Dividend is much better than salary is the starting point of nearly all entrepreneurs that contact us. We have a day job explaining that we have rules in the Netherland about the salary component. We think tax is exciting, so we are happy to address the topic of dividend rules over salary.
Dividend is much better than salary
You have a BV company and you earn EUR 200.000 profit. You think, dividend is much better than salary. Let us assume we are a country with no rules on the matter, then your EUR 200.000 profit is subject to 16,5% corporate tax. Being EUR 33.000. Left over is EUR 167.000 and to be able to spend this money, you need to pay 26,25% Box 2 income tax being EUR 43.837. Your net to spend amount of profit is EUR 123.162.
If you have instead of EUR 200.000 profit and dividend, EUR 200.000 salary. No corporate income tax due, no Box 2 tax due . Your net salary would have been EUR 106.206.
If you were under the 30% ruling the net salary would have been EUR 135.906. Oeps, suddenly the salary is much more attractive than dividend.
How is live with no salary?
In the Netherlands the salary you earn is the base of your existence basically. If you have no salary, you are regarded being poor. The advantage of being poor is that you get tax credits such as health care credit, rental credit, childcare credit.
Please note, this is all under the assumption we have no rules with respect to minimum salary.
The down side of being regarded poor in the Netherlands is that you cannot have a credit card, but more importantly, you cannot get a mortgage to purchase a home. Maybe you have no desire right now to purchase a home, but if earn EUR 200.000 a couple of years in a row, you no longer want to pay too much rent. No bank welcomes you, as you have no salary.
Can it get worse?
Yes it can. You are doing well and you double your profit to EUR 400.000. Corporate profits exceeding EUR 200.000 are taxed at 25% corporate tax for the excess. Suddenly you are due EUR 83.000 corporate tax over the EUR 400.000 profit, hence EUR 317.000 left over to pay as dividend ad EUR 84.005 Box 2 tax. Your net in your hand amount is EUR 232.995.
Your EUR 400.000 profit used as a salary under the 30% ruling would result in a net salary of EUR 266.606. Without the 30% ruling indeed the net salary is much less, EUR 207.206.
Minimum salary requirement
The Dutch Government finds it important that tax credits are used by the residents for whom they are meant. If you earn EUR 200.000 and you pay not salary, you are not poor. You should not be entitled to a rental tax credit or health care tax credit.
To prevent the system being misused by persons that can influence their salary, minimum income requirements are set. The minimum is EUR 45.000 or 75% of the profit. If you are in between the EUR 45.000 and the 75% of the profit you have the opinion that a person in your position is earning such a salary. That is your right. But the 75% does not create a potential issue with the Dutch tax office. If you have the 30% ruling you have seen that 100% of the profit is the best salary.
We think tax is exciting, we think that some Dutch tax rules are complex. The minimum income requirement rule is not too complex, but often waived or simply ignored. Ignoring these rules is not a good move, as it will bite you in the end. However, if you look at the long term, and you would like to structure your private life with a nice house, you cannot do without a salary.