We recently explained to you how to make a dividend payment from your working BV company to your holding BV company. If you have done such a transfer, you have now money in the bank account.
What to do with the cash in your BV?
In the situation you have money in your BV company, you have four options what you can do:
- Pay yourself a dividend
- Loan yourself the money
- Invest in name of the BV company
- No action
Pay yourself a dividend
This implies you are willing to pay 25% dividend withholding tax and you receive the 75% of the amount net in your account free to be spend on anything. For me that would be a clean and clear transaction. However, some experts in the world believe you should never pay tax if you can avoid this.
Loan to yourself
To avoid paying tax over the money in your BV company, you could loan the amount to yourself. Please note, as simple as it may sound, a loan implies you need to pay back the amount. Our experience learns us that transactions between your BV company and yourself is experienced by the shareholder as a transaction of his money. The loan aspect is formally understood, but practically disregarded. In other words, paying back is never considered. That can bite you severely.
You only can have a loan with your BV company when you have set a interest percentage. There needs to be a repayment schedule in place and collateral. The conditions you set for yourself should more or less be identical if you would loan me or your neighbor that money. If the response is: no way, then you need to give the conditions more attention.
Should you wave the repayment schedule and collateral, then this needs to be shown in a significant higher interest percentage. When the above is not met, the Dutch tax office will take the stand point it is not a loan, but capital for which a dividend withholding tax return should have been done. A penalty and tax will be result.
The moment you took the above hurdles you can loan yourself the money. What would you use the loan for? The most common purpose is the purchase of your home. That implies you can loan from your BV company to purchase the house you are living in. The interest you pay to your BV company is tax deductible in your income tax return, if you met the conditions the Dutch tax office set in this respect.
Repayment of this loan can be done in the form of dividend payments. This implies you pay back the debt of your home to your BV company at only 25% of the value of the debt, being the dividend withholding tax.
The whole purpose of the holding BV is to be able to use the gross proceeds of the working company for new investments. Example: you sold the shares of the BV company for EUR 100.000. If you would have held these shares as a private person, you would have been due 25% dividend withholding tax. Now you held the shares in your holding BV company, no dividend withholding tax is due. So EUR 100.000 comes in the bank account of the holding BV an no tax is due over that amount. This implies you can fully use the amount to make a new investment.
This can be the wise decision in the end. If you gradually pay the holding BV dividends from the working BV, the bank account grows. I have read that every 10 years have 4 prosperous years and 6 crisis time of years. How nice is it to connect to ‘Cash is King’ in times of crisis? Very nice. Lucrative deals are made in the period that money is scares in the world. So no action taken could be the best action of the four options. While the money is sitting in the bank, you know that currently you receive nearly no interest, but on the other side you should also be alert to have your money eaten by bank charges. Find a bank that meets your desire.
Orange Tax Services
We are not financial planners but we do have an opinion we would like to share with our clients. In the end it is the client that needs to take the action he or she thinks it will help now or in the near future. We can facilitate that decision in either arranging for the dividend payment or meeting the conditions the Dutch tax office set for making the interest payment for the loan on the house from your BV company tax deductible.