The tax on a loan is a tax that you must pay in connection with a civil law contract, such as a loan contract. It amounts to 0.5% of the tax base, in other words, the amount you borrowed.
The obligation to pay tax arises when the loan is granted privately, and therefore not by companies dealing with such activities on a daily basis.
In many cases, this means that you must pay tax on the money borrowed from a family member or close friend. Taking out such a loan, it is very easy to forget about it.
You also have to pay tax on the loan, if it has been granted as part of so-called social lending, by persons unknown to you who do not run a business related to borrowing money.
No financial institution participates in these loans, which means that they are exposed to a high risk. They are not subject to the provisions of the Consumer Credit Act, thanks to which the creditor can freely determine the amount of fees or the effects of late payments.
Some people, however, decide on such a loan if the family is unable to provide support and the unfavorable credit situation does not allow obtaining funds from the bank.
Who pays the tax on the loan?
If you are thinking about borrowing money, you definitely want to know who pays the tax on the loan. Apart from the exceptions that you will find later in this article, you must pay the tax due to the tax office.
The borrower is responsible for this and is required to submit an appropriate declaration within fourteen days from the date of the loan agreement. This document is completed by every borrower, whether or not he is affected by tax exemption.
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Failure to comply with formalities increases the amount of tax due to 20% of the tax base. This is a form of sanction for people who try to avoid paying the amount due.
Family loan and tax
A family loan, however, does not always give rise to a tax obligation. There are exceptions that exclude tax on a family loan. So what contracts are the exemption from having to pay tax?
First of all, they are contracts concluded between persons belonging to the so-called first tax group.
There are spouses, descendants, ascendants, stepchildren, son-in-law, daughter-in-law, siblings, stepfathers, stepmothers, and in-laws.
As a general rule, by borrowing money from these people, you will avoid paying tax as long as the amount of the obligations you have entered into with the person does not exceed USD 9,637 in the last five years.
Contrary to appearances, exceeding this amount, however, does not always generate a tax on a family loan. If the lender is one of the persons mentioned in art. 4a of the Act of July 28, 1983, on inheritance and gift tax, you can apply for total tax exemption.
These people include ascendants, descendants, spouses, siblings, stepchildren, stepfather and stepmother. However, to receive such an exemption, you must carefully supervise all formalities.
So be sure to submit a loan in the form of the GFI-3 declaration to the Tax Office within fourteen days from the date of the contract, and document receipt of the amount indicated.
You can do this by sending a bank statement, a statement of the account maintained by the cooperative savings and credit union or a copy of the postal order.
So you should remember that sons, son-in-law, and parents-in-law are exempted from the tax on loans only to the amount of USD 9,637, while the rest of the persons in the first tax group can apply for tax exemption above this amount, provided they take care of all formalities. So, for example, you’ll miss the tax on your parent’s loan.
Loan tax 2019 – what changes?
If you pay the loan tax in 2019, you definitely want to know if it looks the same as last year. The year 2019 brought several changes regarding taxes on the loan agreement. The method of submitting the tax declaration has changed, plus.
When settling the loan tax in 2018, it was necessary to submit such a declaration each time the loan agreement was concluded. It was therefore very inconvenient for people who, as part of their professional activity, regularly enter into liabilities subject to this tax.
From 2019, persons who take at least three loans within a month can submit one declaration and pay collectively tax on each civil law transaction. This is huge facilitation, given that some had to submit even several hundred such declarations per month.
The changes will particularly benefit dealers and second-hand car dealerships, as well as persons purchasing works of art or private claims. They will also be very convenient for people who borrow smaller amounts from many different people who do not run a related business, for example for their own contribution when buying an apartment.
Therefore, the tax on personal loans in 2019 will be easier for you than the tax on family loans in 2018.
What is the tax on a private loan?
The year 2019 also brought changes in the amount of taxes on the loan agreement. Therefore, the most noticeable change is the decrease in the GFI tax rate from 2% to 0.5%, which was the result of the amendment to the PIT, CIT and several other acts.
Remember that you have to calculate the amount of tax on a private loan yourself, so it’s important to keep track of the current tax rate. A badly calculated tax on a private loan is only an additional difficulty for you.
How important is documenting a loan?
When you borrow money from your immediate family or trusted friends in a nice atmosphere, you can easily forget about the formalities. Lack of proper documentation of the loan will quickly affect your finances.
If you do not file a loan within fourteen days of concluding the contract, you are facing sanctions in the form of an increase in the tax amount to twenty percent of the tax base. This rate will be forty times higher than the standard amount. So you should complete the GFI-3 declaration and calculate and pay the tax due.
GFI tax exemption – when does it take place?
We have described the situations above where the GFI tax exemption occurs if you borrow money from your family. However, this is not the only option to avoid transferring some funds to the tax authorities. You will not pay the GFI tax if you borrow money from friends.
However, the rules are slightly different here. Until the end of 2018, you don’t pay tax by borrowing a maximum of USD 5,000 from one person over the next three years, starting from January 1, 2009. If you borrowed from several people, this amount increased to USD 25,000. From January 1, 2019, the tax exemption amount applies only to loans up to USD 1,000.
You also do not have to pay tax on loans if you borrow money to meet your maintenance obligations, social security, health or social security charges. The same rules apply if you borrow in connection with tuition fees.
You will not pay it if you borrow from cash registers or company funds or you get them from a partner in a capital company.
It should also be remembered that the GFI tax does not apply to customers of non-bank companies and banks. In such situations, however, you should take into account other costs, such as interest rate or APRC.