With the end of the year in sight, the question often arises as to what to do with a business manager’s outstanding current account balance. We take a quick look at the consequences of a debit or credit balance.
An interest-free debit balance on the current account gives rise to a taxable benefit in kind for the manager. This benefit is equal to the fictitious debit interest determined annually by the tax authorities (‘non-mortgage loans without a fixed term’). For 2022 (assessment year 2023), this interest rate is 7.14%. In other words, the manager is taxed on 7.14% on the outstanding amount in 2022. Assuming a marginal rate of 53.5% (including 7% municipal tax), the manager therefore ultimately ‘pays’ 3.57%.
In principle, the benefit must be calculated per month, but if no abnormal fluctuations have occurred during the year, the benefit may be calculated on an annual basis by calculating the sum of the outstanding balance on the first and last day of the year and dividing this by two. The company must state the benefit in kind on form 281.20.
If settlement of the current account is not possible, and in order to avoid the high interest rate, it may be a good idea to convert the current account into a ‘non-mortgage loan with a fixed term’. The benefit will then be calculated on the basis of the term and a monthly charge percentage of 0.12% (2022). For a five-year loan, for example, the actual annual charge rate will then be 2.83% (instead of 7.14%).
On the other hand, a business manager who makes money available to his or her company is entitled to interest. The question then arises as to how much interest the company can/is allowed to pay and how the manager is taxed on this.
Interest on debts, loans, etc. is only deductible to the extent that it does not exceed the ‘market interest rate’. However, this concept has not been defined, giving rise to uncertainty and/or disagreements with the tax authorities. Since 2020, the market interest rate has been linked to the ‘MFI interest rate’ (i.e. interest rate charged by Belgian monetary financial institutions to non-financial institutions for loans of less than EUR 1,000,000 with a term of less than one year). The ‘market interest rate’ for a current account is equal to the MFI interest rate of November of the previous year plus 2.5%. This means that for 2023, the business manager could receive interest of 5.7% (compared to 4.07% for 2022), which is subject to final withholding tax of 30%.
If the outstanding debt (including current account) is higher than the taxed reserves (at the beginning of the financial year) and the paid-up capital (at the end of the financial year), interest paid is regarded as a dividend. The withholding tax on this is also 30%, but a dividend is not deductible. Reclassification therefore increases the company’s taxable basis.
