Close companies

Loans to participators and associates

Loans or advances by close companies to participators or their associates must be made under deduction of tax. The loan is treated as if it were an after-tax amount of an annual payment. The company must pay Income Tax at the standard rate on the grossed-up amount of the loan. This tax must be included on the company’s Corporation Tax (CT) Return. The amount assessed is not deductible for CT purposes.

Exclusions

This treatment does not apply where:

  • The loan is made in the ordinary course of the company’s business, and that business includes the lending of money.
  • The loan is a debt for the supply of goods or services in the ordinary course of the company’s business. The period of credit must not exceed 6 months, or the normal period given to the company’s customers.
  • or
  • The loan does not exceed €19,050 and the borrower is a full-time employee (or director) of the company or an associated company. The borrower must not have a material interest in the company or an associated company. A material interest is beneficial ownership or control of more than 5 percent of the company’s ordinary shares.

Repayment of loan

The company can claim a refund of the Income Tax paid if the loan or advance is repaid to the company. If the loan is partially repaid, then the company can claim repayment of a proportionate part of the tax. The claim must be made within four years of the end of the year of assessment in which the loan is repaid.

Write-off of loan

It can happen that part of the loan (or advance) is released or written off. In this case, the amount is treated as income received by the borrower after deduction of Income Tax at the standard rate. The grossed-up amount must be included in the total income of the borrower chargeable to Income Tax. The borrower is given a non-refundable credit for the notional tax deducted.

  • Example

    A close company makes a loan of €12,000 to Sadhbh, who is a shareholder. The company must account for Income Tax as if the loan was a net annual payment after deduction of tax.

    Description

    €

    Grossed-up loan (€12,000 x 100/(100-20))   

    €15,000

    Income Tax at 20%

    (€3,000)

     Net loan

    €12,000

    If Sadhbh subsequently repays the loan, the company can claim a refund of the Income Tax which was applied to the loan. For example, if the net loan of €12,000 is fully repaid, then the company can obtain relief of €3,000. If only €8,000 of the loan is repaid, then the company can obtain partial relief of €2,000 (that is, 3,000 x 8,000/12,000).

    If, in the above example, the full amount of the loan is written off, Sadhbh must include grossed-up income of €15,000 in her Income Tax computation. She will be given a credit for the lesser of €3,000 and the actual Income Tax charged on the write-off amount. The company cannot claim for repayment of the original Income Tax paid by the company.

Published: 19 November 2025 Print this page

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