CORPORATE SECRETARIAL GUIDE · UPDATED OCTOBER 2026
Director’s loan account: what the balance means and how to clear it
The company card paid for the family holiday. Your personal card paid for the client lunch. A few transfers went to your own account in a tight month at home. None of it felt like a loan. At 31 December the books put all of it in one line: amount due from director. Whether that line is a nuisance or a problem depends on two things you can check in ten minutes: what kind of company you have, and what the balance can be shown to be. This guide covers both, with a worked example, and ends with four ways to clear the balance before the year closes.
WHAT GOES IN
Everything that is not pay, a dividend or a share subscription.
The director’s loan account, often called the director’s current account, records money moving between you and the company that is not salary, a director’s fee, a dividend or a share subscription.
| Increases what you owe the company | Increases what the company owes you |
|---|---|
| Personal costs paid with company money | Company costs you paid personally |
| Cash taken out with no payroll, fee or dividend behind it | Money you lent the company |
| Personal use of a company asset that you agree to pay for | Fees or dividends declared but not yet paid to you |
The account nets these items. If it ends the year owing to the company, it is an asset on the balance sheet: a loan to a director. If it ends owing to you, it is a liability. The direction matters. A director lending to the company is allowed in every company and raises mostly documentation questions, covered further down. Most of this guide deals with the other direction.
STEP ONE
Check whether your company is an exempt private company.
Section 162 of the Companies Act 1967 restricts a company from lending to its directors, or to directors of a related company. It covers more than a cash loan: quasi-loans, credit transactions and guarantees for a director’s borrowing are caught too. The Act defines a quasi-loan as paying a sum for someone on terms that they will reimburse it, or in circumstances that leave them liable to. A company paying a director’s personal bill and charging it to the director’s account is a quasi-loan, which is exactly what a debit balance on that account usually is.
The section reaches the director’s family. For section 162, a director includes the director’s spouse and children, adopted children and stepchildren among them. Paying your spouse’s bills, or lending to your son, counts as lending to you.
The restriction does not apply to an exempt private company (EPC): a private company with not more than 20 members, in whose shares no corporation holds a beneficial interest, directly or indirectly. Your company’s Bizfile business profile shows its type. If it reads “Exempt Private Company Limited by Shares”, section 162 is not the issue, though tax and evidence still are, and so are directors’ general duties: section 157 still requires a director to act honestly and not use the position for an advantage at the company’s expense. If it reads “Private Company Limited by Shares”, the restriction applies.
A company takes a share
A holding company, a family investment company or an investor's corporate fund vehicle takes even a single share. A limited liability partnership is not a corporation for this test, so an LLP shareholder does not count.
A person holds shares for a company
An individual holds shares as nominee for a company. The register shows only people, but the test looks at who holds the beneficial interest, directly or indirectly, and here it is a corporation.
Members pass 20
An employee share plan or a fundraising round takes the company past 20 members. The limit is not more than 20.
Those are the three ways owners most often lose EPC status without noticing. For a company that is not an EPC, the exceptions in section 162 itself are narrow. Money advanced to a director for expenses incurred on the company’s behalf, and help for a full-time director to buy a home (one such loan at a time), are allowed only with shareholders’ approval in general meeting: beforehand, or failing that, with the money repaid within six months after the next AGM. Loans under an employee loan scheme approved in general meeting are also outside the prohibition. Sections 163A and 163B add two more, both for funding a director’s defence in proceedings or a regulatory investigation connected with the company. A family holiday on the company card fits none of them.
A director who authorises a prohibited loan commits an offence, with a fine of up to S$20,000 or up to two years’ imprisonment. The company can still recover the money, and where an expenses or home loan is not approved in time, the directors who authorised it must make good any loss to the company. If you are not an EPC and the account shows a balance owed by a director, speak to your company secretary before the year closes, not after.
Running more than one company? Section 163.
A company that is not an EPC may not lend to, or guarantee the borrowing of, another company or LLP in which its directors and their families together hold 20% or more of the voting power, unless shareholders approve it beforehand in general meeting. The interested directors and their families must abstain from that vote, unless every shareholder votes in favour. Lending between a holding company and its subsidiaries, or between fellow subsidiaries, is outside the rule.
WHAT IRAS TAXES
The director pays, or the company pays. Not both.
Under the Income Tax Act a company director is an employee. If a company lends to a director interest-free, the interest the director saves is a taxable employment benefit. IRAS restated this in the third edition of its e-Tax Guide on directors’ interest-free loans, published on 30 January 2026. The benefit is worked out each month:
The rate is the three-month compounded SORA plus 1.5 percentage points, reset each April and October. IRAS has published 2.6% for October 2026 to March 2027. The company reports the benefit as the director’s employment income for the year, on the same return as salary and fees.
The exception is a loan made to you as a shareholder rather than as a director. IRAS treats that as a question of fact and looks for three things:
A genuine loan
An intention that the money will be repaid, and the terms of an ordinary loan, such as a repayment schedule.
Every shareholder, in proportion
Loans to all shareholders, directors included, on similar terms and in proportion to their shareholdings, not because of anyone's position in the company.
Papers from the time
Resolutions, minutes or approval at a shareholders' meeting, made when the loan was made, showing it was made to shareholders as shareholders.
A loan made to one director alone, or out of proportion to shareholdings, will rarely meet that test. IRAS’s own example is close to home: a company lent S$300,000 to one director-shareholder under a “director’s loan scheme” approved in board minutes, with no shareholder resolution. IRAS treated the interest saved as employment income, noting the loan was large next to the director’s modest fee.
What the shareholder route saves the director, it costs the company. A company that pays interest on borrowings while lending interest-free normally loses part of its interest deduction, in proportion to its assets that earn nothing. IRAS makes an exception for directors: “Interest adjustment is not required for interest-free loans extended to directors or employees”, because the director is taxed on the benefit instead. Amounts owed by shareholders get no such exception, so a genuine shareholder loan costs the director nothing and costs the company an interest adjustment, if it has interest-bearing debt.
If the loan is waived
If the company lets you off repaying, IRAS’s position is short: “Amount waived is taxable.” The company cannot claim the amount as a bad debt: IRAS lists bad debts of non-trade debtors as non-deductible, and a loan to a director is not a trade debt. Take advice before writing a director’s balance off.
A WORKED EXAMPLE
One studio, S$32,000 owed by its director.
Studio Hale Pte Ltd is an interior design company. Mei Lin owns 80% and her husband Daniel owns 20%, in one class of shares. Both are directors. No company holds shares, so it is an EPC. The year ends on 31 December 2026.
| Director’s current account, 2026 | S$ |
|---|---|
| Family holiday on the company card | 6,800 |
| Personal car insurance and road tax | 3,400 |
| Children's enrichment classes | 2,600 |
| Transfers to her own account, March to August (6 × S$4,000) | 24,000 |
| Less: company costs she paid personally | (4,800) |
| Owed by Mei Lin at 31 December 2026 | 32,000 |
The S$4,800 she paid for the company, on software, client lunches and site materials, is real and should be netted off. It is also the item most often missing, because nobody files a claim against their own company.
Her interest benefit, each month, once it is a documented loan
S$69.33
32,000 × 2.6% ÷ 12
The company’s interest adjustment
S$0
None for a loan to a director
If the company were not an EPC
Prohibited
Section 162, children’s classes included
Suppose Mei Lin cannot repay before the year ends, and the board documents the S$32,000 as an interest-free loan to her from 1 January 2027, with a repayment schedule. That is a loan to her as a director, so at 2.6% each month it stays outstanding adds S$69.33 to her employment income. Studio Hale has a S$150,000 bank loan costing S$6,750 a year in interest, and because the loan is to a director, it makes no interest adjustment.
Had the company instead lent both shareholders money in proportion to their shares, S$32,000 to Mei Lin and S$8,000 to Daniel, with papers to show it, neither would be taxed on an interest benefit, but the company would lose part of its interest deduction. With S$400,000 of total assets at cost at the year end, that is S$6,750 × 40,000 ÷ 400,000 = S$675 of interest, or S$57.38 of tax at the 8.5% marginal rate most SMEs pay under the partial exemption.
Either way, the recurring cost is small. What would not be small is the company’s status. Had Daniel held his 20% through his own holding company, Studio Hale would not be an EPC. The same S$32,000 would then be a loan section 162 prohibits. The children’s classes would count too, because the section treats a director’s children as the director. No tax computation makes that go away.
BEFORE 31 DECEMBER
Four ways to clear the balance.
Whatever is outstanding at midnight on 31 December is what the financial statements show. If the balance is to be cleared by a fee or a dividend, the decision and its paperwork have to exist before the year ends.
| Route | What it costs | What it needs |
|---|---|---|
| Repay in cash | Nothing in tax. | Personal cash, and a dated transfer to the company's account. |
| Declare a dividend | Nothing for the shareholder: one-tier dividends are tax-free. No deduction for the company. | Distributable profits, a resolution under the company's constitution, and payment pro rata to every shareholder of the class. |
| Vote a director's fee | Taxed as your income and deductible to the company. No CPF on a fee voted at a general meeting. | Shareholders' approval. The fee is your income in the year it is voted. |
| Keep it as a documented loan | The interest benefit each month, or for a genuine shareholder loan the company's interest adjustment. If the company is not an EPC, section 162 comes first. | A written agreement with a repayment schedule, and repayments that actually happen. |
A dividend cannot be pointed at one shareholder.
Studio Hale’s shares are one class, so every dividend splits 80:20. To credit S$32,000 to Mei Lin, the company must declare S$40,000, and Daniel receives S$8,000 in cash. That needs S$40,000 of distributable profits, not S$32,000.
A fee voted next year clears the balance next year.
A fee for 2026 voted at the 2027 AGM is Mei Lin’s income in 2027, and it offsets the loan only from then. The balance still appears at 31 December 2026. Whether a fee or a dividend is cheaper depends on her personal tax band against the company’s rate.
“Keep it as a loan” means repaying it.
A loan agreement with a schedule nobody follows is the kind of evidence that persuades IRAS the money was never really a loan.
Declare the interest, in every company.
A director who borrows from or lends to the company is interested in a transaction with it, and section 156 requires a declaration at a board meeting or by written notice, EPC or not, including for a loan to the director’s spouse or children. A sole director records it in writing and signs it. Failing to declare is an offence of its own.
THE OTHER DIRECTION
When the company owes you.
If you lent the company money, or paid its bills and never claimed them back, the balance is in your favour. No Companies Act restriction applies to this direction. What matters is that the company can show what it owes.
Record the terms and declare the interest
A short board resolution or loan letter: the amount, whether interest is charged, and when it is repayable. It is also the natural place to record your section 156 declaration of interest. Most director loans to small companies are interest-free and repayable on demand, so they sit in current liabilities.
Interest the company pays you
It is generally deductible to the company where the money is used in the business, and it is taxable income for you.
Repayment is not income
Getting your own money back is not taxed, which is one more reason to keep the claim well documented.
If you are not tax resident in Singapore
Interest the company pays you generally carries 15% withholding tax on the gross amount, less if a tax treaty applies, paid to IRAS by the 15th of the second month after the payment. Repaying the loan itself carries none.
Converting the loan into shares
It is an allotment. Shareholders must approve it in general meeting before the shares are issued, and shares issued without that approval are void. The shares exist only once a return of allotment is lodged and ACRA updates the company's electronic register of members, so to show shares rather than a loan at 31 December, lodge before the year ends.
EVERY MONTH
Most director’s loan problems are twelve months of unposted entries.
- Post personal spending on the company card to the director's account in the month it happens, with the receipt. Booking it as a company expense is worse: IRAS's checklist for family-owned companies names family holidays, family credit card spending and children's tuition as private expenses the company cannot deduct.
- Claim company costs you paid personally in the same month, so the account nets properly.
- Do not label transfers to yourself “drawings”. A company has no drawings. Each transfer is salary, a fee, a dividend or a loan, and the label decides the tax.
- Review the balance at each quarter end, not just at the year end.
Closing the company? The balance must be settled first, in either direction, before a strike-off application.
Common questions.
Can a Singapore company lend money to its director?
An exempt private company can: section 162 of the Companies Act does not apply to it. Any other company is generally prohibited from lending to a director, or to the director's spouse or children, with narrow exceptions, and a director who authorises a prohibited loan can be fined up to S$20,000 or imprisoned for up to two years. In either case, IRAS taxes the interest a director saves on an interest-free loan.
Is an interest-free loan from my company taxable?
Usually, yes. IRAS treats company directors as employees, so the interest saved is employment income, calculated each month on the balance outstanding at the month end at a rate IRAS publishes: 2.6% from October 2026 to March 2027. The exception is a loan made to you as a shareholder, which needs loans to all shareholders on proportionate terms, with documents from the time to show it.
What happens if the company writes off my loan?
IRAS's position is that the amount waived is taxable, as employment income. The company cannot claim it as a bad debt, because IRAS treats bad debts of non-trade debtors as non-deductible. Take advice before writing a director's balance off.
Does my company lose its interest deduction if it lends to me interest-free?
Not for a loan to you as a director. IRAS says no interest adjustment is required for interest-free loans to directors or employees, because the director is taxed on the benefit instead. Interest-free amounts owed by shareholders are different: IRAS counts them as non-income-producing assets, and a company with interest-bearing borrowings loses a proportionate share of its interest deduction.
How do I find out if my company is an exempt private company?
Check the company type on its Bizfile business profile: it reads “Exempt Private Company Limited by Shares” or “Private Company Limited by Shares”. An exempt private company has not more than 20 members and no corporation holding a beneficial interest in its shares, directly or indirectly. A limited liability partnership is not a corporation for this test.
Do I have to declare a loan between me and my company?
Yes, in every company. A director with an interest in a transaction with the company, including a loan in either direction, must declare it at a board meeting or by written notice under section 156 of the Companies Act, and the same applies to a loan to the director's spouse or children. A sole director records the declaration in writing and signs it.
My company owes me money. Do I need a loan agreement?
It is not compulsory, but a short written record of the amount, the interest and the repayment terms protects your claim, supports the financial statements and makes repayment straightforward.
Official sources
The restrictions on loans to directors and connected companies, the exempt private company definition, declarations of interest, share allotments and the penalties from the Companies Act 1967 as in force on 16 October 2026; the interest benefit, its rate, the capacity test and waivers from IRAS’s e-Tax Guide and loans page; the interest adjustment, bad debts and withholding tax from IRAS’s business expenses and withholding tax pages. All checked on 16 October 2026. Studio Hale and every figure in its accounts are illustrative.
- IRAS e-Tax Guide: Benefits to Company Directors from Interest-Free/Subsidised Loans (third edition, January 2026)
- IRAS: Benefits relating to loans (rates, formula, waivers)
- IRAS: Tax treatment of business expenses G–L (interest adjustment)
- IRAS: Business expenses, deductible and non-deductible (bad debts)
- IRAS: Types of payment and withholding tax rates
- IRAS: Checklist for family-owned or managed companies
- Companies Act 1967 (sections 4, 63, 156, 157, 161, 162, 163, 163A, 163B)
This guide provides general information, not accounting, tax or legal advice. Studio Hale and its figures are illustrative. Whether a company may lend to a director, how a balance is taxed and how best to clear it depend on the company’s own facts; the law and IRAS’s rates and practice are as published on the date shown and change from time to time.
WRITTEN BY
Jacqueline May
Principal Accountant · Chartered Accountant (Singapore), in practice since 2008
Jacqueline is a Chartered Accountant (Singapore) and the Principal Accountant at Synergy Accounting, in practice since 2008. She works on corporate tax, GST and ACRA compliance for small and medium businesses — the filings, deadlines and judgement calls most owners would rather hand over. These guides are written from what she sees in practice.