UKKO Light Entrepreneur
UKKO Entrepreneur
UKKO Light Entrepreneur
UKKO Entrepreneur
A shareholder loan is a cash loan granted by a limited liability company to one of its shareholders or to a person belonging to the shareholder’s close circle, such as a spouse.
As a general rule, the loan is taxed as capital income of the borrower in the year in which the loan was withdrawn, if it is not repaid during the same calendar year. A loan granted by a limited liability company always entails an obligation to repay the loan to the company.
A shareholder loan must always be supported by a board resolution—a set of minutes from the board meeting at which the granting of the shareholder loan was agreed—and an appropriate promissory note.
A cash loan received from a limited liability company during the tax year is taxable capital income for an individual if the borrower or their family members, either individually or jointly, own at least 10% of the company’s shares or have a corresponding proportion of the voting rights conferred by all the company’s shares.
The ownership interest is calculated based on the borrower’s situation at the end of the tax year, on 31 December (Section 53a of the Income Tax Act).
In the UKKO Entrepreneur Limited Liability Company Service, you can check the status of a shareholder loan on the balance sheet under “Receivables from shareholders” (account 1755 in the accounting records).
Important points to note regarding shareholder loans
Taxation
If the loan is not repaid during the same year, it is treated as capital income under the Income Tax Act.
Interest
Under Section 53a of the Income Tax Act, no interest needs to be charged on a shareholder loan that is taxed as capital income. Interest that is not charged is not considered a disguised dividend under Section 29 of the Tax Procedure Act.
Repayment
In principle, an individual may deduct the repayment of a shareholder loan that has been taxed as capital income from their capital income as an income-acquisition expense. However, the repayment is deductible only if the borrower repays the loan no later than the fifth year following the year in which the loan was withdrawn (Section 54c of the Income Tax Act). From a civil-law perspective, the debt relationship does not end even if the loan is not repaid within five years. However, after the time limit specified in the Income Tax Act, the repayment is no longer deductible for tax purposes.
A deductible repayment of a shareholder loan may be made not only through a cash payment but also by set-off. A set-off requires a counterclaim against the company that is legally eligible for set-off, such as salary, expense reimbursements or a dividend that has been resolved for distribution. Salary and dividends used for the set-off are taxed as income for the relevant tax year despite the set-off. It should also be noted that only the net amount of the payment is eligible for set-off after any withholding tax and other statutory deductions withheld from the payment.
Documentation
The promissory note and the board resolution are essential evidence that the transaction does not constitute a disguised dividend.
Reporting
A limited liability company reports the total amount of a shareholder’s shareholder loan on its tax return as at the end of the company’s financial year. However, for an individual, a shareholder loan is always taxed as capital income based on the amount withdrawn during the calendar year that remains unpaid at the end of that calendar year.
The limited liability company must report this amount to the Finnish Tax Administration on an annual information return. UKKO.fi submits this report on behalf of limited liability companies using our service.
Capital-income-taxable shareholder loans withdrawn by individuals, as well as their repayments, appear on the pre-completed tax return based on the annual information return submitted by the limited liability company. The borrower must nevertheless check the information on the pre-completed tax return, correct any errors and provide any missing information.