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 loans issued? Does this activity require a license or permit? Such questions are faced by organizations that, for various reasons, need to enter into loan relations with individuals.
In what cases is such an agreement applied?
A legal entity can provide a loan:
- to its participant(s);
- to its employees;
- to 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 from concluding transactions with the partnership aimed at receiving property benefits from it (including gift, loan, gratuitous use, purchase and sale agreements, etc.) without the consent of the general meeting. Thus, a loan agreement under which the borrower is the director of the LLP must be approved by the general meeting of participants (the sole participant).
The purposes for providing such a loan may be:
- urgent needs (eg treatment);
- payment for an expensive purchase, education, trip;
- loan repayment.
The loan can be repaid:
- one-time payment;
- by deduction from salary;
- by deduction from dividends payable.
Loan with interest payment
Is such an agreement possible?
The law does not contain any restrictions on the issuance of a reimbursable loan by a legal entity to an individual.
A controversial issue is whether a lender needs to have a license 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, mortgage organization, broker and (or) dealer with the right to maintain client accounts as a nominee holder or a legal entity, the controlling stake of which belongs to the state or a national holding or national management company, loans in cash on the terms of payment, urgency and repayment is not a banking loan operation, therefore, a license is not required.
Tax implications
For an individual borrower
A loan received from a legal entity does not constitute income for the 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 loan provided constitutes the 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, turnover from the sale of goods, works, and services is 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 (credit, microcredit) means turnover in the sale of works and services.
As indicated in paragraph 3-1 of Article 231 of the Tax Code, in the cases provided for in 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 a list of financial services that are exempt from VAT. These include, in particular, bank 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 legislative acts of the Republic of Kazakhstan.
A loan of money between citizens and non-financial organizations with the condition of payment of a fee is not recognized as a financial service. Therefore, the amount of the fee paid on the loan will be subject to VAT.
Loan without remuneration
Is such an agreement possible?
There is no prohibition in the legislation on legal entities issuing interest-free loans to individuals.
Tax implications
In accordance with subparagraph 28) of paragraph 3 of Article 155 of the Tax Code, the material benefit from savings on remuneration for the use of loans (credits, microloans) 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 incur tax liabilities when receiving a gratuitous loan.