Enlighten your future New rule concerning interest rates applicable on current debtor accounts held by shareholders in companies subject to corporate income tax (IRC)
Interest rates applicable on current debtor accounts held by shareholders in companies
A new circular from the director of contributions L.I.R. n°164-1 of January 29, 2025 provides new clarifications concerning the debtor interest rates on current accounts held by shareholders in companies subject to the IRC.
The circular makes a distinction between the shareholder who is natural person and the shareholder which is a related company :
- If the shareholder is a natural person, the interest rate applicable to the current debit / debtor accounts must be determined according to the market conditions in the same way as it would have been determined for a loan agreed between independent operators on a free market, in accordance with the arm's length principle.
In particular, an interest rate equal to the annual interest rate of consumer credits, as provided by any supporting document, is permitted. It will thus be possible to refer to the average of the monthly rates as part of the operating results of a given company , which figures also appear in the monthly statistics published by the Central Bank of Luxembourg concerning the interest rates applied by the Luxembourg credit institutions as far as deposits and loans in euros are concerned.
In accounting, interest is taken into consideration at the end of the operating year.
If the current account is a debtor account throughout the entire operating year, interest can be calculated by applying the amount of interest rate determined according to market conditions which is the arithmetic average of the amounts in the debtor current account at the beginning and at the end of the operating year.
If the current account did not become debtor during the financial year, or if there were significant variations in the balances, the arithmetic average of the debit balances at the end of the different months must be considered.
- If the shareholder is a related company, the interest rate on the receivables between parent companies and subsidiaries or between companies part of the same group, is determined on a case-by-case basis, in accordance with the arm's length principle. It will depend on the currency used, the exchange rate risk, the hedging risk, the refinancing interest rate, the maturity of the debt, etc.
Link to the circular:
