Loans to Directors: The Tax Impact That's Often Overlooked

Written by the team at Prompt Plus Accounting · About us · 2026-09-17 · Updated 2026-09-04

Even when no interest is charged, the Revenue Department has the authority to assess interest at market rates. Here are the tax obligations tied to loans to directors that are often overlooked.

Many SMEs carry a line item called "loans to directors" on their financial statements — usually arising when a director draws company funds for personal use, or transfers money out of the company account without clear supporting documents. Many owners see this as a normal, everyday practice, but from a tax standpoint, this line item carries consequences that are often overlooked, and can lead to additional tax assessments.

How Does a Loan to a Director Arise?

This generally happens in one of two ways:

1. A director draws company funds without expense documentation. For example, money is transferred out of the company account but there is no invoice or receipt to support it. The accountant then has no choice but to record it, temporarily, as an "amounts due from director loans" account.
2. The company lends money directly to a director for the director's personal purposes.

Regardless of how it arises, once this line item appears on the financial statements, tax law treats it as a "loan" immediately, triggering tax obligations that need to be handled correctly.

The Core Issue: Section 65 bis (4)

The point business owners overlook most often is that even when a company lends money to a director completely interest-free, the law does not let it slide. Section 65 bis (4) of the Revenue Code states:

Where a loan is made without interest, or at an interest rate below the market rate without reasonable cause, the assessment officer has the authority to assess interest at the market rate prevailing on the date the loan was made.

In plain terms, even if the company genuinely charges no interest, the Revenue Department has the authority to impute a market-rate interest figure and treat it as company income for corporate income tax purposes, meaning the company ends up paying tax on interest it never actually received.

In practice, the reference interest rate typically used is benchmarked against commercial banks' MLR, or at minimum should not be lower than the return the company would reasonably be expected to earn under prevailing market conditions.

Other Tax Obligations That Follow

Beyond the corporate income tax on the assessed interest, several other tax obligations come into play:

• Specific business tax. If the company earns interest income from lending, this is treated as carrying on business in the manner of a commercial bank, subject to specific business tax at 3% of interest income, plus a further local tax of 10% of the specific business tax, roughly 3.3% in total, and must be filed on Form PT 40 (ภ.ธ.40).
• Stamp duty. Loan agreements are subject to stamp duty at 1 baht for every 2,000 baht of the loan amount (or fraction thereof), capped at a maximum of 10,000 baht per document. Missing or insufficient stamp duty can cause problems if the agreement is later examined.
• Withholding tax. If interest is actually paid back (in cases where the director is the lender to the company), withholding tax must be deducted correctly at the statutory rate.

A Worked Example

ABC Co., Ltd. had a director withdraw funds from the company account for personal use over the course of a year, totaling 1,000,000 baht, with no loan agreement or interest charged. The accountant recorded this as "amounts due from director loans." When the Revenue Department examines the accounts and finds this item, it will exercise its authority under Section 65 bis (4) to assess interest at the market rate, say, a reference rate of 5% per year, meaning the company would be assessed additional interest income of 50,000 baht, even though it never actually received that money. This amount is then subject to corporate income tax and specific business tax, plus surcharges and penalties if the issue is uncovered retroactively across multiple years.

Other Risks to Watch For

• A red flag when closing a business. A director-loan account with a high outstanding balance is often something auditors and the Department of Business Development (DBD) scrutinize closely when a company applies to dissolve, since the loan must be repaid or its origin clearly explained.
• Risk of being treated as a disguised dividend. If a company tries to clear this outstanding balance by paying dividends to the director (in their capacity as shareholder) and netting it against the debt, be aware that dividend payments carry their own withholding tax obligations that must be handled correctly, this is not simply a matter of offsetting account balances.

How to Manage This Correctly

1. Put the loan agreement in writing. Specify the loan amount, interest rate, and repayment terms clearly, and make sure stamp duty is paid in full.
2. Charge interest at no less than the market rate, benchmarked against commercial banks' MLR or another defensible rate, and keep documentation explaining how the rate was determined.
3. Record interest income consistently as company revenue, and calculate specific business tax correctly every month interest income is earned.
4. Plan a clear repayment schedule for the loan, rather than letting the outstanding balance build up over time and become a liability if examined in a retroactive tax audit.

Summary

A loan to a director may look like an internal matter between the company and its director, but from a tax perspective it carries clear consequences under Section 65 bis (4), which gives the Revenue Department the authority to assess interest at market rates even when the company charges none in practice. On top of that, specific business tax and stamp duty obligations also need to be handled in full. If your business has a director-loan item on its financial statements, you should put a proper agreement in place and charge interest correctly from the outset, or consult an accounting and tax professional to plan ahead before a retroactive audit catches you out.

This article is general information, not advice for a specific case. Please consult us before making a decision.