A closer Look at Shareholder Loans
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Shareholder loans are widespread, but many entrepreneurs are unaware of how quickly a seemingly harmless loan can lead to tax or legal pitfalls. In this article, we will focus on active loans. This can lead to tax disadvantages, legal disputes or even the personal liability of board members.
An active loan represents a receivable of the company from the shareholder. Regardless of the label—whether it’s called a loan, current account, or customer credit—the basic function of an active loan remains the same. Additionally, receivables from persons close to the shareholder (relatives, spouses, etc.) must also be classified as shareholder loans.
According to Article 716a, Paragraph 1 of the Swiss Code of Obligations (CO), the Board of Directors is responsible for the granting of active loans. Therefore, it is essential that the Board is aware of the risks associated with such loans. In small and medium-sized enterprises (SMEs), it is common for a shareholder to also be a member of the Board of Directors. In such cases, according to Article 718b CO, a written loan agreement is required. Moreover, it must be ensured that majority shareholders do not disadvantage minority shareholders if multiple shareholders are involved in the company.
In practice, the structuring of loans plays a crucial role. Both from a commercial law perspective, especially regarding the prohibition of return of capital contributions, and from a tax perspective, particularly in the classification of disguised loans, it is of utmost importance to grant loans on market terms. The following parameters are considered market-compliant:
FTA minimum rates
| Year | Financed from equity | Financed from debt capital |
|---|---|---|
| 2025 | 1.00 % | 1.00 % |
| 2024 | 1.50 % | 1.50 % |
| 2023 | 1.50 % | 1.50 % |
| 2022 | 0.25 % | 0.25 % |
According to Article 680, Paragraph 2 of the Swiss Code of Obligations (CO), shareholders have no right to demand the return of the capital they contributed, either directly or indirectly, from the company. Share capital represents the legally protected minimum capital of the company and must not be used for distributions to shareholders. Active loans to shareholders could thus be considered a concealed repayment of share capital, which would violate the prohibition of return of capital contributions.
The arm’s length principle is used to assess the loan relationship and examines whether the loan would have been granted under the same conditions in a competitive market. The exact assessment criteria are not explicitly defined by law. However, EXPERTsuisse has outlined the following potential criteria for evaluation:
The auditor performs checks to ensure that the prohibition of return of capital contributions has not been violated. This review also includes the proposed use of profits as submitted by the Board of Directors. If violations of Article 680, Paragraph 2 CO are detected, they are reported in writing to the Board of Directors and noted accordingly in the auditor's report (modification).
If the prohibition of return of capital contributions is violated, the loan agreement becomes null and void. Additionally, it must be reviewed whether the shareholder is required to repay funds according to Article 678, Paragraph 2 CO.
If a loan violates tax regulations, the tax authorities may classify it as a disguised profit distribution.
From a tax perspective, the following points are evaluated:
A disguised profit distribution results in the loan being treated as a dividend to the shareholder. Profit distributions are generally subject to withholding tax. If the withholding tax is not passed on to the recipient (shareholder), a gross up calculation is applied. Additionally, in such cases, there is no guarantee that the withholding tax can be reclaimed. The company is also required to create a negative reserve in its tax balance sheet for the amount of the reclassified loan.
Shareholder loans are sensitive and require careful planning and documentation. Active loans must be structured on market terms to avoid legal risks and comply with the prohibition on the return of capital contributions. The Board of Directors is responsible for these loans and should strictly avoid conflicts of interest. Disguised loans can be classified as hidden profit distributions, leading to tax consequences for shareholders.
Companies must therefore strike a balance between utilizing shareholder loans and adhering to legal requirements in order to achieve their business goals while minimizing legal risks.
Are you considering granting a shareholder loan? Do not hesitate to contact us! We can help you minimize legal and tax risks and optimally safeguard your business.
