Sometimes a limited liability company needs additional financing. In this case, you can increase the share capital, obtain capital subsidies from shareholders or apply for a bank loan. However, sometimes the money is needed immediately and there is no time to carry out the procedures related to the above-mentioned methods. In this case, a good solution is to grant a loan to the company by one of the shareholders.
Regulations governing the granting of a loan to a company
As a rule, there are no obstacles for a shareholder or board member to sign a loan agreement with a limited liability company. However, the following principles should be remembered contained in the provisions of the Commercial Companies Code:
- To conclude a loan agreement between a member of the management board and the company, the consent of the shareholders’ meeting is required
- In single-member companies, where the sole shareholder is also a member of the management board, the loan agreement must be concluded at a notary’s office,
- Unless the articles of association provide otherwise, in the case of a loan exceeding twice the amount of the share capital, the consent of the shareholders is required,
- The articles of association may provide for the consent of the indicated body of the company in the case of a loan,
- A loan in the amount of more than PLN 1,000 must be documented, preferably in writing.
A shareholder who grants a loan to a company is exempt from the obligation to pay tax on civil law transactions.
Loan granted to a company and income tax
In the case of a loan that will be interest-free, this gives rise to the obligation to pay corporate income tax on the part of the company. This is because the interest-free loan will constitute income for the company. If the loan had been taken out on the open market, the company would have to pay interest on the borrowed capital, so the amount of hypothetical interest is taxable income.
Income tax on the part of the company can be easily avoided. It is enough that the loan will bear interest. There are two options:
obtaining several offers from banks to confirm that the interest rate on the loan granted by the shareholder is of an arm’s length nature,
inclusion of interest in the agreement provided for in the Act (Safe harbour).
In this case, the regulations provide for an interest rate of 2.4% increased by the value of the index, which varies depending on the currency of the loan. Only the indicator that determines the 3-month cost of a loan on the interbank market is taken into account.
Indicators for the most popular currencies are:
- WIBOR 3M,
- EURIBOR 3M,
- SOFR 3M (zamiast LIBOR USD 3M),
- SARON 3M (zamiast LIBOR CHF 3M),
- SONIA 3M (zamiast LIBOR GPB 3M).
However, in order for the tax authorities not to question the interest rate on such a loan, additional conditions must be met. The length of such a loan cannot exceed 5 years and there may be no additional fees or bonuses associated with granting such a loan. In addition, the level of debt in the company to related parties and partners may not exceed PLN 20 million.
It should also be remembered that although the interest rate on the loan results from the values provided in the Act, the use of the Safe harbour solution is associated with the obligation to report MDR, i.e. to provide information on tax schemes to the head of the National Revenue Administration.
The interest that will be due to the shareholder under the loan agreement concluded between him and the company will constitute his income. Therefore, he will have to pay 19% tax on capital gains.
