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Can interest on a loan be a tax-deductible cost for a business owner? One of the latest interpretations by the Director of the National Tax Information shows that this is not always the case. Here, we describe the general rules for including interest expenses on loans and borrowings in business costs, and an important exception recently highlighted by the Director of KIS.
Is loan interest a tax-deductible cost (KUP)? General rules for interest on loans and borrowings as business costs
As a reminder, tax-deductible costs are all costs incurred by a company to earn revenue or maintain or secure its revenue source, except:
- Costs listed in Article 23 of the PIT Act;
- Costs listed in Article 16(1) of the CIT Act.
Under Article 23(1)(8)(a) of the PIT Act and Article 16(1)(10)(a) of the CIT Act, expenditure on repaying loans and borrowings is not regarded as tax-deductible, except for capitalised interest on those loans and borrowings.
This means that, as a rule, interest on loans and borrowings may be a tax cost for business owners.
Remember that certain statutory conditions must be met to prevent the tax authorities from challenging such an expense, particularly:
- The loan funds must be used in the business to earn revenue or maintain or secure a revenue source;
- The liability and related expenses must be properly documented;
- Interest on the liability must be paid.
Practice also shows that interest on consumer loans or even “private” mortgages can be tax-deductible, provided the above conditions are met and the funds finance genuine business needs.
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Director of KIS: loan interest is not always a business cost! Watch out for refinancing!
In this context, the position of the Director of the National Tax Information in the recent interpretation of 6 August 2025, reference 0114-KDIP3-1.4011.515.2025.2.LS, is not particularly positive for businesses.
The case concerned a sole proprietor buying and selling real estate on their own account. In March 2020, they purchased a residential unit with cash. After renovation, it was rented out in September 2020, with rental income taxed within the business. In March 2021, the business owner decided to refinance this investment by taking out a mortgage.
The Director of the National Tax Information, who issued the interpretation, stated that the taxpayer's purpose in taking out a loan to refinance an earlier investment is actually to improve financial liquidity and gain greater flexibility in managing the budget.
The fact that the loan was taken out after the property purchase changes its economic purpose, which, according to the issuing authority, is now to obtain additional funds rather than purchase real estate.
It was therefore concluded that, in this situation, expenses relating to the mortgage (particularly interest) cannot be regarded as necessary expenditure incurred to earn revenue or maintain or secure a revenue source, and consequently cannot be a tax-deductible cost.
However, the authority explicitly emphasised that taking out another “private” mortgage in the future to finance the purchase of property subsequently used in the business could provide grounds for including its interest in tax-deductible costs.
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Summary
As a rule, capitalised interest on loans and borrowings can be a business cost.
However, in one of this year's interpretations, the Director of KIS clearly indicated that this will not always be the case. The authority denied this right to a business owner who took out a mortgage after purchasing a property, to refinance the investment. In the Director's view, this situation and sequence of events (first purchasing the property with cash and only later taking out the loan) changes the liability's economic purpose and means the related expenses cannot be treated as a tax cost.
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