IRAS’ Guidelines On Determining Shareholder’s Loan - the latest position
IRAS CIRCULAR 1 NOVEMBER 2002

The Four Elements

1. There are bona-fide (other than tax) reasons for the company to extend loans to directors/shareholders in their capacity as shareholders, instead of paying them dividends or returning excess capital to them.
   
   
2. The loans are not remuneration nor benefits to directors disguised in the form of loans to shareholders. They are not intended to be dividends or a return of capital.
   
   Evidence of a genuine creditor/debtor relationship between the company and shareholders. Evidence to support that it has reasonable expectation of the loans being repaid.
   
   The terms of the loans should generally be those found in a typical loan arrangement e.g. there is a repayment schedule or repayment terms are provided etc.
   
   
3. The loans are extended to ALL shareholders rather than only to directors/shareholders.
   The loan quantum should be determined on the basis of their respective shareholdings or other equivalent basis and not due to influence or position held by any director/shareholder in the company.
   Similar loan terms (e.g. repayment schedules, interest rate charged, if any etc) should be applicable to ALL shareholders.
   
   
4. Contemporaneous documentary evidence in the form of directors’ or board’s resolutions, approval at shareholders’ meeting, minutes of meetings or other records etc, are available to support that loans are made to the loan recipients in their capacity as shareholders (and not as directors) of the company.
   

<<Back / Next>>