Director's loan account and private use of a company car
Mr Peeters is the sole director and shareholder of Peeters Consulting bv, a Belgian SME taxed as a small company. During 2024 he withdrew €60,000 from the company account in small amounts, recorded in a current account (rekening-courant) without a written agreement. The company also leases a car (CO2 105 g/km, catalogue value €42,000 including VAT) that Mr Peeters uses about 70% privately. The accountant booked the full lease cost, €9,600 excluding VAT, as a deductible expense and recorded no benefit in kind for the private use. The company has taxable profit of about €85,000 before any corrections. Mr Peeters argues the withdrawals are simply repayment of money he lent the company years ago, but there is no documentation of such a loan.
1. Analyse the tax treatment of the €60,000 current account withdrawals and the private use of the car. Identify the corrections you would propose and the risks if they are not made.
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Current account: a debit balance in the director's current account is a receivable on the director unless a genuine loan from the director to the company is documented. Mr Peeters bears the burden of proving the loan; without a written agreement, repayment schedule or interest terms, the claim is weak. If the balance is treated as a loan to the director, Belgian tax law may recharacterise it as a dividend (voordelig uitkering) if it exceeds the limits for current account advances and is not repaid within the required period, or the tax administration may treat it as a hidden dividend. At minimum, interest at the reference rate should be imputed and the company should recognise interest income.
Car: private use of a company car is a benefit in kind taxable to the director. For a leased car the taxable benefit is generally calculated on the catalogue value and CO2 emissions, with a minimum amount. With a catalogue value of €42,000 and 105 g/km, the benefit is roughly €42,000 × 4% × 6/7 for a petrol car, subject to the CO2 coefficient and the minimum. The 70% private use does not change the statutory lump-sum method, but it supports the conclusion that the benefit is due. The company must report the benefit on the director's pay slip and withhold payroll tax; the lease cost remains deductible in full if the car is used for business, but the benefit must be taxed.
Corrections: recognise the receivable or dividend, impute interest, report the car benefit, and adjust payroll tax. Risks: additional assessment, late-payment interest, penalties, and potential personal liability of the director.
2. The client wants to avoid the dividend recharacterisation by repaying the current account before the end of the year. What conditions must be met, and what would you advise?
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Repayment can avoid recharacterisation only if it is genuine and timely. The key conditions are: (1) the advance must be repaid within the period set by law (generally before the end of the taxable period or within the statutory grace period); (2) the repayment must be real - actual transfer of funds, not a bookkeeping entry or a new loan; (3) the director must have the means to repay, and the company must not simply lend the money back shortly afterwards; (4) the current account should be documented with a written agreement, an interest rate at least equal to the reference rate, and a repayment schedule.
Advice: quantify the dividend withholding tax and personal tax cost of recharacterisation versus the cost of genuine repayment. If Mr Peeters can repay from personal funds, arrange the transfer before year-end and document it. If he cannot, consider a formal dividend distribution with the correct withholding tax, or a salary increase, rather than an undocumented advance. Warn that a circular repayment followed by a new advance is likely to be challenged as an abuse of law. Also review the car benefit for the full year and regularise the payroll before the tax authorities raise the issue, since voluntary regularisation is usually cheaper than an assessment.