When a manager/shareholder borrows money from
his company, this is normally accounted for as
a receivable in current account of the latter
(debit account on assets’ side of the company).
On this receivable, a (normal) interest must be applied, should one wish to avoid that the tax authorities assess a fictitious interest on behalf of the (related) beneficiary.
In our opinion, there are some misunderstandings as to which interest rate should be applied. Many people believe that one must apply the (high) fictitious interest rate as mentioned in the RD ITC (article 18 par.3). We are of the opinion that this is not true.
The RD ITC solely foresees the application of fictitious interest rates for ‘interest free loans or loans at discounted interest rates’. We can thus conclude that once a ‘normal’ interest rate has been negotiated on the cash taken in current account, the fictitious interest rates mentioned in above RD are no longer applicable. When one applies normal market interest rates on a loan without maturity date and without specific guarantees (according to most banks, actually around 6% for normal loans without maturity nor guarantees), and the interest is booked in the accounts, the tax authorities cannot in our opinion challenge these and replace them by the ‘fictitious’ interest rate (9,5% for tax year 2013).
Recently, the idea has also been launched to convert (part of) the debit current account into a debt with fixed maturity date, since the RD ITC foresees a much more beneficial fictitious interest rate in this case. For example, a debt which needs to be reimbursed in 5 years, would bear an annual (fictitious) interest of 4,01 % for tax year 2013 according to the formula mentioned in the RD, instead of the 9,5% for ‘loans without maturity date’.
Attention however that such loan must then be reimbursed within the said maturity date!
Of course, we recommend to formalize one of both (or both) options in a written (registered) contract to avoid discussions with the tax inspector, and to account for the interest at year end.
