Current account: maximum interest rate is known
If you, as a director, grant a loan to your company, you must be careful that the loan does not exceed the company's equity or that the interest rate exceeds the market interest rate. If you exceed one of these thresholds, the exceeding part of the interest will be converted into dividend.
Why this anti-abuse provision?
The qualification interest has some advantages over dividends. When this provision was introduced, the withholding tax rate on interest (10%) was lower than that on dividends (25%). But a more important advantage is that interest is a deductible expense for the distributing company, while dividends are not deductible. So by lending a little more money to the company instead of depositing it as capital, you could and still can avoid taxes.
The anti-abuse provision contains two thresholds. If you exceed one or both thresholds, the interest is reclassified into dividends.
The first threshold is the company's tax equity. The law defines this as the sum of the taxed reserves at the beginning of the taxable period, plus the paid-in capital at the end of that period.
The second threshold is the market interest rate. The interest on the current account or any other loan is excessive if it is higher than the market rate.
What is excessive interest?
With the corporate tax reform of 2017, the definition of market conformity was entered into the law.
Interest on non-mortgage loans without a specified term (read: the current account), are in line with the market if they are not higher than the interest rate charged by the Belgian monetary institutions (the MFI interest rate) for loans up to 1.000.000 € with a variable rate and an initial fixed-rate period of up to one year, provided to non-financial corporations in November of the calendar year before the calendar year to which the interests relate.
The law provides a margin of 2.5% on top of this MFI interest rate.
And for 2021 the limit is ...
According to the Belgian National Bank (NBB), the MFI interest rate for November 2020 amounts to 1.57%. Add to this the margin of 2.5%, and you become a maximum interest rate of 4.07%. The maximum credit interest rate on a current account in 2020 was 4.06%. In the years before, rates of 6% to 8% were not uncommon.
If you have a claim against your own company through your current account, the interest for that company will only be deductible if the interest rate remains below 4.07%.