Capitalisation of loan interest and tax point for VAT purposes

Magdalena Szczepańska, Natalia Sęk
Puls Biznesu

In accordance with the VAT Act, lending as a financial service is exempt from VAT but where the lender is a foreign entity, the borrower must recognise the loan as importation of exempt services. The article discusses the issue of when the tax becomes chargeable (tax point) in the case of capitalisation of interest. While the VAT Act provides that the tax point for exempt services is when the payment is received in full or in part, it does not define what “payment” means. Tax scholars consider that “payment” includes not just actual cash flow but also other forms of discharging liabilities, including through capitalisation of interest.