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DGA managing director shareholder – is your 2013 salary high enough?

This week is the last week of January 2014. The month in which you have to file your VAT return either for the fourth quarter of 2013 or December 2013. This is the time of the year you have to see if the balance is matching. This is the time of the year the managing director has to match his salary.

A managing director major shareholder, in Dutch referred to as DGA (Directeur Grootaandeelhouder), is a person that owns direct or indirect at least 5% of the shares in the company he is working for. For this DGA requirements have been set to the salary he earns. The reason for these requirements is that a shareholder prefers not to have a salary that is taxed at max 52%, whereas he can also pay himself a dividend that is taxed at only 25% dividend withholding tax.

No only does the managing director save tax, with no income he is regarded a low earning tax payer and receives health care benefits, rent benefits and child care benefit, assuming the person does rent and has children. But if at the same time a huge amount of dividend is being paid, it is clear that something is wrong.

The Dutch tax office solved this by setting a minimum salary for the DGA of around EUR 42.000. The jurisprudence has come in November 2011 to the 70% minimum requirement. If a managing director is responsible for at least 90% of the income of the company, then his salary cannot be lower than 70% of the profit (excluding his salary costs). If this requirement is not met, the tax office will correct this and add a 25%, 50% or 100% penalty to the taxable amount.

Therefore this period of time is the moment to check the result, compare this to the salary earned in 2013. If not enough has been earned, you need to balance this out with a bonus in December 2013. There is still time to refile the wage tax return.

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