Interest Free Loan from FL to FL?

Interest Free Loan from FL to FL?

 

Question:

Hello, a legal entity will lend to an individual to repay a bank loan. Is it obligatory to charge interest or can it be stated in the contract that the loan is interest-free?

Thanks!

 

Answer:

Hello,

It can be recorded that the loan is interest-free and you do not charge interest. But with one audit, every reviewer will note that the point of doing business for a business entity is to generate income. If you rent your asset (cash is also an asset) without income (if it is recorded in the contract without interest), this assumes that the company will receive interest, but unofficially, thus preventing income taxation.

Moreover, if the individual is in any way related to the legal entity - in these cases the law states that the conditions of transactions between related parties should not be different from the current market conditions. In this case, you can lend without interest if the banks announce lending at 0% interest (then the transaction will not differ from market conditions).

We hope we have been helpful.

Greetings!