What taxes should be paid for interest-free borrowing between enterprises?
In order to solve the shortage of short-term funds, enterprises often borrow funds from each other, so what taxes should enterprises pay for free loans?1. VAT According to the Notice of the Ministry of Finance and the State Administration of Taxation on Comprehensively Promoting the Pilot Program of Replacing Business Tax with VAT (Finance and Taxation No. 36 of 2016) and the Additional Measures for implementing the Pilot Program of Replacing Business Tax with VAT,Units or individual industrial and commercial households to other units or individuals free to provide services (except for public welfare undertakings or social public as the object) belong to regarded as sales services.Provide borrowing enterprises free of charge, should be in accordance with the loan service pay VAT in the financial service, enterprise belongs to the general taxpayer, applicable tax rate is 6%, enterprise for small-scale taxpayers, the applicable articke 3% (the reduced 1% levy tax cuts, 3%), shall be regarded as sales (as interest income) according to the interest rate such loans to financial institutions to provide the same service.According to the Notice of the State Administration of Taxation of the Ministry of Finance on Clarifying the Policies of Exempting Value-added Tax from Pension Institutions (Finance and Taxation No. 20, 2019) and the Notice of the State Administration of Taxation of the Ministry of Finance on Extending the Implementation Period of Some Preferential Tax Policies (State Administration of Taxation of the Ministry of Finance No. 6, 2021),Free lending behavior between enterprise group units, exemption from value-added tax (policy preference extended to December 31, 2023).2, surtax (urban construction tax, education surcharge and local education surcharge) surtax is based on the actual value added tax paid. Since enterprises need to pay value-added tax to provide loans free of charge, they also need to pay value-added tax.Urban construction tax payable = actual VAT tax by the applicable tax rate (7%, 5%, 1%) of add = x 3% VAT tax place additional real pay = actual the 3 x 2% VAT tax, enterprise income tax of pay between non-affiliated companies provide lending services free of charge, no actual interest income, generally do not need to pay enterprise income tax;However, the provision of free lending services between affiliated enterprises shall comply with the principle of independent transactions. If the provision of free loans between affiliated enterprises intends to reduce the taxable income or income of the enterprise or its affiliated parties, the tax authorities shall have the right to make adjustments in accordance with reasonable methods.Some areas that are carried out in accordance with the corporate tax, enterprise income tax rather than pay taxes in accordance with the group, it is proposed that the enterprise group within the company between borrowing of funds, shall confirm the interest income, which need to be regarded as sales, confirm the interest income, pay enterprise income tax, and whether you need free borrowing enterprise between group within the enterprise income tax shall be regarded as sales,The proposal seeks advice from local tax authorities, each area differs somewhat.