Loans, as a rule, are subject to income tax and tax on civil law transactions. What’s important – the lender pays tax at the rate of 19% on income obtained from the loan interest. The borrower however pays tax on civil law transactions. In practice, there may be situations in which loans will be taken and these taxes will not occur. In addition, there might be a situation where VAT may be applied.
The lender receives income when he recovers the amount of the loan plus accrued interest. Interest is the actual income of the lender, which are subject to a tax at the rate of 19%. In case of the borrower, tax on civil law transaction amounts to the rate of 2% and the tax base is the amount of the loan. The tax is due within 14 days from the conclusion of the loan agreement to the tax office.
As was mentioned before, there are some situations in which tax on civil law transaction will not be due.
The first of it, takes place when persons belonging to the 1st tax group conclude the loan agreement between themselves. First tax group includes the closest relatives – spouses, antecedents, descendants, siblings, parents-in-law etc. In accordance with the provisions of the Tax on Civil Law Transactions Act, loans are exempt from tax in the event of conclusion of a contract between persons belonging to the 1st tax group if the amount of loan does not exceed non-taxable amount given in the regulations of Inheritance and Donation Tax Act.
Secondly, if the loan agreement is concluded abroad, and money are on a foreign bank account, tax on civil law transactions will also not be due.
Other exceptions allowing to avoid tax are loans up to 5000 PLN from one entity (other than 1st tax group) or up to 25000 PLN from several entities over three consecutive years.
CGO Legal Law Firm offers consulting services concerning loan tax matters. We assist in completing the relevant tax returns and we prepare models of tax optimization of loans.
If You want to learn more about taxes and loans, feel free to contact us.