Lending money to your company: what are the tax implications?

You obviously have good reasons for the loan and will not give the loan for free. The amount of interest that you can charge your company depends on several parameters: the financial situation of your business, whether or not the loan is subordinated, and so on.

Interest income or dividends?

Interest that you receive is moveable income which is taxed at 30%. As a rule, this tax is deducted by your company through the so-called withholding tax. This tax is 'liberating', i.e. you do not have to declare the interest in your personal income tax return. For your company, interest payments are deductible expenses.

However, these benefits may not apply to a certain extent if the tax authorities 'requalified' your interest income as dividends. The withholding tax on dividends is also 30%, but dividends are not deductible professional expenses for your company. So in that case, your business will have to pay more corporate income tax.

When does a requalification apply?

A requalification can only apply under certain conditions. First, the loan must be given by you as a shareholder or company manager 1st category (director or business manager), or by your spouse, legal cohabitant or minor child. In addition, the loan or interest rate must be 'excessive'. This is possible in two cases:

1. The rate of paid interest exceeds the interest rates applicable in the market.
2. The total loan amount exceeds the sum of the fiscal paid-up capital at the end of the financial year and the taxed reserves at the beginning of the financial year.
    

New definition of market interest rate

The market interest rate for non-mortgage loans with an unspecified term (excluding certain interest payments between related companies) is equal to the Belgian MFI interest rate for the month of November of the previous year increased by 2.5%. In other words, the market rate is 5.70% for interest relating to 2023.

For other loans, the interest rate is what you would have to pay for a similar term loan from an independent lender, taking into account the financial condition of the company, the term of the loan, guarantees and so on.

Example: partial requalification

Your company has 8,000 euros in taxed reserves at the beginning of the financial year, and an effective paid-up capital of 24,000 euros at the end of the financial year. As a partner, you grant a current account advance of 48,000 euros, at an interest rate of 5.70%. This interest rate is equal to the statutory market rate for the year 2023.

• First limit: OK, no requalification.
• Second limit: (€48,000 - €32,000) x 5.70% market interest rate = €912 above the total loan amount. 
• Total: €912 of interest will be requalified as a dividend.

Special case: multiple company managers lend to the company

If several company managers lend money to the company, it is the sum of all these advances that counts for the second limit. For example: Your company has 14,000 euros in taxed reserves at the beginning of the financial year, and an effective paid-up capital of 24,000 euros at the end of the financial year. Partner A advances 26,000 euros and partner B advances 20,000 euros, at an interest rate of 4%. This interest rate is lower than the market rate of 5.70% for the year 2023.

• First limit: OK, no requalification.
• Second limit: (€46,000 - €38,000) x 4% market interest rate = €320 of interest will be requalified as a dividend. This dividend is subsequently distributed proportionally to the borrowers.
   

In other words, the portion of interest that is requalified as a dividend is 320 euros and this amount is not a deductible expense for the company. This requalification means that your company has to pay more corporate income tax.