Interest on a company loan, installments and insurance versus company costs

Service-Tax

Entrepreneurs can take out a loan to finance current corporate expenses, purchase of fixed assets and other investments. How should commission costs and installments, insurance, and interest on a company loan be correctly accounted for? We explain in the article below.

A loan for business purposes

Taxpayers can take out a loan both as a business entity and as a private person. However, this point does not matter much. The most important thing here is the purpose for which the funds were allocated.

Company loan - settlement

Commission and company loan insurance

Taking a loan is associated with the bank charging a commission and sometimes with the obligation to insure it. These types of expenses may constitute tax deductible expenses, provided that they relate to a loan taken out for corporate purposes and that they have been paid.

This fact results from Art. 23 sec. 1 point 33 of the PIT Act.

If the loan is related to the purchase of a fixed asset, the commission paid and insurance incurred before the date of introducing the fixed asset into the company will increase its initial value.

Interest on a company loan

As it implicitly results from Art. 23 sec. 1 point 32 of the PIT Act, only interest on a loan taken out for business purposes may be the cost.

When the loan has been used to finance the purchase of fixed assets, the interest accrued until the date of acceptance of the fixed asset for use will increase its initial value, against which depreciation will be made. Interest paid in subsequent periods will be directly disclosed in the FPC, on the date of actual payment. Column 13 of the book - other expenses is appropriate to show this type of tax cost.

Company loan installment

The loan principal is not a tax cost, as it is usually recognized on the basis of a purchase document or, in the case of fixed assets, on the basis of depreciation.

In summary, expenses related to taking out a company loan (e.g. interest on a loan) may constitute a tax cost, as long as they are economically justified. It should be remembered that in order to record interest, commission or loan insurance in the KPiR, it is necessary to pay them.