Loans between partner and company: Implications for corporate and personal income tax in Spain
Javier Ortega
by Javier Ortega
It is quite common in Spain for the shareholders of a commercial entity to contribute funds from their personal assets to strengthen the company’s cash flow and to be able to meet their payment obligations without having to go to a financial institution.
The usual practice is for the shareholder to contribute these funds to the company without any further formalities, recording it on the company’s balance sheet as a debt to the shareholder.
This is still a loan that the shareholder makes to the company and which must be formalised by means of a contract, settling it in the corresponding autonomous community (self-governing region) by means of the relevant form. It results in zero tax liability as it is a transaction subject to but exempt from transfer tax and stamp duty (ITP-AJD) as it is not signed with any guarantee.
The company records the transaction in its balance sheet, and accounts for the interest expense to be paid to the partner, making the corresponding 19% withholding, which must be paid through the corresponding self-assessment form. What is an expense for the company becomes income for the individual shareholder, who is thus required to pay personal income tax.
How is the interest accrued on the loan valued?
To answer this question we must turn to Article 18.1 of Law 27/2014, November 27, From Corporate Income Tax, which indicates that the interest paid must be settled at market value, as these are transactions between related parties.
It is important to note that even if the interest payable to the shareholder is due, for example, at the end of the life of the loan, the company must account for the annual interest that accrues as a deductible expense on an annual basis. The shareholder declares the interest income when it comes due according to the contract, and the company then withholds 19% on this income.
Should the loan be declared in the information return Form 232 on related-party transactions?
The loan from the shareholder to the company is a related-party transaction, and must be included in Form 232 if all the transactions carried out in the tax period meet any of the following requirements:
That being of the same type and valuation method, it is greater than 50% of the entity’s turnover;
It exceeds the limit of EUR 100,000 in specific transactions of the same type; or
It exceeds the limit of EUR 250,000 in transactions carried out with the same person or related entity.
How is the interest received by the individual partner taxed for personal income tax purposes? Is it included in the general base or in the savings base?
The interest received by the individual shareholder on amounts transferred to the company forms part of the savings base, subject to the limit of multiplying the company’s equity by three in proportion to the shareholding in the company. The excess calculated, considering the related entity’s funds from the last financial year and the shareholder’s percentage at that date, will be taxed in the general tax base.
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Ruiz Ballesteros Lawyers and Tax Advisors, established in 2005, excels in accounting, tax, and commercial law advisory. The firm provides comprehensive solutions for a broad range of sectors, offering personalised and superior service. Known for its dedication to excellence and continuous improvement, Ruiz Ballesteros is synonymous with trust and high-quality advisory services.
Javier has a degree in Business Administration from the University of Málaga, and has specialised in accounting and tax advisory since joining Ruiz Ballesteros in 2017, adding to his 16 years of prior experience in a prestigious firm. He is committed to continuous learning, is fluent in English, and focuses on accounting and tax services for both corporations and individuals. Contact Javier.
