Returnable Financial Aid: Accounting, Taxes, Discounting

Returnable financial aid (RFA) is one of the most widely used instruments for replenishing a company’s working capital. Under sub-clause 14.1.257 of the Tax Code of Ukraine, it is a sum of funds provided under an agreement without interest accrual that is mandatory for repayment. Unlike a bank loan, RFA requires no licences and is available from any individual or legal entity — including a founder or director of an LLC. This simplicity of attraction makes the instrument popular — and at the same time an area prone to frequent accounting errors.

Financial Aid from a Founder: How to Execute the Agreement Correctly

What Must Be Specified in the RFA Agreement

The RFA agreement is executed in simple written form. Where the lender is a legal entity, written form is mandatory regardless of the amount (Article 1047 of the Civil Code of Ukraine). The agreement must clearly define: the amount (lump-sum or ceiling), the interest-free condition (an explicit clause is mandatory — by default a loan agreement is considered interest-bearing under Article 1048 of the Civil Code), the repayment term, the procedure for transferring funds, and the primary document confirming the transfer.

The absence of any of these elements creates grounds for reclassifying the RFA as a financial service or for challenging the transaction.

Signing the Agreement as Both Director and Founder: Legal Risk

If a director is simultaneously a founder and signs the agreement on both sides — on behalf of the company and as an individual — such a transaction violates Article 238 of the Civil Code and may be declared void. The solution is straightforward and standard: issue a power of attorney to another employee who will sign the agreement on behalf of the legal entity. A correctly executed power of attorney fully protects the transaction from any challenge.

LLC Financial Aid: Repayment Terms and Consequences of Default

Why the Term in the Agreement Is a Critical Accounting Detail

The RFA term determines how it is classified in accounting. If more than 12 months remain from the nearest balance sheet date to the repayment date — the liability is long-term and subject to discounting. If up to 12 months remain — it is current, and discounting does not apply (clause 11 of NAS 11 “Liabilities”).

Common practice: set a term of 1 year and extend it by supplementary agreements as needed. The number of such extensions is not restricted by law. Importantly: an overdue RFA does not become long-term — it remains a current liability, as confirmed by the Supreme Court ruling of 04.12.2019 in case No. 826/16321/18.

Consequences of Non-Repayment for Single Tax Payers

For single tax payers of groups 1–3, failure to repay the RFA within 12 calendar months of receipt results in the amount being included in taxable income (sub-clause 3, clause 291.11 of the Tax Code). For corporate income tax payers there are no term-related restrictions — the transaction does not affect the financial result either upon receipt or upon repayment.

Discounting of RFA Debt: When It Arises and How to Avoid Errors

Short-Term and Long-Term RFA: Different Accounting Approaches

Companies maintaining accounting under National Accounting Standards (NAS) discount only long-term liabilities with a clearly defined future repayment date. Companies applying IFRS are required to discount any long-term interest-free loan — using the market interest rate for a comparable instrument (IFRS 9, IAS 39). During the period of martial law no special exceptions regarding RFA discounting are provided — this is confirmed by the letter of the Ministry of Finance of Ukraine dated 20.02.2024 No. 41010-06-62/5120.

Income and expenses arising in bookkeeping as a result of discounting are accepted in tax accounting without adjustments (ZIR 103.12). Correct classification of the RFA term from day one is not a formality — it is protection against additional tax assessments following an audit.

Taxation of Returnable Financial Aid: Corporate Tax, VAT, Personal Income Tax

Below is a summary table of tax consequences of RFA transactions, covering all key taxes and enabling a quick assessment of the tax burden without unnecessary calculations.

Zero tax burden with correct execution is the main advantage of RFA over other forms of financing. The key condition: full compliance with all agreement requirements and repayment terms.

Returnable Financial Aid with BuhalteriO: Zero Errors from Day One

An agreement without an interest-free clause, a director’s signature on both sides, an incorrect payment reference, a misclassified liability term — each of these mistakes costs the company time, stress and additional tax assessments. Comprehensive LLC accounting services from BuhalteriO cover the full cycle of RFA management: from drafting the agreement to correct reflection in accounting records and financial statements. Submit a request — and receive a consultation today.

Frequently Asked Questions about Returnable Financial Aid

Can a Director Provide RFA to Their Own Company?

Yes, a director as an individual is entitled to provide returnable financial aid to the company. However, signing the agreement simultaneously on behalf of the company and in a personal capacity is not permitted — this constitutes a violation of Article 238 of the Civil Code. The agreement on behalf of the company is signed by another employee under a power of attorney.

What Happens if the RFA Is Not Repaid within 12 Months?

For corporate income tax payers — no automatic tax consequences arise. For single tax payers of groups 1–3 — the RFA amount is included in income and subject to the single tax. In both cases the overdue liability remains current and is not subject to discounting.

Is Discounting of an Interest-Free RFA Required during Martial Law?

Martial law does not cancel or alter the general discounting rules. If the RFA term exceeds 12 months from the nearest balance sheet date — discounting applies under the general procedure in accordance with NAS 11 or IFRS 9, depending on the company’s accounting system. This is confirmed by the official position of the Ministry of Finance of Ukraine (letter dated 20.02.2024 No. 41010-06-62/5120).