Recently, there have been more and more inquiries about the PIT and VAT consequences of concluding a free lending agreement? Can the tax office really reach into our pockets? There really is the topic of taxation of free lending? Who should be especially careful? In the following post, we will try to answer the most pressing questions.
Free lending
Article 710 of the Civil Code
By the (free) lending agreement, the lender undertakes to allow the borrower, for a specified or indefinite period, to use the thing given to him for this purpose free of charge.
Article 713 of the Civil Code
The borrower bears the usual costs of maintaining the lent items.
So, as we can see, (free) lending is when we temporarily give something to another person. It must be free of charge and, one might say, disinterested.
Taxation of free lending – PIT
The receiving person
Taking into account Art. 11 sec. 1 of the PIT Act, it could be concluded that the person receiving the loan generates taxable income in PIT.
Moreover, in Art. 21 sec. 1 point 125 of the PIT Act, we have a clear exemption from tax, which applies to: the value of benefits in kind and other gratuitous benefits, (…), received from persons classified in the 1st and 2nd tax group within the meaning of the provisions on inheritance and gift tax, (…).
However, the exemption applies to a specific group of people. We can check people included in a given group here (Article 14 sec. 3).
Therefore, in the case of a relative who receives a given item for use (free of charge), no tax income will arise (see the interpretation of April 6, 2018, no. 0115-KDIT3.4011.183.2018.2.MPŁ). If a person does not belong to this circle, unfortunately, he/she may be required to pay PIT.
The giving person
The tax authorities generally unambiguously recognize that no taxable income is generated on the part of the lender from the mere title of lending.
However, there have recently been warning signs from the tax authorities. In the case of (free) lending a property, the problem may be the amount of administrative rent paid by the receiving person. According to the tax office, this is the income of the person lending the thing, because this person is in a sense released from his obligation. This controversial topic was raised in the interpretation of March 21, 2022, reference number 0113-KDIPT2-2.4011.1201.2021.2.ACZ.
Taxation of free lending – VAT
The issue of VAT taxation of (free) lending applies to active VAT taxpayers. Particular attention to these issues should be paid by persons running JDGs that are registered for VAT.
According to the Article 8 sec. 2 pt. 2 of the polish VAT Act, there are situations in which the lending of things/real estate will be subject to VAT (equal to the provision of services for consideration). For this, the following conditions must be met:
- the lender acts as a VAT payer,
- the lending is provided to the entities indicated in art. 8 sec. 2 point 2 of the VAT Act or is not related to the conducted business activity,
- the lender had the right to reduce the amount of tax due on the purchase of goods and services related to lending in whole or in part.
In this regard, it does not matter that the taxpayer did not deduct VAT on the purchase of the loaned item, what matters is that he was entitled to it. This is confirmed by numerous KIS interpretations, among others of April 26, 2022, no. 0111-KDIB3-2.4012.124.2022.2.SR.
The tax base here will be the cost of providing the lending service incurred by the taxpayer (see Article 29a(5) of the VAT Act).
Summary
Free lending in most cases (for natural persons) will not be taxed. Nevertheless, there are situations in which you should carefully consider whether you will not be burdened with tax obligations. Entrepreneurs (VAT payers) must first check whether they will have to pay the tax on free lending.
If you have questions about lending or other tax issues, write to us! For a full understanding of your case, we will need a detailed description of the actual situation. We will analyze potential problems and consider possible solutions to them.
Our advice always ends with an individual conversation – during the consultation, we clarify doubts and discuss how to reduce tax risks.
Find out more at www.outsourced.pl.
