However, within the past three years of the validity of this novel corporate income tax regime, and due to the resulting shrinking of the tax base of companies, the government and tax authorities are finding themselves in a constant loop of amendments aimed at widening the tax base by effectively introducing new categories in the so-called unrecognised expenses list.
Early in 2014, a change in the tax treatment of uncollected loan amounts was introduced. From January 31 2014, outstanding receivables' balances on loans granted from one resident entity to another, which haven't been collected within the same year that they were extended, are to be considered as written off during the year in question and to be thus regarded as unrecognised expenses for the loan-granting entity. Consequently, this results in the increase of the company's corporate income tax base. Thus, all inter-company loans extended after January 31 2014 are now subject to this change, with older loans not impacted by the amendment in any way.
It is worth noting that this change is only applicable to companies which are taxpayers in the sense of the standard corporate income tax regime (with 10% imposed on a tax base consisting of unrecognised expenses plus understated revenues plus any distributed profits) and does not impact companies which, due to their size, have opted to pay corporate income tax on a tax base of total revenue (at the rate of 1% on total revenues). Additionally, the above change impacts all inter-company loans, regardless of whether they are extended between related or unrelated entities.
One should keep in mind that, in addition to increasing the tax base in the year in which the loan receivables were not collected (thus increasing the amount of corporate income tax due), during the year in which loan receivables will in fact be collected, the tax base is to be decreased by the amount of the collection, thus enabling the taxpayer to pay less corporate income tax in the periods when they actually collect the loan amounts.
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