Current account: the maximum interest rate is known
April 2021 – As a company director, if you grant a loan to your company, you must ensure that the amount of the loan does not exceed the company's equity capital and that the interest rate you receive does not exceed the market rate. If you exceed either of these limits, the part of the interest that exceeds the limit will be reclassified as a dividend.
Where does this anti-abuse provision come from?
There are certain advantages to qualifying as interest compared to qualifying as a dividend. When this provision was adopted, the rate of withholding tax on interest (10%) was lower than the rate of withholding tax on dividends (25%). But an even more important advantage is that interest is a deductible expense for the distributing company, whereas dividends are not deductible. So by lending the company a little more money rather than paying up capital, you could and still can avoid paying tax.
The anti-abuse provision has two limits. If you exceed one or both of these limits, the interest is recharacterised as a dividend.
The first limit is the amount of the company's taxable equity. The law defines this amount as the sum of the taxed reserves at the beginning of the taxable period plus the paid-up capital at the end of that period.
The second limit is the market rate. The interest rate applied for the current account or any other loan is excessive when it exceeds the market rate.
What is an excessive interest rate?
With the corporate tax reform in 2017, the definition of market conformity was written into the law.
Interest on non-mortgage loans without a fixed term (read: current account) is market-conform if it does not exceed the interest rate charged by Belgian monetary financial institutions (the MFI rate) for loans up to 1,000,000 euros with a variable rate and initial rate fixation of up to one year, granted to non-financial companies, concluded in November of the calendar year preceding the calendar year to which the interest relates.
The law provides for a margin of 2.5% on top of this MFI rate.
And for 2021, the limit is set at ...
According to the National Bank of Belgium (NBB), the MFI rate for November 2020 is 1.57%.
Add the margin of 2.5% and you get a maximum interest rate of 4.07%. In 2020, the maximum credit rate on a current account was 4.06%. In previous years, rates of 6% to 8% were not unusual.
If you have a claim on your own company via your current account, the interest will only be deductible for that company if the rate remains below 4.07%.
