Granting a loan in the light of VAT

Service-Tax

Granting a cash loan by entrepreneurs is a frequent operation performed in the course of trade. The loan agreement is concluded with both other entrepreneurs and natural persons who do not conduct business activity. Due to the common phenomenon of granting a loan, it is worth considering whether such an activity is subject to VAT.

Loan granted by an entrepreneur

First of all, it should be remembered that if an entity conducting business activity grants a loan, although it is not the core scope of its activity and such activity has not been indicated in the subject of activity, it should be considered as an activity within the scope of the activity subject to VAT.

The scope of the taxpayer's activity includes all activities of an occasional nature (occasional, incidental), which remain outside his main activity, but which are the consequences of this activity, directly supplement it. It is emphasized that for VAT taxation of a given activity, it does not matter whether its type is mentioned in the scope of the activity in question.

VAT exemption for loan-granting services

Despite the fact that granting loans is an activity subject to tax on goods and services as the provision of services for consideration, the legislator provided for the tax exemption of services for granting loans or cash loans and intermediary services in the provision of credit or cash loan services, as well as credit or credit management. cash loans by a lender or lender.

It should be borne in mind that despite the fact that granting loans is an activity exempt from tax on goods and services, it is necessary to include them in the sales register and in the appropriate VAT declaration.

Tax obligation in the case of a loan

Although the very act of granting a loan benefits from the objective exemption regulated in the VAT Act, the taxpayer is, however, obliged to determine the tax base, the moment of the obligation and the place of the provision of the service.

First of all, it should be noted that the legislator introduced a special solution with regard to the moment when the tax obligation arises. According to the act, when providing tax-exempt services, including granting loans, the tax obligation arises upon receipt of all or part of the payment for this service. It follows, therefore, that for the proper determination of the moment when the tax obligation arises, the moment of receipt of interest is crucial. This is also confirmed by the Director of the Tax Chamber in the individual tax ruling issued on 17 July 2014, No.IPPP / 443-553 / 14-3 / ISZ: Therefore, the tax obligation in the tax on goods and services for granting loans by the Applicant will arise each time the by the Company of payments, i.e. interest and commissions due in connection with the conclusion of the loan agreement, in the amount corresponding to the amount of such receivables received, pursuant to Art. 19a paragraph. 5 point 1 lit. e of the Act.

Under VAT legislation, the taxable amount is whatever is the payment that the service provider is expected to receive for the sale. In our case, the payment for the loan is interest, so the amount will be the tax base. However, the amount of the loan granted does not constitute a payment within the meaning of VAT regulations.

The service of granting a loan, when provided to another VAT payer, is taxed at the place where the recipient of the loan is established. Where the loan is being granted to a person who is not a taxable person, the place of supply shall be the place where the supplier is established. This is the general rule of the VAT Act. However, there is also a special solution for the place of supply. Well, if the buyer of the service is a non-taxable person whose place of residence is outside the European Union, then the place of taxation is the place of residence of this non-taxable person.

Example 1.

On May 1, 2017, the Polish VAT payer granted a loan to the French taxpayer in the amount of PLN 20,000. The parties agreed the interest at PLN 2,000. The French taxpayer paid off the loan in full with interest on July 1. Therefore, the tax obligation arose on July 1, the tax base is PLN 2,000, while the place of taxation is the territory of France.

Example 2.

On January 15, 2017, the Polish VAT taxpayer granted a loan to a Berlin resident in the amount of PLN 5,000. The interest was set at PLN 1,000. The German citizen repaid the loan with interest due in two installments - on February 2 in the amount of PLN 4,000 (including interest in the amount of PLN 600) and on March 6 in the amount of PLN 2,000 (including interest in PLN 400). The tax obligation arose on February 2 and March 6, the tax base is PLN 600 and PLN 400 respectively, the place of taxation is the territory of Poland. Pursuant to Polish regulations, this service is exempt from tax (Article 43 (1) (38)).

Example 3.

On October 2, the Polish VAT taxpayer granted a loan of PLN 40,000 to a resident of Moscow. The interest rate was set at PLN 7,000. The Russian citizen repaid the entire loan with interest on October 27. The tax obligation arose on October 27, the tax base is PLN 7,000, and the place of taxation is the territory of Russia.

Invoice documenting the granting of the loan

Although Polish VAT regulations exempt the act of granting a loan from VAT, the entrepreneur may be required to issue an invoice on this account. In general, the taxpayer is not required to issue an invoice for VAT-exempt services. Nevertheless, according to the act, at the request of the buyer of the service, the entrepreneur is obliged to issue an invoice. The condition is that the request is made within 3 months from the end of the month in which the service was performed or the whole or part of the payment was received. The information that should appear on such an invoice is specified in the invoice regulation. Pursuant to § 3 point 2 of the Regulation, the invoice documenting the provision of the loan service includes the date of issue, the next invoice number, the name of the taxpayer and buyer, the name of the service and the amount to which the document relates.

Example 4.

On April 20, 2017, the Polish VAT payer granted another taxpayer a loan of PLN 10,000. The amount of interest was set at PLN 3,000. The entire amount was settled on April 27. The customer requested an invoice on August 2. Due to the fact that the request was submitted after 3 months from the end of the month in which the service was performed and the entire payment was received, the VAT payer is not required to issue an invoice.

Example 5.

On April 20, 2017, the Polish VAT payer granted another taxpayer a loan of PLN 10,000. The amount of interest was set at PLN 3,000. The entire amount was settled on June 3. The customer requested an invoice on August 2. Due to the fact that the request was made within 3 months from the end of the month in which the entire payment was received, the VAT taxpayer is obliged to issue an invoice.