Briefly about factoring
Factoring is a financial service in which an entrepreneur (factor) sells his trade receivables to a financial institution (factor). The factor pays the funds to the factor immediately, so that the latter does not have to wait until the counterparty decides to pay the receivable.
Important!
The parties to a factoring agreement include the factor (the institution providing the factoring service) and the factor (the entrepreneur, using the factoring). The recipient (counterparty, debtor) is also an important entity in the context of factoring, but it is not a party to the contract.
Factoring is often used by entrepreneurs who, due to standard industry practice or customer expectations, issue invoices with distant payment terms. The necessity to wait 30, 60, and sometimes even 90 days to receive payment for services rendered or goods delivered makes the risk of payment bottlenecks grow. Factoring makes it possible to mitigate the unpleasant effects of congestion – thanks to this service, the company gets immediate access to the funds due to it.
Important!
A factoring agreement is one of the so-called unnamed contracts. On the one hand, this allows it to be flexibly adapted to the needs of the factoring company, but on the other hand, it gives rise to difficulties and doubts related to the correct accounting of costs incurred in connection with financing.
The provisions to be applied to unnamed contracts are found in Article 509 of the Civil Code.
Problematic settlement of factoring
For many years, businesses have had serious problems correctly recognizing the tax consequences of selling receivables in factoring (and more). A particularly important issue for many companies is whether costs incurred in connection with the use of factoring services are deductible for income tax purposes.
Over the years, there have been various announcements from which taxpayers have not been able to draw clear, unequivocal conclusions. Here are the major milestones that led to the current state of the law.
Amendments to the CIT Act (January 2018)
In January 2018, the following came into force The amendment to Article 16 para. 1 pt. 39 of the CIT Act. It introduced a provision stating that losses on the disposal of receivables against payment are not considered deductible. However, this provision has been interpreted in various ways – including that the possibility of recognizing deductible costs yes, there is, but only in relation to the net value of the receivables.
Troublesome interpretations of the NIS (2018-2021)
In individual interpretations issued after 2018 , the Director of the National Tax Information maintained the view that entrepreneurs using factoring services can recognize the cost of the service as deductible only if they have recorded a loss. This would mean that the sale of a receivable for 100% of its value does not give rise to deductible expenses.
General Interpretation of the Minister of Finance, Funds and Regional Policy (February 2021)
In 2021, the most important document in the context of today’s topic (and still relevant!) appeared – the general interpretation dated February 15, 2021. on the rules for determining the amount of deductible expenses on the disposal of own receivables under a factoring agreement (ref. DD5.8201.11.2020).
The act, which is only 6 pages long, focuses one hundred percent on discussing and clarifying doubts about the situation in which a factor assigns its own receivables to a factor under factoring.
Important!
The interpretation of the Minister of Finance, Funds and Regional Policy applies only to receivables that arise from the sale of services or goods made by the taxpayer, in connection with which he has reported income due under Art. 12 paragraph. 3 of the CIT Law. The relevant information is provided in the first point of the general interpretation.
It is worth remembering that the application of the proportional deduction method requires the taxpayer to file an additional document – this is the annual return filed to show foreign income. This document must be prepared even if the taxpayer did not generate income in Poland during the period in question.
Factoring and deductible expenses – general interpretation
The February 15, 2021 document seeks to answer several important questions related to concerns raised over the years. In the order in which the issues are discussed in the interpretation, these are:
Is factoring a separate transaction?
On this issue, the minister agreed with the position of the director of the KIS. The sale of own receivables arising from the sale of goods or services, which is made by the factor to the factor, constitutes an economic operation separate from the indicated sale of goods or services. This operation gives rise to income tax consequences on the part of the seller of the receivable: it generates income and deductible expenses.
Is the sale of a claim to a factor equivalent to repayment of the claim by the debtor?
These are two separate business events. The sale of receivables to a factor is a transaction between the factor and the factor. The repayment of the receivables by the debtor, on the other hand, is a separate transaction.
Does the sale of receivables to a factor generate income?
Yes, the factor includes the funds he received in connection with the sale of receivables as revenue. The cost of the service he incurred in selling the receivables to the factor is therefore deductible.
Important!
If a factor sells a receivable to a factor for 100% of its gross value, it can include the full amount of the receivable sold (invoice) as a deductible expense – but this must include value added tax.
How to properly consider the deductible for factoring?
To follow the general interpretation under discussion, there are several steps to follow:
- Step 1: determine the amount of costs incurred within the meaning of Article 15(1) of the CIT Act. In the case at hand, the cost will be equal to the gross value of the receivables sold.
Important!
Art. 15(1) of the CIT Law states: ” Tax-deductible costs are costs incurred for the purpose of earning revenue or preserving or securing the source of revenue, with the exception of the costs listed in Article 16, paragraph 1. 1. Costs incurred in foreign currencies shall be converted into zlotys at the average exchange rate announced by the National Bank of Poland on the last business day preceding the day the cost was incurred.”
- Step 2: check whether the divestiture of receivables has generated a loss for your company.
- (if the loss did not arise) Step 2.1: the cost incurred in full is treated as a deductible expense.
- (if a loss has occurred) Step 2.2: determine the ratio of loss to income.
- (if the loss is greater than the revenue) Step 2.2.1: subtract the excess from the cost incurred. The result of this equation is the deductible cost.
- (If the loss is less than or equal to the income) Step 2.2.2.: treat the expense incurred in full as a deductible expense.
Factor’s remuneration vs. tax deductible expense
An equally important aspect of considering factoring in the context of deductible expenses is the issue of remuneration to the factor. Here there is no doubt – the factoring commission and other components paid to the factor as part of the remuneration for services rendered should be treated as a deductible expense.
Important!
Also, deductions from the amount paid for the acquired receivable, which are made by the factor, are deductible for the taxpayer.
Subsequent individual interpretations
The general interpretation by the Minister of Finance, Funds and Regional Policy has clarified many issues and resolved important doubts. Equally important – it presented a position favorable to taxpayers. However, this does not mean that the problems with accounting for factoring have completely ended. Entrepreneurs still have problems with the correct application of the regulations.
In situations where a general interpretation is not enough, they therefore reach for the help of the Director of National Tax Information. In recent years, a number of individual interpretations have been issued to resolve questionable situations for taxpayers. Let’s pay special attention to two individual interpretations:
Individual interpretation dated 25.02.2025.
Individual interpretation dated February 25, 2025. on the costs of remuneration of a factor in full factoring(ref. 0114-KDIP2-2.4010.666.2024.2.RK) – the interpretation states that the applicant’s position is incorrect .
Individual interpretation dated 15.05.2025.
Individual interpretation dated May 15, 2025. on the recognition of the sale of receivables to a factor as income and deductible expenses (ref. 0111-KDIB1-1.4010.132.2025.5.MF) – the interpretation states the correctness of the applicant’s position.
Individual interpretation dated 5.09.2025.
Individual interpretation dated September 5, 2025. on deductible costs related to factoring services (ref. 0111-KDIB1-1.4010.354.2025.2.SG) – the interpretation states that the applicant’s position is correct .
Summary
In order to determine and properly account for the tax deductible expenses associated with factoring, the factor should apply the general rule, for which the basis is Article 15(1) of the CIT Law cited in this article.
The rule says that the cost incurred is the gross value of the receivable sold – but the amount of VAT must also be taken into account.
The factoring company may also include in deductible expenses the remuneration it must pay to the factor, as well as deductions the latter has made from the amount paid.
In case of any doubt, it is worth leaning over the individual interpretations issued after February 15, 2021 and comparing them with the situation at hand. However, it is necessary to analyze in detail the cases described there, because even a minor nuance can be fraught with consequences. If you still have doubts, apply for an individual interpretation to the Director of National Tax Information.
