Financial assistance (repayable and non-repayable) to employees
Currently, many companies are trying to support their employees not only by timely payment of wages and non-targeted financial support, but also by providing financial assistance. Depending on the company's internal policies and capabilities, financial assistance can be both repayable and non-repayable. The law does not limit the amount of funds that can be provided as financial assistance. There are also no restrictions on the repayment period of repayable financial assistance to the lender.
According to paragraph 14.1.257 of the TCU Repayable financial assistance (loan) is the amount of funds received by the taxpayer for use under an agreement that does not involve the accrual of interest or other types of compensation in the form of fees for the use of such funds and is mandatory for return. That is, the employee receives a certain interest-free amount of money, but must return this amount within the agreed time. This type of assistance is provided on the basis of a written loan agreement between the employer and the employee. It is necessary to record in this agreement the unconditionality of the loan, the amount and schedule of monthly repayment, the term of full loan repayment. Generally, such loans are repaid by the employee gradually against deductions from future wages. However, please note that if the contract terms do not stipulate that the loan is repaid by such deductions, and there is no application from the employee, the latter has no right to make such deductions, even if the employee delayed the loan maturity.
When drawing up a loan agreement, the list of force majeure and the protocol for resolving disputes between the employer and the employee should not be neglected.
The amount of repayable financial assistance, the repayment period of which is less than 1 year, is accounted for as current receivables on the debit of sub-account 377 "Settlements with other debtors". If the term of assistance is more than 1 year, it is recorded on sub-account 183 "Other receivables". Long-term receivables are reflected in the balance sheet at their present value (paragraph 12 NASU - 10). Discounting is used to determine the present value of the debt. Repayment of the loan is reflected on the credit of sub-accounts 377 (183) and the debit of sub-accounts 301 (311).
The amount of repayable financial assistance, which was provided to the employee and repaid on time is not subject to personal income tax or military tax (paragraph 165.1.31 TCU). In Annex 4DF of the Tax Calculation, the amount of assistance provided is reflected by the tax agent (employer) with a sign of income "197". The fact of return of such assistance is not reflected in the reporting.
If the financial assistance was not returned to the lender in time, the employee shall independently reflect the amount owed in the annual declaration and pay personal income tax and military tax in accordance with paragraph 164.2.17 TCU.
Repayable financial assistance, which the borrower did not repay and the company did not apply to the court to enforce the recovery of the balance in its favor, after the expiration of the statute of limitations is considered non-repayable financial assistance (paragraph 14.1.257 TCU).
Non-repayable financial assistance is the amount of funds transferred to the taxpayer in accordance with the contract for non-repayable financial assistance, which is essentially a donation contract, or without concluding of such agreements (paragraph 14.1.257 TCU).
The amount of funds transferred to the employee is reflected in sub-account 685 "Settlements with other creditors". Sub-accounts 949 "Other operating expenses" or 977 "Other operating expenses" are used to write off the amount of assistance.
From the taxation perspective, we can equate non-repayable financial assistance to a fringe benefit, i.e. both the personal income tax and the military tax are deducted from the amount of all assistance and transferred to the budget. In Annex 4DF of the Tax Calculation, this type of assistance is reflected with a sign of income "126".
It should also be noted that the amount of both repayable and non-repayable financial assistance is not the basis for the accrual of SSST and is not reflected in Annex D1 of the Tax Calculation.
Another critical point regarding the parties to the contract for financial assistance is that the existence of labor, civil and any other relationship between the lender and the borrower is not a prerequisite. In other words, the company can lend money to its employee, director or founder, and any third party if desired (necessary).
We thank our experts for a detailed review of changes in labor legislation of Ukraine related to the imposition of martial law. And seek advice, if you have additional questions.