Creativity in tax is a joy the Dutch know very well, hence we get all kind of suggestions how to avoid paying too much tax. Often lack of knowledge of the fiscal legislation makes that suggestions simply cannot be executed as it is forbidden. Sometimes it is possible, but is it worth while pursuing?
Rent privately owned office to your company
You are the managing direct and 100% shareholder of your BV company, or for that matter your UK Ltd company registered in the Netherlands, or your US Inc. registered in the Netherlands as you are living in the Netherlands.
You have understood that, as you earn at least 90% of the turnover of the company, your salary cannot be less than 75% of the profit, or at least EUR 45.000. At the same time you have learned the hard way that we do have a 52% maximum tax rate. Even if you have the 30% ruling, which soften the blow, one day you will no longer have the 30% ruling. How can you avoid to pay EUR 0,52c over ever euro earned? Maybe generate other income than salary income?
Rent privately owned office to your company. If you happen to own a property that is suitable to house your company office in, that is convenient. And as you learned that your Dutch property is taxed in Box 3 for about 1.2%, even if you have the 30% ruling. So you charge a high rent, which reduces the corporate income tax significantly, you receive money in your pocket and you are only taxed for 1.2%. Too good to be true.
Received rent tax free – indeed too good to be true
The Dutch tax office has thought about this scenario a long time ago and introduced Ter Beschikking Stelling (TBS). TBS stands for you the owner of the company makes available to the company an asset owned privately. This is not forbidden, but the asset it not taxed in Box 3 (1.2% wealth tax) but in Box 1 (52% tax rate).
Example rent privately owned office to your company:
Your BV company made a EUR 100.000 profit, taxed at 20% corporate income tax, hence EUR 20.000 corporate income tax is due. The next year you have again EUR 100.000 profit, but you rented the building you own personally to the BV company for EUR 20.000, hence the profit is EUR 80.000 and EUR 16.000 corporate income tax is due. The rent income you receive is taxed in Box 1 in your income tax return for 52%. EUR 20.000 times 52% is EUR 10.400. Now you paid over the EUR 80.000 corporate profit and EUR 20.000 privately received rent EUR 16.000 corporate tax plus EUR 10.400 income tax is EUR 26.400 overall tax. That is more than the initial EUR 20.000 corporate tax.
Of course this example does not take into account the rent you are not paying to a third party anymore, but it is an indication of the situation. You might argue that the Box 1 rates starts at 37%, but that has already been used with the salary of the director, hence everything earned besides the salary is put on top in the income tax return, hence the 52% tax.
Rent privately owned office to your company – via your wife
The shareholder will counter to us that he could transfer the building to the name of his wife and she rents it out to the company. She has no shares in the company. But the rules in this respect are identical to the tax partner and children that are under age.
Some shareholders are more drastic and they suggest a divorce to generate a tax benefit. You might not believe me, but it is often suggested. Then we need to explain to our client that your wife might not fully trust you only divorcing for a tax benefit of the rental income and will launder you for every penny you have. Alimony to your ex-wife is tax deductible, but if that was the intended outcome of the renting out the building exercise, we doubt.
Orange Tax Services
Corporate tax planning is something you truly need to do ahead with one of our corporate tax experts. We have plenty of tax rules that make situations as they are now. We will be glad to explain them to you. Often the outcome is: make as much money as you can and simply pay the tax. That creates no issues with the tax office in the future during an audit.