Partner current account: operation and taxation
Verified 03 October 2024 - Directorate for Legal and Administrative Information (Prime Minister)
In order to meet the cash flow requirements of a business, partners, managers or employees may make available to the business funds called advances in current accounts. These advances are considered to be interest-bearing loans. Interest paid to shareholders is deductible from the company's profits provided certain criteria are met.
To meet its cash flow needs, businesses can use a variety of methods: capital increase, borrow from a credit institution or to arrange advances on current account (also called current account contributions).
The partner or officer shall make available to the business a sum of money either by making payments or by temporarily waiving certain sums. The current partner account is analyzed as a loan that gives the partner or lending officer the status of social creditor.
The details of the current account (remuneration, duration, reimbursement, etc.) are specified in the statutes or in a current account agreement(i.e. a contract) between the business and the partner.
Who can make partner current account advances?
Persons able to make advances known as on current account and thus benefit from partner current account are:
- Partners and shareholders, natural persons regardless of the number of shares or shares held in the capital
- Leaders : Director, member of the Executive Board and Supervisory Board, Managing Director, Chairman of SAS, Managing Director, Managing Director of SA or SAS
- Commercial businesses (SA: titleContent, SARL: titleContent, LOCK: titleContent, SCA: titleContent) whose accounts are certified by a auditor. These may consent, as an incidental matter, of loans less than 3 years to other businesses with which they have an economic relationship (referred to as an "intergroup loan" or "cash pool").
Please note
There is no partner current account in a individual business.
How much money can be paid into the partner's current account?
The current account is supplied with one of the following ways :
- By the remuneration of the director
- By any dividends or reimbursement of fees that have not been collected
- By sums of money deposited voluntarily by the partner, the director
In all cases, the person making the advance on a current account shall have a claim with respect to business. Advances on current account are therefore recorded at indebted the business’s balance sheet.
When the partner's current account is debtor, this is equivalent to a current account overdraft. This means that the partner owes money to the business.
He is forbidden the following persons to have a current account debit:
- Managers and associates natural persons of a SARL: titleContent
- Directors and Directors-General of an SA and LOCK: titleContent.
On the other hand, a legal person (i.e. a business) may have a current account receivable. This is common among business groups.
Please note
In the SCI: titleContent and in the Scop: titleContent, current accounts held by associates natural persons may be debtors.
The associate current account is a partner's loan to business. It may therefore be remunerated, like a bank loan, by the payment of interest to this associate.
If the partner is a natural person, he is not obliged to collect interest and may freely waive it. On the other hand, where the partner who grants the advance on current account is a business or an association, the advance on current account must be remunerated.
The interest rate shall be fixed by the statutes or by the current account agreement between the business and the partner.
Interest paid to members is a financial charge that is deductible from the tax result business.
However, this deduction is limited for tax purposes by a maximum rate of deductible interest, also known as the ‘reference rate’. The amount varies according to the closing date the exercise of business.
Thus, when the interest rate (fixed by the articles of association or agreement) is above the reference rate, the excess part of the interest paid to the member is not deductible taxable profit.
Year-end | Benchmark Rate |
|---|---|
April 30 to May 30, 2023 | 3.46% |
May 31 to June 29, 2023 | 3.75% |
June 30 to July 30, 2023 | 4.07% |
July 31 to August 30, 2023 | 4.36% |
August 31 to September 29, 2023 | 4.65% |
September 30 to October 30, 2023 | 4.95% |
October 31 to November 29, 2023 | 5.18% |
November 30 to December 30, 2023 | 5.39% |
From 31 December 2023 to 30 January 2024 | 5.57% |
From 31 January 2024 to 28 February 2024 | 5.70% |
February 29, 2024 to March 30, 2024 | 5.81% |
March 31, 2024 to April 29, 2024 | 5.88% |
April 30 to May 30, 2024 | 5.92% |
May 31 to June 29, 2024 | 5.96% |
June 30 to July 30, 2024 | 5.96% |
July 31 to August 30, 2024 | 5.97% |
August 31 to September 29, 2024 | 5.97% |
September 30 to October 30, 2024 | 5.93% |
October 31 to November 29, 2024 | 5.90% |
November 30 to December 30, 2024 | 5.87% |
Example :
A partner grants the business a current account advance of €20,000. The interest rate is fixed at 2.5%.
The business fence its fiscal year on November 30, 2023, the reference rate is therefore 5.39% (see table above).
Upon repayment of the funds, the business shall pay to the partner €500 of interest (2.5% 20 000).
However, the business may deduce only €1,078(5.39% of 20,000) of its taxable profit.
In general, the terms of repayment of the partner's current account are specified in the statutes or in the current account agreement.
In the absence of precision, the claim of the partner in respect of the business is redeemable at any time.
When requested by the partner, the business shall have a five-year period from the date of application to repay the debt.
FYI
The partner may give up his right to reimbursement.
Can the repayment of the current account be blocked?
Block a partner's current account means that the business is no longer obliged to repay the funds provided. The business then has real, permanent capital.
This decision shall be taken either at unanimity of the general meeting of shareholders, or in a blocking convention (a contract) signed between the business and the partner. It thus serves as a guarantee in connection with the granting of credit by a banking institution.
Can the business refuse to repay the current account?
Where the member claims reimbursement of his current account, the business cannot refuse it (even due to financial difficulties). Nor can it limit repayment to the amount that its cash can support.
On the other hand, the business may require payment periods (limited to 2 years) to repay the current account.
What happens in the event of the business being judicially reformed or liquidated?
After opening a collective proceedings, the business shall no longer be entitled to repay a current account of a member. The partner must therefore, like any creditor, to declare his claim to the judicial representative or the receivership.
In this case, the partner is reimbursed after the preferred creditors business and if the finances of the business permit.
The applicable tax rules the current accounts of the member are different for the business receiving the advances and the member holding the current account.
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beneficiary business
The interest paid to the partner is financial charges deductible from profit or loss of the company provided that the company complies with 2 conditions following:
- The share capital is fully freed (i.e. the members must have paid their entire contribution the capital of the company).
- The interest rate charged shall not exceed reference rate (reference is made to the gross rate before taxation)
FYI
When the interest rate set is above the reference rate, the excess part constitutes a non-deductible charge the benefit of the business. Each current account must be examined separately and there can be no offsetting between an interest overrun on one current account and a shortfall on another.
Moreover, current account advances constitute a form of loan.
The company that benefits from it must deposit every year a loan contract declaration (cerfa no 10142), at the latest on the date of submission of its income statement.
Associate
Taxation differs depending on whether the current account holder is a natural person or a legal person.
Associate natural person
The interest received by the natural person partner constitutes income from movable capital.
They are taxed at the flat-rate levy (PFU)of 30% or at progressive scale of income tax (IR).
Partner legal person (business or association)
Where the business is subject to business tax (IS), the interest received by the member is financial income business tax (IS).
However, where the company has opted for income tax (IR), the interest received is taxed asincome tax (IR)in the category of industrial and commercial benefits (BIC)).
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Deduction of interest on current accounts of members from net profit of business
Interest on monies left or made available to a company by a related company, directly or indirectly
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Ministry of Finance