Tax Advice summary for Loan- based Crowdfunding

Transcription

1 Tax Advice summary for Loan- based Crowdfunding As stated in Tax Advice provided to FundedByMe by Manta Tax, according to Swedish Tax Regulation the entrepreneur is responsible for withholding the capital tax and paying it on behalf of the investor with Swedish tax residency to the tax authorities in the Swedish Loandbased Crowdlending service. In case you are a lender with Tax Residency that is not Swedish - please review the Manta Tax Advice listed below. Key figures for investors with Swedish Tax Residency: the tax has to be paid once a year on the 1st of May to Skatteverket, which is the Swedish Tax Agency. For transactions in 2015 the transfer date is 1st of May there has to be as many bank transfers as there are Swedish investors that invest into the crowdlending project of the Entrepreneur. the platform informs you which investors informed us that they have Swedish Tax Residency. According to the current law, a person becomes a Swedish Tax Resident once he or she is registered in Sweden for longer than 183 days during a year. The Entrepreneur is not responsible for withholding the capital tax for investors that have their tax residency outside of Sweden. In this matter they are responsible for fulfilling the tax responsibilities in their countries of Tax Residency. We have stated in the Terms of Service, that the investors are responsible to state their correct tax residence to FundedByMe and inform us, by the change of Tax Residency. This is how we help our Borrowers: FundedByMe pre- generates the KU20 income statements and informs the entrepreneur how much capital tax has to be paid for the investor. Please keep in mind that FundedByMe s pre- generated KU20 have to be considered ProForma and have to be checked by the Entrepreneur in order to avoid technical mistakes in the declaration. You might download a clear KU20 income statement here (in English) or here (in Swedish) In case you have general questions as entrepreneurs please contact the Swedish Tax Authorities here. In case you have questions as an investor use the following link Furthermore: In case of lending in 2015, first tax payments should be made on May 1 st of FundedByMe Customer Service, will inform the entrepreneurs prior this date about next steps.

2 Loanbased Crowdlending Tax Advice Extracted paragraphs based on Tax Advice provided by Manta Tax on 24 th of November 2014 Background information FundedByMe Crowdfunding Sweden AB (in the following FBM), launched a crowdlending scheme in Sweden. The scheme means that private individuals living and taxed in Sweden or living and taxed in other countries (in the following Investors) will invest into projects run by Swedish entrepreneur companies (in the following Entrepreneur AB) by way of loans. Investor will thus be lender/creditor and Entrepreneur AB will be borrower/debtor. FBM The projects will be presented on the fundedbyme.com website. FBM will not handle any cash flows or be legal part of the agreement. Both Entrepreneur AB and Investor will give an electronic Power of Attorney to FBM to act on their behalf. FBM will act as crowdlending leader and manage and administrate the loans. Entrepreneur AB Entrepreneur AB will assure FBM the repayment of its debts to Investors in writing, which in case of default will be passed on to an external Debt Collection Agency (DCA). DCA will handle the claim in case FBM has not been successful in collecting the debt after 60 days PDD. Repayments resulting from this process will be transferred and distributed to Investors directly from DCA. Investors Investors will invest their money via credit cards or a payment service provider through the non- Swedish entity MangoPay, which has an escrow account for each Entrepreneur AB s project. FBM will trigger repayments of the loans from the credit card of Entrepreneur AB through MangoPay to Investors. FBM will possibly deduct a fee of about 1% from the repayments. In case of Entrepreneur AB s default FBM will manage the pre- collection. In case the pre- collection is not successful the claim may be turned over to an external DCA, which will make the repayments to Investors. FBM will also deduct a fee from these repayments. The loan amounts will be in the range of EUR 4,000 to EUR The duration of the loans will vary between six months to seven years. Investors will receive instalments and interest payments from Entrepreneur AB monthly or quarterly. The total repayments are intended to be higher than the initial investments made. There are three possible scenarios: 1. In a successful project, Investor will receive instalments and interest payments quarterly up to the end of the loan agreement.

3 2. In a less successful project, Investor will initially receive instalments and interest payments quarterly but Entrepreneur AB may have to cancel further repayments later on. 3. In case of default, Entrepreneur AB will not be able to make any repayments at all. Swedish tax consequences We have been asked to comment on the Swedish tax consequences for Investors and Entrepreneur AB in relation to the following current taxes. - Tax on civil law transactions - Corporate income tax - Personal income tax - Capital Taxes and - VAT in relation to Entrepreneur AB These taxes have been covered in the below description. Also, we have been asked to comment on the withholding tax liability and filing requirements for FBM. According to the background information, the total repayments are intended to be higher than the initial investments made. Payments to Investor will be seen as partly repayment of loan and partly yield in the form of interest income. As the repayment of loan may never exceed its nominal value, i.e. the initial loan amount lent by Investors, all exceeding payments will be seen as interest income. FBM Compliance From a Swedish corporate income tax perspective, FBM will have no responsibilities or liabilities in relation to the loan arrangement. Since FBM makes no payments, it has no liability to withhold Swedish taxes or any filing obligations in relation to either foreign or Swedish Investors. Entrepreneur AB Corporate Income Tax Entrepreneur AB will take up loans from Investors. The loan amounts received will not be treated as taxable income. Any interest payments made to Investors should be tax deductible on an accrual basis. The interest costs should be fully tax deductible under current legislation. In relation to potentially new Swedish tax rules, please see below. Any repayments of the loan amounts (instalments) will be non- deductible for tax purposes. This applies under current rules and no changes are proposed in this regard. Any commission paid by Entrepreneur AB to FBM should be tax deductible as ordinary business costs. The same tax treatment applies also in case of default, after which all repayments are handled by a DCA. In case Entrepreneur AB is not able to make repayments due to insolvency, any claims waived by Investors should not constitute taxable income. Compliance

4 Entrepreneur AB does not have to withhold tax or report interest payments made to foreign Investors. In relation to potentially new Swedish tax rules, please see below. Entrepreneur AB will have to withhold tax of 30% on interest payments made to Swedish Investors in case the annual interest income for any Swedish Investor exceeds SEK 100. When annual interest payments to a Swedish Investor exceeds SEK 100, Entrepreneur AB will have to file an earning statement with the Swedish Tax Agency on the Investors behalf. The earning statement should report the annual interest payments made to the Investor. VAT If the loans are aimed at funding a project which business activities are subject to VAT any incurred VAT in relation to funding this project is recoverable. Conversely, if a projects business activities are not subject to VAT, incurred VAT is not recoverable. If the project has both vatable and non- vatable business activities, only VAT related to the vatable activity is recoverable. Investors On a general basis, interest income received is normally taxable whilst repayments of the loan amount should be non- taxable. Any commission paid by Investors to FBM may be tax deductible depending on the tax rules in the Investors home country. In case only partial or no repayments are made by Entrepreneur AB, the Investors will suffer a capital loss due to the loan arrangement. A capital loss on the loan may be fully or partly tax deductible for Investors depending on the domestic tax rules in the Investors home countries. Foreign Investors Investors who does not live or stay for more than six months and does not pay taxes in Sweden does not have to pay Swedish tax on interest income received from Entrepreneur AB. No Swedish reporting obligations or tax liabilities will be triggered by the loan arrangement. Each Investor must analyse and deal with any reporting obligations and tax consequences in its home country. Swedish Investors Swedish tax residents who live and pay taxes in Sweden, regardless of citizenship, have to tax in Sweden on their world- wide income. This means that interest income received from Entrepreneur AB under the loan arrangement is taxable at a rate of 30% on a cash basis whilst repayments of the initial loan amount are non- taxable. Capital tax of 30% should be withheld and earning statements filed by Entrepreneur AB to the Swedish Tax Agency on Investors behalf. Any capital loss on the loan should be tax deductible at 70% when the loss is definite. Potential new Swedish tax rules

5 There is a proposal for new Swedish tax rules that potentially may enter into force from January 1, Amongst others, it is proposed that interest costs should no longer be deductible. There is also suggested that Sweden should enact withholding tax rules on interest payments but no final rules has been proposed in this regard. Please note that it is still highly uncertain whether the proposed rules will pass, so this is merely to highlight the possibility of changed ruled. For further information please feel free to contact our partners at Manta Tax to receive fee quotes for your queries.