the tax obligation will arise upon receipt of all or part of the payment. Bearing in mind that the Polish entrepreneur will not be able to determine the exact date of receipt of the loan installment, it can be assumed that the tax obligation will arise upon payment of the loan installment from the foreign contractor to his bank account.
Taking into account the above situation, in which a Polish entrepreneur will recognize a loan received from a foreign contractor as an import of services, he will be obliged to settle VAT on this transaction as the borrower with whom this obligation arises, in accordance with the already cited art. 28b of the VAT Act.
When settling a given transaction, it should be remembered that it additionally benefits from the objective VAT exemption. In art. 43 sec. 1 point 38, the legislator specified that the VAT exemption is used for the services of granting loans or cash loans and intermediation services in the provision of loans or cash loans, as well as the management of loans or cash loans by the lender or the lender.
How to show the service of receiving a loan from a foreign contractor in the VAT declaration?
In the newly introduced by the Ministry of Finance, the VAT-7 (monthly) declaration model marked with the number 17 or VAT-7K marked with the number 11, which should be submitted starting from the settlement for August 2016, is entered in the following position:
27 the tax base for importing a loan service purchased from an entity to which art. 28b of the VAT Act, or
29 the tax base for importing a loan service purchased from an entity to which art. 28b of the VAT Act.
It should be remembered that these fields should only include the amount of interest due in a given settlement period, because only they constitute turnover in the light of the VAT Act and are also remuneration for the loan service. On the other hand, in item 28 or 30 defining the tax due, we enter the amount "0" due to the use of the VAT exemption for the service of granting loans.
The above position is included in the individual interpretation of 23 July 2015 of the Director of the Tax Chamber in Katowice, ref. No. IBPP4 / 4512-190 / 15 / PK.
Withholding tax and a loan from a foreign contractor
In situations of receiving loans from foreign contractors, there is often a situation of withholding tax settlement due to the foreign contractor obtaining income in the form of interest due, arising in the borrower's territory.
Pursuant to Art. 29 sec. 1 of the VAT Act, persons who do not have their place of residence in the territory of Poland, but simultaneously obtain revenues in its territory, should tax them in the amount of a lump sum of 20% of this income. The tax is collected by the borrower who pays it to the Polish tax office.
However, it should be noted that each situation should be considered individually, because in addition to the above, an international agreement concluded with the lender's country on the avoidance of double taxation will apply. The fact that the lender has the so-called a certificate of residence, specifying the main center of vital interests due to the taxation of its activities.
Finally, it is worth noting that in order to determine to which tax the loan received from a foreign contractor will be subject to, the following should be considered:
whether the lender is an active VAT payer or not,
whether it conducts business in the form of granting loans or grants them sporadically,
where the loan agreement is concluded,
- where the cash is located at the time the loan agreement is concluded.