Director and shareholder loans in Cyprus: money into and out of your company

A transfer labelled "director loan" explains nothing on its own. It could cover a new company's rent, pay a founder back for a business purchase, or pay for the founder's private holiday. Those transactions shouldn't vanish into one unexplained balance.

Ask one question. After this transaction, does the company owe you, or do you owe the company? Write down the answer before you choose the ledger account.

What is a director's loan account?

It's the bookkeeping record of what the company and a director owe each other. A shareholder who isn't a director can have a loan balance with the company too. Keep a separate account for each person, so one person's repayment can't hide another person's borrowing.

These are starting points for the bookkeeping. The agreement and the actual facts decide the final treatment. Our share-capital guide explains why equity and a repayable loan aren't interchangeable labels.

How do you record money you lend to the company?

As a debt the company owes you, not as a sale. Say you transfer €10,000 of your own money into the company's bank account under a documented loan. In this example entry, the company debits bank €10,000 and credits the amount owed to you €10,000. It has received cash and taken on a liability. It hasn't made a sale.

If the company later repays €2,000 of principal, the amount you lent, debit the loan liability and credit bank by €2,000. The remaining principal is €8,000. Record any interest separately, following the agreement and the treatment that applies.

Keep the agreement, the approval, the bank transfer and the repayment schedule together. State the parties, currency, amount, interest terms, repayment terms and purpose. A bank narrative alone can't prove all of that. If the loan is in another currency, use the foreign-currency bookkeeping guide alongside the loan record.

What if you paid a business cost personally?

Record the purchase from its invoice and note who paid it. The amount the company owes you should trace back to those documents. A reimbursement clears that balance. It shouldn't create a second copy of the expense.

Say you pay for a €600 company purchase with your personal card. If it's genuinely a company cost, the records show the cost or asset and €600 owed to you, with VAT handled separately. When the company pays you the €600, the liability clears. Booking both the purchase and the reimbursement as expenses would count the same cost twice.

Costs from before incorporation need their own review. Read pre-establishment expenses rather than assuming every early personal payment belongs in the new company's accounts.

What changes when the company lends to you?

You now owe the company, and that can have tax consequences even if you plan to repay. Cyprus's Income Tax Law provides for a monthly deemed benefit, calculated at an annual rate of 9%, on specified loans and financial facilities to individual directors, shareholders and connected family members. A deemed benefit is income the law treats you as having received. The law also deals with the balance used and with collecting the tax through withholding.

That 9% is a way to calculate a benefit. It isn't a flat 9% tax on the loan, and it doesn't permit you to withdraw any amount. Check your residence, the nature of the balance, the related-party rules and the current law against your actual case. A loan between companies isn't automatically treated like a loan to an individual.

Here's a simple illustration. Take a €12,000 balance that falls under the annual 9% benefit calculation for a full month. The monthly benefit is €90, which is €12,000 × 9% ÷ 12. The tax on that benefit depends on the tax treatment that applies to you. The illustration doesn't calculate that tax, or decide whether a particular advance falls within the rule.

Can a loan replace salary or dividends?

No. Don't use a loan label to avoid deciding what a payment really is. Salary should follow the employment and payroll records. Dividends need the right company decision and distributable profits. Loan repayments should settle a real debt with evidence behind it.

Start with salary versus dividends when deciding how to pay yourself. Then use the loan account only for transactions that belong there. A plan to "sort it out at year-end" leaves both the company's cash and your own position unclear.

Loans between related parties can also raise questions under the arm's-length provisions, which expect the terms that unrelated parties would agree. Have the interest and documentation requirements checked before you sign a loan, including when you lend to the company interest-free. Don't copy a rate from a different transaction, or assume every shareholder loan has the same reporting obligations.

What should you check each month?

That every movement matches a bank transaction or a source document. Agree the opening balance, additions, repayments and closing balance. Spot any point where a debt the company owes has turned into money the owner owes the company. Keep approvals and explanations beside the entries.

Before year-end, ask the owner to confirm the balance, and look into old amounts. A round figure carried forward for several years is not evidence of a loan. The year-end checklist explains how these balances fit into the wider close.

How does Sumly help with owner balances?

Sumly supports director-loan bookkeeping and keeps documents linked to their accounting entries. Bank reconciliation helps you match the actual transfers to the loan account. A manual journal can record an approved adjustment, with an explanation.

Bring uncertain withdrawals to us before you make another transfer. The work starts with identifying the transaction. Then comes the right bookkeeping, and then a review of the tax position. On Premium, your Sumly certified bookkeeper can review the records with you. The software won't decide that a personal withdrawal is tax-free.

Common questions