Having a limited liability company implies you are the shareholder of this company with a share capital. But how can you pay yourself a dividend?
A dividend is a payment of profit made by the company in the past or if you are very confident about the current status of the company, the profit made during the current financial year. However, it is not wise to act on results of the current year as it can swing both ways still. To state the obvious, if the company made no profit yet, you cannot pay yourself a dividend.
Determining size of dividend payment
Simply taking into account the profit build up in the general reserves of the company does not do the trick to determine the amount of dividend that can be paid. The dividend payment cannot cause the company to become at fault meeting its obligations.
The ‘problem’ is in the pension build up reserve within the company, if that applies. If this has never been done, you can skip this part of the article. In the pension build up calculation all kind of fiscal methods have been used to determine the amount of the reserve that will come at the pension age to the right target for the pension payout. However, the fact that a pension has been granted already to the employee (you) makes the economic financial obligation much more substantial than the fiscally calculated obligation.
Rough estimates of the economic value of the pension obligation is times 2. So your current reserve for pension build up on your balance times two is a good estimate of the economic valuation of the pension obligation. If you take that into account, is there then still enough for you to pay a dividend? In most cases not, the pension build up facility kills the dividend possibility. This is all in line with what the Dutch tax office is aiming for: no more pension build up within the BV.
In the share holders meeting the amount of dividend to be paid is formalized. Having a limited liability company implies a substantial number of formalities you need to meet in order to be able to act. These formalities bite you in case of bankruptcy or other moments the company is not doing so well.
If the meeting accepts the dividend, this is stated in the minutes of the shareholders meeting. That is the moment the dividend has been decided.
Dividend withholding tax return
Within one months time from the moment the dividend has been decided the dividend withholding tax return has to be filed AND paid. Dividends paid within the Netherlands from a limited liability company to a private individual company are taxed at 15% dividend withholding tax. If the dividend is paid to another limited liability company, then the dividend is taxed at 0% dividend withholding tax based on the participation exemption. In case the dividend is paid to company or private person living abroad, different percentages can apply depending on the situation.
The shareholder can decide whether he pays the 15% dividend withholding tax him or herself or that the company pays for this dividend withholding tax. Easy enough choice, however, please keep in mind that the tax paid on behalf of the share holders is another dividend reducing the general reserves. You cannot have negative general reserves, so please check before you tick the box whether there is enough on the balance to actually use the facility.
Box 2 personal income tax return
At the end of the year a personal income tax return is filed by the shareholder of the limited liability company that paid the above mentioned dividend. The dividend is part of the Box 2 source of taxable income which is taxed at 25% personal income tax. The already has been paid 15% dividend withholding tax on this dividend income. This can be taken into account, hence the private individual still needs to pay for 10% income tax over the dividend.