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20.08.2019

Are there any tax risks triggered when receiving an interest-free loan from a relative?

Kristers Zālītis, junior associate at PRIMUS DERLING, answers to iFinanses magazine the reader’s question.

Starting from 1 January 2018, corporate income tax (CIT) is payable on distributed profits and on conditionally distributed profits.
If a company takes a loan from a non-bank creditor (that may also be an individual), the company may be liable to pay CIT of its conditional distributed profits, if the company  pays increased interest on that loan, as per Article 10 of the Corporate Income Tax Law.

In the situation described, an interest-free loan has been granted. In this case, no CIT consequences are triggered and the interest-free loan should not be stated in the CIT return. The loan received from an individual will be shown on the balance sheet of the company.

Also, an individual does not have to pay personal income tax (PIT) on the loans granted, but on the income, that is, if the loan were issued with interest, it would generate income and the individual would be liable to pay PIT.

Source in latvian.