Thanks to an interest-free loan, many companies are able to solve accumulated problems. Both individuals and legal entities can participate in the transaction. There are almost no questions with individuals. But for the latter, taxation issues are not idle at all. In the article we will consider a loan between legal entities interest-free: how it is arranged, what risks it carries, and also what are the opportunities to minimize them.
The concept
From the very beginning, it should be borne in mind that you must be extremely careful with the transaction. If everything is done correctly, the tax consequences will be avoided. We will analyze the interest-free loan agreement in terms of tax legislation. Indeed, problems can arise from this side.
An interest-free loan, moving to a simple language, means borrowing money without interest. Naturally, this is a very good deal for the borrower. After all, banks will never provide such a service. But others, both individuals and legal entities, can do this.
Features
Interest-free loan between legal entities is a fairly common transaction. It is used by companies that are in partnership or friendships. There are even special organizations that provide loans. The transaction must be accompanied by the conclusion of an agreement, and it can be either unilateral or bilateral. In addition, another party may be involved in order to guarantee a refund to the lender. As such, an official organization may be admitted.
The loan term is clearly stated in the contract, as well as the amount. It must be certified by a notary public. Despite the fact that the terms of repayment are clearly stated there, the borrower can always return the money ahead of schedule.
It must be clearly understood that such a transaction cannot be regular, otherwise special attention and vigilance on the part of the tax authorities cannot be avoided. An interest-free loan between legal entities is issued only for non-entrepreneurial purposes. Otherwise, it is taxable.
If the organization too often makes such transactions, the inspectorate may conclude that in this way they try to evade taxes and conduct illegal banking activities.
A loan between legal entities is interest-free: what should I pay attention to?
When concluding a deal, the lender should be especially careful. The first way by which you can protect yourself is to establish a clear time period when the money should be returned, as well as determine the negative consequences if the funds are not given back. At the deadline for repayment of the debt, the borrower is written a letter of claim reminding them what awaits it in case of non-payment. Without special knowledge, it is better to contact a specialist so that the document is correctly composed.
An interest-free loan agreement must necessarily contain the chapter “Responsibility of the parties”. Then the lender provides himself with a money back guarantee. Thus, it should describe in detail what awaits the borrower in case of violation of contractual obligations. A penalty for each day of delay in payment should also be provided here.
In fact, there are many ways for a lender to protect themselves. Responsibility may include financial consequences for the debtor, fines, etc.
In the article we offer you a sample of what an interest-free loan agreement looks like between legal entities. Its form contains general clauses, obligatory for this type of documents.
Contract execution
When concluding an agreement, it is assumed that the parties trust each other. It should be prescribed that this is not a financial service and does not entail profit. If this is not done, then the lender will have to pay tax, since by default the presence of interest in the document is provided.
In the Civil Code, chapter 42, “Loan and credit,” is dedicated to loans. According to him, interest is governed by the terms of the contract. However, in order to be considered a loan without interest, you should directly indicate this. Otherwise, it is understood that the contract involves their payment, which will be calculated at the refinancing rate.
Consider separately the tax legislation regarding this issue.
Income tax
In relation to income tax, according to the code, it is considered that the object is the profit that the organization - the taxpayer received. It means those incomes that are reduced by the amount of expenses. Revenues may be from the sale of goods and services, property rights or non-operating. In this case, income received under loan and credit agreements, or as a repayment of these borrowings, should not be taken into account.
At the same time, in the tax code, income is also understood as economic benefit, expressed in kind or in cash, which is taken into account when possible and is determined in the chapters on personal income tax and corporate income tax. But when an interest-free loan agreement is concluded between legal entities, taxation - what should it be - is not established, since there is no procedure for determining and evaluating material benefits.
According to the Ministry of Finance, the borrower does not have tax consequences as a result of an interest-free loan. The arbitration practice, in turn, confirms that the organization that issues an interest-free loan also does not have taxable income.
VAT
The Tax Code clearly defines the operations that are subject to this type of tax. Among them:
- the sale of goods and services (as well as works);
- transferring them for own needs (no deductible expenses are accepted);
- construction and installation work for their needs;
- import of goods to Russian customs.
In addition, an article is also provided where transactions are established that are not subject to taxation on this tax. The list also includes an interest-free loan issued in cash. It turns out that this operation is not subject to VAT.
Tax authorities
It would seem that almost everything is on the side of organizations. However, in the tax service, a loan without interest still raises questions.
The department distinguishes loans between third-party organizations and interdependent ones. In one case, the risks arise for the borrowing party because the cost of paying interest on the loan agreement, where the money is allocated to issue a loan, is not recognized. In another - the lender also risks because of the appearance of non-operating income.
Tax authorities build their attitude to interest-free loans based on a number of letters from the Ministry of Finance, according to which the norm of the Tax Code contained in clause 1, article 105.3 is applied to transactions. It says that revenues are determined on the basis of interest that could be received if the contract was concluded between outside organizations, and not interdependent.
At the same time, judicial practice at the moment is ambiguous in its opinion on this issue. Often decisions are made in favor of the lenders. But even if the court sometimes agrees with the tax authorities about the need to calculate income from the borrower, the methodology for this calculation remains unclear.
Conclusion
Is an interest-free loan possible between legal entities? Yes it is possible. Is a lender exempt from taxes? May be. But what is undeniable is that such transactions should be carried out under the supervision of specialists in order to avoid annoying mistakes leading to the need to pay virtual income.
For this, a contract must be drawn up correctly, according to which an interest-free loan is drawn up between legal entities, accounting entries in this situation must also be competent and professional.