Can a legal entity that is not a bank, pawnshop or microcredit organization issue loans to citizens? Does it have the right to receive remuneration for the issued loans? Does this activity require a license or permit? Such questions are faced by organizations that, for various reasons, need to enter into loan relationships with individuals.
IN WHAT CASES DOES SUCH AN AGREEMENT APPLY?
A legal entity can provide a loan:
- to its participant (participants);
- to their employees;
- third parties.
In accordance with paragraph 1 of Article 55 of the Law of the Republic of Kazakhstan "On Limited and Additional Liability Partnerships", members of the executive body of an LLP are prohibited, without the consent of the general meeting, to conclude transactions with the partnership aimed at obtaining property benefits from it (including contracts of gift, loan, gratuitous use, buying and selling, etc.). Thus, the loan agreement, under which the director of the LLP acts as the borrower, must be approved by the general meeting of participants (the sole participant).
The purposes of such a loan may be:
- urgent needs (for example, treatment);
- payment for an expensive purchase, training, trip;
- loan repayment.
Loan repayment can be made:
- one-time cancellation;
- by deduction from salary;
- by withholding from the dividend payable.
LOAN WITH INTEREST PAYMENT
IS SUCH AN AGREEMENT POSSIBLE?
The law does not contain restrictions on the issuance of a reimbursable loan by a legal entity to an individual.
A debatable issue is the need for a license from the lender to carry out such activities.
Currently, the prevailing view is that an interest-bearing loan issued by a legal entity that is not a bank, a mortgage organization, a broker and (or) a dealer with the right to maintain customer accounts as a nominal holder or a legal entity whose controlling stake is owned by the state or a national holding or a national management company, cash loans on the terms of payment, urgency and repayment is not a bank loan operation, therefore, a license is not required.
TAX IMPLICATIONS
FOR AN INDIVIDUAL BORROWER
A loan received from a legal entity does not form the income of an individual borrower and is not the basis for the latter to incur tax liabilities.
FOR A LEGAL ENTITY-LENDER
CORPORATE INCOME TAX
The remuneration received from the borrower for the granted loan forms income of the taxpayer-lender and is subject to corporate income tax at the rate in accordance with the applicable tax regime.
VAT
In accordance with subparagraph 1) of paragraph 1 of Article 230 of the Tax Code of the Republic of Kazakhstan, the turnover on the sale of goods, works, services is a turnover subject to value added tax (VAT).
According to subparagraph 6) of paragraph 2 of Article 231 of the Tax Code, the provision of a loan (loan, microcredit) means a turnover for the implementation of works, services.
As stated in paragraph 3-1 of Article 231 of the Tax Code, in the cases provided for by subparagraphs 5) and 6) of paragraph 2 of Article 231 of this Code, the amount of taxable turnover is determined on the basis of remuneration.
Article 250 of the Tax Code provides for a list of financial services that are exempt from VAT. These are, in particular, banking loan operations and other operations carried out on the basis of a license from the National Bank, as well as operations carried out by legal entities without a license within the powers established by the legislative acts of the Republic of Kazakhstan.
Borrowing money between citizens and non-financial organizations subject to the payment of remuneration is not recognized as a financial service. Therefore, the interest paid on the loan will be subject to VAT.
LOAN WITHOUT INTEREST
IS SUCH AN AGREEMENT POSSIBLE?
There is no prohibition on the issuance of interest-free loans by legal entities to individuals in the legislation.
TAX IMPLICATIONS
In accordance with subparagraph 28) of paragraph 3 of Article 155 of the Tax Code, the material benefit from saving on remuneration for the use of loans (loans, microcredits) received from legal entities and individual entrepreneurs, including those received by an employee from his employer, is not considered as income of an individual .
Based on this, unlike legal entities, individuals do not have tax liabilities when receiving a gratuitous loan.