Holding the shares and being a director of a Dutch BV company, implies a corporate income tax return needs to be filed. Does the calculation of the corporate income tax strike you as the Netherlands being a tax haven?
Most likely not, but neither do you have the impression the corporate income tax is excessively high. The corporate income tax rate is 20% over the first EUR 200.000 profit and 25% over the profit exceeding the EUR 200.000. Can the corporate income tax become lower? Yes it can with the help of the 30% ruling. The corporate income tax can disappear and be replace by a lower equivalent: wage tax.
Bookkeeping is the basis
A good track of the receipts makes you keep good record of the books which in the end determine the result of the BV company. Depreciations are in general done in not less than 5 years period. Representation costs such as drinks with clients, presents for clients and similar costs are limited in deduction to 73.5%. If you have no receipt of the costs, you have no costs deduction, so simple the bookkeeping is.
Fiscal versus commercial differences
In the event the BV company is holding a participation for more than 5% in another company, the participation exemption applies and you will have a difference in fiscal versus commercial result. The participation can have a positive result of for instance EUR 10.000. This EUR 10.000 is shown as increase on the commercial balance and as result of participation in the commercial profit and loss account. However, for corporate tax purposes this result is not existing. The fiscal balance will not show an increase in value nor a result of participation.
Only when an actual dividend is being paid you will see this in the fiscal result of the company.
There are more fiscal versus commercial differences. For instance in the valuation differences in real estate, different depreciation periods than the periods set by the Dutch Government. Or the value of your debtors are not actually like shown in the commercial report.
Corporate income tax return
The corporate income tax return shows the commercial values, the differences between the commercial and fiscal values and as a result of these mutations the actual fiscal corporate income tax return.
The corporate income tax rate is 20% over the first EUR 200.000 profit and 25% over the profit exceeding the EUR 200.000. A EUR 450.000 taxable profit is therefore taxed at EUR 102.500.
In case of a BV company with one person being the employee/managing director, the taxable profit of the BV company is not often very high. The reason for this low taxable profit is the obligatory salary the managing director needs to take out.
Obligatory salary managing director
The managing director needs to take out a EUR 44.000 annual salary, not being less than 75% of the result of the company, excluding salary costs, if this managing director is the only employee or the employee earning at least 90% of the income of the company. Unless the managing director can proof that a lower salary in the same position is the regular salary to be applied. In a country (The Netherlands) where nobody shares his salary details, this is a difficult task to fulfill. Especially with the knowledge that the tax office, against whom you need to proof this, is in possession of the required information.
Corporate income tax return – after managing director salary
The EUR 450.000 profit of our example is reduced with 75%, being the salary of the managing director, to a EUR 112.500 profit. This is taxed at 20% being EUR 22.500.
If we assume the managing director pays 52% wage tax over the EUR 337.500 salary he needs to take out, the income tax is EUR 175.500 plus EUR 22.500 corporate tax, total taxation being EUR 198.000.
A managing director that has the 30% ruling would actually pay, only taking into account 52% tax, EUR 122.850 income tax over the EUR 337.500 salary. Total corporate and income tax here is EUR 145.350.
Dividend withholding tax
In order to be able to actually spend the profit of the BV for private purposes, you need to pay either a salary subject to wage tax or a dividend subject to dividend withholding tax.
Regular corporate tax calculation
In the above example of EUR 450.000, fully taxed at EUR 102.500 corporate tax, implies the net profit after tax is EUR 347.500. This can be paid at 25% dividend withholding tax, being EUR 86.875. So to spend privately EUR 450.000 BV profit, you paid EUR 189.375 corporate tax and dividend tax.
Corporate tax and managing director salary
In case of the managing director that needs to take out a 75% of the profit salary, the profit is now EUR 112.500 and the wage tax and corporate income tax due is EUR 198.000. The wage tax was in the result, the corporate income tax not, so the after tax profit is EUR 90.000. Over this amount is due 25% dividend withholding tax, being EUR 22.500. So to spend privately EUR 450.000 profit taking into account the managing director rule with respect to salary requirements, costs EUR 220.500 tax (wage tax, corporate tax and dividend withholding tax).
Corporate tax, managing director salary plus 30% ruling
The same situation as with the managing director, but now under the 30% ruling. The EUR 450.000 profit is reduced with EUR 337.500 salary to a EUR 112.500 corporate profit. The wage tax is EUR 122.850 and the corporate tax over EUR 112.500 is EUR 22.500, so total tax is EUR 145.350. The dividend withholding tax due over EUR 112.500 is EUR 28.125, so total tax costs are EUR 173.475.
Can you replace corporate income tax by a lower equivalent?
Yes you can. The combination of corporate income tax and dividend withholding tax is more expensive than the combination of wage tax and the 30% ruling.
In the above calculations you see that in a profit only situation the profit is EUR 450.000, taxation is EUR 189.375, so EUR 260.625 in your personal account.
In the situation of a managing director salary the profit in your personal account is EUR 229.500. In the situation the managing director salary can apply the 30% ruling, the profit in your personal bank account is EUR 276.525.
So the winner is the 30% ruling
The 30% ruling saves corporate income tax.
What if the managing director would consume the full profit under the 30% ruling? Based on the 52% wage tax rate only, that would imply EUR 163.800 wage tax. No profit left, so in your personal bank account you receive EUR 286.200.
In other words, holding the 30% ruling and fully consuming the profit as salary makes you pay the lowest amount of tax. Besides paying no dividend withholding tax, we also need to warn you that you cannot always pay yourself a dividend. If you have obligations in your BV company, such as a pension obligation, then you could have financial issues in the future. If that is the case, you cannot pay yourself a dividend.
We can either assist you with the incorporation of your BV company or register your foreign limited liability company in the Netherlands. Set up your payroll and process the payroll. Apply for the 30% ruling on your behalf and maximize your salary, so you pay the lowest amount of tax.
On the other hand, if you cannot have the 30% ruling, the we will try to convince you not to incorporate a BV company, but to set up a one man business and have you benefit from the entrepreneurs discounts a one man company offers, which a BV company can never offer.