Lending money to your own SL without it costing you a headache

Lending is not contributing: the difference that decides everything else

When a shareholder puts money into their SL there are two possible legal figures, and mixing them up is expensive. A contribution (a capital increase or a shareholder contribution to equity) increases the company's net equity, creates no automatic right of repayment and carries no interest, because it is not a debt. A loan is the opposite: article 1753 of the Civil Code says that whoever receives money as a loan acquires ownership of it «and is obliged to return to the creditor the same amount of the same kind and quality», so the company becomes its shareholder's debtor.

The boundary also has an immediate tax consequence inside the company. Article 15.a) of the Corporate Income Tax Act excludes from deductible expenses «those representing a remuneration of own funds»: a dividend never reduces the taxable base. Loan interest, by contrast, is a deductible financial expense, subject to the cap in article 16.1, which limits the deduction of net financial expenses to 30 % of the year's operating profit but always leaves the first million euros deductible, a floor no small SL gets anywhere near.

The most common mistake is not choosing badly, it is not choosing at all. The money lands in the company's account without anyone deciding what it is, ends up in a vague bridge account, and when it leaves nobody knows whether it is the repayment of a loan or a disguised profit distribution, which is taxed in a completely different way. A practical hint once doubt has crept in: if repayment was ever agreed, even verbally, there was an intention to lend, and it is worth formalising it as such rather than letting the ambiguity run for another financial year.

This money is also different from whatever the shareholder is paid for managing or working for the company, which follows its own rules in the guide on paying yourself as a director of a Spanish SL.

Interest is not optional: the law values it at market price

Under civil law you may lend for free: article 1755 of the Civil Code says that «no interest shall be owed unless it has been expressly agreed». Tax law does not work that way. Article 18.1 of the Corporate Income Tax Act is categorical: «transactions carried out between related persons or entities shall be valued at their market value», understood as «the value that would have been agreed by independent persons or entities under conditions respecting the arm's length principle». It is not a choice of the parties: it is the valuation rule.

Article 18.2 confirms your loan falls inside that perimeter: related parties include «an entity and its shareholders or members» (letter a) and «an entity and its directors or managers, except as regards the remuneration for the exercise of their duties» (letter b). The nuance almost nobody reads sits in the closing paragraph of that section: where the relationship is defined by the link between the shareholders and the entity, «the shareholding must be equal to or greater than 25 per cent». The link through being a director carries no percentage, and the same paragraph clarifies that the reference to directors «includes both de iure and de facto directors». A 10 % shareholder who also manages the company is still a related party under letter b).

The law publishes no reference rate. Article 18.4 lists the accepted valuation methods and article 18.9 lets you ask the tax authority for an advance pricing agreement, effective for transactions carried out after its approval and valid for no more than the four following tax periods. Meanwhile, proving that a given rate is a market rate falls on whoever defends it: write down what it was compared against, and review it on loans that run for years, because a rate that was reasonable in the year it was signed may stop being one later.

Agreeing on zero is not neutral: the correction in article 18.11

If the agreed value is not the market value, article 18.10 allows the tax authority to review the transaction and «make the corrections that are appropriate under the terms that would have been agreed between independent parties», and it is then bound by that correction with respect to the other related parties. With one limit: the correction cannot result in taxing, for all the parties taken together, income higher than that actually derived from the transaction.

What happens to the difference is set out in article 18.11: «the difference between the two values shall have, for the related persons or entities, the tax treatment corresponding to the nature of the income revealed as a result of that difference». And for the shareholder to entity relationship it spells the split out. Where the difference is in favour of the entity, which is exactly the case of an interest free shareholder loan, the part matching the shareholding percentage «shall be treated as a contribution by the shareholder or member to the entity's own funds, and shall increase the acquisition value of the shareholder's stake»; the part not matching that percentage «shall be treated as income for the entity, and as a gift by the shareholder or member».

In plain terms: a free loan is not merely a badly drafted contract, it has a tax reading of its own. In a single member company, where the shareholding is 100 %, the natural result of that rule is that the interest never charged is read as a contribution to own funds that increases the acquisition value of the shares, not as a favour without consequences.

The same section leaves an orderly way out: it does not apply «where there is a restitution of assets between the related persons or entities under the terms established by regulation», and that restitution does not create income for the parties involved. There is, then, a path to undo the mismatch, but it has to be taken properly and in time, not discovered during a tax audit.

How the loan is documented, and the book the single shareholder must keep

The loan is documented in writing, with the amount lent, the interest rate, the schedule for repaying principal and settling interest, and the start date. No notarial deed is needed for it to be valid between the parties, but you should be able to evidence when it was actually signed, so that nobody later argues about whether the contract was drafted at the time or after the fact.

If the company is a single member company, the contract carries an extra duty. Article 16.1 of the Companies Act requires contracts between the sole shareholder and the company to be in writing «or in the documentary form required by law according to their nature» and to be transcribed «into a company register book which must be legalised in accordance with the rules for companies' minute books», adding that the annual accounts' notes «shall make express and individualised reference to these contracts, stating their nature and conditions».

This is not decorative. Article 16.2 says that, in the insolvency of either the sole shareholder or the company, contracts not transcribed into that register book and not referenced in the annual notes, or referenced in notes that were not filed as the law requires, «shall not be enforceable against the insolvency estate»: a loan without that trail can end up worth, against the other creditors, exactly what it would be worth if it had never existed. And article 16.3 adds that for two years from the date of the contract the sole shareholder is liable to the company for any advantage obtained, directly or indirectly, to the company's detriment. The four duties of single member status are covered in the guide on the single member Spanish SL.

Separate from that is the transfer pricing documentation of article 18.3 of the Corporate Income Tax Act, with simplified content where net turnover is below 45 million euros. Article 13.3.d) of the Act's Regulation exempts from that specific documentation the transactions carried out with the same related person or entity «provided that the amount of the consideration for all the transactions does not exceed 250,000 euros, according to market value». Staying below that saves you the transfer pricing file, not the contract nor the duty to agree a market interest rate.

Neither VAT nor stamp duty: the two taxes that do not show up

Two taxes people fear do not appear here. The first is VAT: article 20.Uno.18.º of the VAT Act exempts a list of financial transactions, and its letter c) is «the granting of credits and loans in money, whatever the form in which they are arranged»; letter d) extends the exemption to «the other transactions, including management, relating to loans or credits carried out by those who granted them in whole or in part». Charging interest on your own loan is therefore not a transaction on which you charge VAT, and no VAT invoice should be issued for it.

The second is transfer tax and stamp duty. Article 45.I.B).15 of its consolidated text exempts «cash deposits and loans, whatever the form in which they are arranged, including those represented by promissory notes, bonds, debentures and similar instruments». The exemption sits in the state law and does not depend on how the loan is documented. What is worth checking is whether your autonomous region asks you to file the self assessment even though the transaction is exempt, because that is paperwork, not tax due.

Do not confuse the loan's exemption with a general exemption for the shareholder. What is exempt is the financial transaction, not anything the shareholder does for the company: if you also invoice hours, professional services or the rent of a property, that follows its own regime, with its VAT where due and with its own related party rules.

No indirect tax does not mean the loan is invisible either. What it generates are the withholding duties in the next two sections, which are exactly the ones people forget.

Withholding on the interest: how much, who pays it in and when it arises

This section and the two that follow describe a shareholder who is tax resident in Spain; if you lend from abroad, the circuit is a different one and has its own section further down. The interest the company pays you is, for you, investment income. Article 25.2 of the Personal Income Tax Act puts in that category «consideration of any kind, whatever its name or nature» obtained from transferring own capital to third parties, and names interest expressly. Article 75.1.b) of the Act's Regulation subjects that income to withholding, and article 76.1.a) places the duty to withhold on «legal persons and other entities» paying it: the company withholds and pays in, not you.

The rate is 19 %, set by article 101.4 of the Personal Income Tax Act («the withholding and payment on account rate on investment income shall be 19 per cent») and repeated in article 90.1 of its Regulation. The base is, under article 93.1 of that same Regulation, «the gross consideration due or paid»: the gross interest, not the net amount that reaches your account nor the outstanding balance of the loan.

Timing is the detail that causes most late payments. Article 94.1 of the Regulation says the duty to withhold arises «at the moment the investment income subject to withholding becomes due, in cash or in kind, or upon its payment or delivery if earlier», and spells this case out: «interest shall be deemed due on the maturity dates set out in the deed or contract for its settlement or collection, or when it is otherwise recognised in the accounts, even if the recipient does not claim payment or the income is added to the principal of the transaction».

Put differently: if the contract says interest falls due on 31 December, there is withholding to pay in on that date even if the shareholder has not seen a single euro and even if the interest is rolled into the principal. It is the same mechanism that governs withholding on dividends, and the same perennial mistake: anchoring the withholding to collection instead of to the date it falls due.

Modelo 123 every quarter and modelo 193 every January

The withholding is paid in through modelo 123, the return for withholdings and payments on account on certain investment income, a sibling of modelos 111 and 115, which do the same for payroll, professionals' invoices and rents. The deadline is the general one for withholdings: article 108.1 of the Personal Income Tax Regulation orders the filing, «within the first twenty calendar days of April, July, October and January», of the return of the amounts withheld «for the immediately preceding calendar quarter», paying the amount into the Treasury. For withholders meeting the circumstances of article 71.3 of the VAT Regulation, that return becomes monthly, within the first twenty calendar days of each month.

The same paragraph settles a very common doubt: a nil return is due where income subject to withholding was paid but, because of its amount, no withholding was appropriate; no nil return is due where no income subject to withholding was paid at all during the period. A loan whose interest falls due once a year does not force you to file the other three quarters blank.

Every January comes the annual summary, modelo 193, which recaps by recipient what was declared quarter by quarter and must reconcile with the year's 123 returns. Article 108.2 of the Regulation places that annual withholding return «within the first twenty calendar days of January» and extends the deadline to the period «between 1 January and 31 January of the following year» where it is filed on computer readable media. The 193 pays nothing new in: it is the annual picture of what was already declared.

A loan running for several years generates this pair of duties in every financial year with interest falling due, so it lives in the company's permanent tax calendar and not in the paperwork of the year the contract was signed. If a deadline slips, the way out is in the guide on missing a tax deadline: the duty to pay does not disappear, and the surcharge grows with the delay.

What the shareholder declares in their return, and the article 46.a) excess

In your personal return you include the gross interest, before withholding, and then deduct the withholding already made as a payment on account, just as with any other income subject to withholding. Nothing unusual so far.

The surprise is where it is taxed. Article 46.a) of the Personal Income Tax Act places in the savings income the investment income of sections 1, 2 and 3 of article 25, but immediately adds an exception written for this exact case: «the investment income provided for in section 2 of article 25 of this Act corresponding to the excess of the amount of own capital transferred to a related entity over the result of multiplying by three the own funds, in the part corresponding to the taxpayer's shareholding in that entity, shall form part of the general income».

That is: if what you have lent your company exceeds three times its own funds in the part corresponding to your shareholding, the interest on that excess is not taxed in the savings base but in the general base, alongside your employment income and at progressive rates. The article itself says how it is measured: the own funds are those in the balance sheet «for the last financial year closed before the tax accrual date» and the shareholding is the one existing on that date; and where the relationship is not defined by the shareholder to entity link, the shareholding percentage to be used is 25 %.

The savings base rate scale lives with its table in the guide on paying dividends from a Spanish SL, and this guide does not rewrite it: the loan interest goes into that same savings base as long as there is no excess. What differs from a dividend is precisely this: a dividend never jumps to the general base because of a debt ratio, and shareholder interest does.

Lending from abroad: the non-resident shareholder follows another law

Everything the three previous sections say describes a shareholder who is tax resident in Spain. If the person lending the money is not, personal income tax does not reach them and the whole circuit changes. Interest paid by a resident company is income obtained in Spanish territory under article 13.1.f).2.º of the consolidated Non-Resident Income Tax Act, which places there «interest and other income obtained from transferring own capital to third parties paid by persons or entities resident in Spanish territory».

The first question is not how much to withhold but whether there is anything to withhold. Article 14.1.c) of that same consolidated act exempts «interest and other income obtained from transferring own capital to third parties referred to in article 25.2» of the Personal Income Tax Act when it is obtained by residents «in another Member State of the European Union or in another State of the European Economic Area», or by permanent establishments of those residents situated in another State of the Union or of the European Economic Area. For European Economic Area States outside the Union, the exemption also requires an effective exchange of tax information. The exceptions the article adds next do not touch the loan: they speak of capital gains from the transfer of shares, holdings or other rights in an entity, not of interest. A shareholder resident in the European Union who lends to their Spanish SL therefore earns exempt interest.

Outside that perimeter the rate is the 19 % of article 25.1.f).2.º, applied to the gross amount with no reductions (article 24.1), unless the double taxation treaty of the shareholder's country sets a lower limit: that limit is applied directly by whoever pays, on payment (article 31.2). Each treaty sets its own, so the one for the specific country has to be read.

The company withholds, just as before: article 31.1.a) puts the obligation on «entities (...) resident in Spanish territory». What changes is the forms, and this is where the mistake is made most often: not modelo 123 and modelo 193 but modelo 216 and modelo 296. Article 4 of Order EHA/3290/2008 puts the 216 within the first twenty calendar days of April, July, October and January, and makes it monthly for those treated as large companies; its article 11, as worded by Order HAC/56/2024, puts the annual summary 296 between 1 and 31 January of the following year. And exempt interest does not close the file: article 31.4.a) says no withholding is due «without prejudice to the obligation to file», article 2.2 of the Order requires the 216 precisely in those cases, and the list of income excluded by its article 2.3 does not reach the interest of article 14.1.c): its first case is the income of article 14.1.a) and the rest are about securities issued in Spain by non-residents, non-resident accounts and State and regional book-entry debt. Exempt interest is reported all the same.

The document that holds all this together is the tax residence certificate. Article 17.2 of the same Order requires, in order not to withhold because of an exemption in Spanish domestic law, a certificate issued by the tax authorities of the country of residence; and to apply a treaty limit, one expressly stating that the taxpayer is resident «within the meaning defined in the Convention». Both are valid for one year from issue. Without that document the tax is withheld, and the refund is claimed afterwards.

What residence does not change is the other half of this guide. Article 18.2.a) of the Corporate Income Tax Act treats «an entity and its shareholders or members» as related parties without asking where they live, so the market interest, the correction in article 18.11 and the status of related party transaction stay exactly the same. What disappears is the personal income tax leg: the excess in article 46.a) is a rule of the savings base and does not reach someone who is not a taxpayer of that tax. And once the withholding has been applied, or where the income is exempt, the shareholder is not required to file a return for it (article 7.3 of the Non-Resident Income Tax Regulation), which usually makes modelo 210 unnecessary for that interest. The full picture is in non-resident taxation in Spain and, if you also run the company from abroad, in non-resident director of a Spanish SL.

When the loan drags the company into the modelo 232

A shareholder loan is, by definition, a related party transaction, so it is on the radar of the modelo 232, the informative return approved by Order HFP/816/2017. Its article 2 sets the filing rules, and meeting just one of them is enough:

• Transactions with the same related person or entity whose combined amount in the tax period exceeds 250,000 euros, according to market value (article 2.1.a).
• Specific transactions whose combined amount, for each of those types of transaction, exceeds 100,000 euros; these are the ones excluded from the simplified content of the documentation (article 2.1.b).
• Regardless of the amount, transactions of the same type that also use the same valuation method, where together they exceed 50 % of the entity's turnover (article 2.3).

The loan does not go in as a single block. Article 3.1.f) classifies transactions by keys, and two apply here: key 5, «debt financial transactions: creation/repayment of credits or loans, issue/redemption of debentures and bonds, etc. (interest excluded)», and key 9, «interest on credits, loans and other financial assets representing debt». Principal created or repaid during the year goes under key 5; accrued interest under key 9. The outstanding balance is not, on its own, a transaction of the period.

Article 4 gives the deadline: the return is filed «in the month following the ten months after the end of the tax period to which the information refers», which for a calendar year company means November of the following year, several months after filing the corporate income tax return, when nobody remembers the loan any more.

The review that avoids the scare takes minutes: add up the principal moved during the year and the interest accrued, compare them with the three thresholds and write the conclusion down before closing the financial year. Whether the principal, and not only the interest, counts towards rules 1 and 3 is a point worth checking with an adviser for your specific case.

Repaying the loan, capitalising it or leaving it in place

At the end of the road there are three exits. Repayment of the principal under the agreed schedule creates no income for the shareholder: getting back what you lent is not income, the income was the interest, already declared at the time.

Capitalisation turns the debt into shares through a capital increase by set off of credits. In an SL, article 301.1 of the Companies Act requires the credits to be set off to be «fully liquid and due» (the public limited company has a different regime: at least 25 % liquid, matured and due, and the rest maturing within no more than five years). Article 301.2 requires that, when the general meeting is called, the shareholders be given a report by the management body on «the nature and characteristics of the credits to be set off, the identity of the contributors, the number of shares to be created or issued and the amount of the increase», expressly stating «that the data on the credits agree with the company's accounts»; that report is later incorporated into the public deed documenting the execution of the increase (article 301.5). It is the natural route when the company has no cash to repay but does need to strengthen its net equity.

The third exit is leaving it in place, extending the contract while neither party needs the money. There is only one piece of advice here, and it is about form: put the extension in writing and say whether the economic terms change. A loan extended indefinitely, with no rate review and with the agreed interest never actually claimed, is the one that defends the market valuation of article 18.1 worst on the day somebody looks at it closely.

How kontora handles it

kontora records the loan with its rate, accrues the interest by period, applies the withholding and posts the journal entry, and that same interest then shows up in the quarterly modelo 123 draft and in the January modelo 193 draft, without you having to remember it. It also classifies it as a related party transaction, so the modelo 232 draft comes out with it inside. You file the drafts yourself. That withholding, modelo 123 and modelo 193 circuit is the one for a shareholder who is tax resident in Spain: if the shareholder ledger says the recipient is not resident, kontora blocks the interest accrual and says so, because that interest belongs on modelo 216 and modelo 296, which kontora does not generate.

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