When is the business loan or other loan subject to VAT?
People considering taking a loan over the internet sometimes wonder if they will have to pay tax on it. Fortunately, such fears are completely unfounded. All loan costs are included in the contract, and the need to pay VAT is not borne by the borrower
What exactly is taxed?
Each interest-bearing loan granted is included in the paid provision of services. As a result, all related costs (eg interest) are subject to VAT. At the same time, in accordance with art. 43, para. 1, point 38 of the VAT Act, the act of granting loans is exempt from VAT.
Loan granted by the entrepreneur
If an economic entity grants a loan, even if it is not the subject of its activity, then such activity is not subject to VAT. It will not be subject to PCC tax.
The loan by a VAT payer, according to the most recent case law, falls within the definition of the term “economic activity”. It should be emphasized, however, that the regulations in force are not uniform in this regard. Therefore, if we are entrepreneurs who occasionally granted loans to someone, it is worth submitting a request for issuing a specific tax law interpretation in relation to the service provided.
When is the loan subject to VAT?
Providing a business loan by a VAT payer meets the conditions that allow the act to be regarded as taxable. We are dealing here with the provision to another entity of making it available to him most often for remuneration for the duration of the contract. However, the lending service uses a tax exemption under art. 43, par. 1 point 38 of the VAT Act.
If we are applying for a loan from a financial institution that is involved in this profession, we do not have to worry about VAT. This will be paid by the lender as part of his business. In a situation where we borrow money from a private person, the loan agreement will involve the payment of tax on civil law transactions (PCC).
When is the loan exempt from VAT?
The service of granting credits or loans and financial intermediation services is exempt from VAT. This also applies to the management of loans or loans by the lender or lender. Therefore, if the lender is inscribed in the scope of his activity, then such activity is taxed, but at the same time he benefits from a tax exemption under Art. 43 par. 1 point 38 of the VAT Act
However, let us remember that although lending is exempt from value added tax, it should be included in the sales register and in the relevant VAT return. In addition, the taxpayer is obliged to indicate the tax base, the moment the tax obligation arises and the place where the service is provided. Pursuant to the act, in the case of granting loans, this obligation arises when we are faced with receiving payment for all or part of the performance made. In practice, this obligation from the point of view of the lender arises each time he receives the payment, i.e. interest and commission. Article 29a, para. 1 of the VAT Act.
Under the current regulations, payment is all that a service provider will receive from the sale. When granting loans, interest and commission are a profitable sale. If the borrower pays only part of the interest or commission, then the tax obligation will only apply to the amount received. However, the return of the loan amount itself within the meaning of the Act is not a payment. The issue of tax liability arises from article 19a, item 5 point 1, letter, e of the VAT Act.
The place of providing services and VAT
If we borrow money to someone who is also a VAT taxpayer, then such a service is taxed where the borrower is established. With a loan for a private person, the place where the services are provided is the seat of the lender. An exception here are borrowers who are not taxpayers and live outside the European Union. Then the place of taxation will be their headquarters. And although, as we have already mentioned, granting loans does not involve the necessity to pay VAT, in some cases the entrepreneur may be obliged to issue an invoice. This will be the case if the invoice for the given benefit is demanded by the buyer. Such a request may be made within three months from the date of service provision.
The invoice should include data such as the date of issue, invoice number, name of the taxpayer and the buyer. It is also necessary to name the service and the amount covered by the document. The lender can also issue an invoice by himself, without waiting for the buyer’s request. If the entrepreneur issues an invoice at the request of another entity, then it applies to Article 106i (6) of the VAT Act. If the buyer wishes to receive an invoice before the end of the month, it should be issued by the 15th day of the next month in which the sale took place. And what if the buyer requests an invoice after one month? In this case, the invoice must be issued no later than on the 15th day of the next month counting from the date of filing.
If the service provider issues an invoice by himself, Article 106i section 1 of the VAT Act. According to the aforementioned provision, the document should be issued no later than 15 days after the month of the performance of the service.
When is the business loan subject to VAT? Summary
This when the loan is subject to VAT depends on many factors. Deciding on this issue is crucial for whether the loan agreement will be subject to tax on civil law transactions or VAT. Let us assume that we take a loan in a non-banking company. Then, VAT does not affect us in any way. The obligation to pay it lies with the lender. If we lend money to someone, in most cases this activity is exempt from VAT. It may, however, be subject to a tax on civil law transactions, since the case-law regarding occasional loans is not uniform.
To find the loan that best suits your needs, we advise you to check our current loan ranking . The ranking is updated regularly to provide up-to-the-minute information on online loan offers.