The draft of ammendments to Individual Income Tax law (IIT) introduces a new approach to the situations allowing to avoid paying the Individual Income Tax and the Social Tax for the private loans (issued to the board or council members, employees or relatives) issued by the companies and other business entities. Such loans are often not returned and the present regulation does not provide the strict rules of taxation in regard to the laon and it’s interest. Therefore according to the new draft - the private loans should be clasified as a personal income of a borrower, if not issued in accordance with the law. The new regulation of the Individual Income Tax law is elaborated in accordance with the resolution of prime minister: „ Assessment of the legal basis concerning the loan transactions provided by the companies and individual entrepreneurs (for whom the principal business is not the loan provision) to their board or council members, employees or relatives”.
(briefly) – in order to avoid the situation when a loan can be assessed as a personal income - the term of a loan must not exceed 60 months (60 + 6), the loan agreement must be written, the transactions should be performed via bank accounts, and the loan should be proportionate to the company’s financial condition (the sufficient level of an equity capital, the duty to check and clear the recent tax debts, as well as accordance of loan with an average monthly income of the borrower). The above mentioned condition, in fact, limits the maximum level of loans issued by the company. In the scope of above-mentioned, there will be also some restrictions to the cession deals (if such loan is passed over within a cession deal). We advise to get introduced with the draft of the ammendments in order to prevent the possible tax risks.