The minimum salary of a BV shareholder director is a topic that needs to be address constantly. Either by the director or the Dutch tax office.
Minimum salary of a BV shareholder director
The Dutch BV company or any foreign legal entity that operates in the Netherlands, has a minimum salary obligation for the shareholder director.
The thought behind this minimum salary is to prevent the director using financial facilities in the Netherlands intended for the poor. In the past a shareholder could waive his salary, as paying dividend is tax wise cheaper. The result is that the shareholder had no salary. If you have no income, you are poor. For the poor we have healthcare credit, rental credit , daycare credit. But this shareholder is far from poor, a huge dividend was paid out. Hence to avoid the social system being misused, a minimum salary was made obligatory.
The rules with respect to the salary
The salary is set at EUR 48.000 (2022) full time work. If the director is not working at all for the BV, the minimum salary is EUR 5.000 per year.
However, the salary cannot be less than 75% of the profit. If the profit is EUR 60.000, 75% amounts to EUR 45.000. Then the other minimum overrules the 75%, being the EUR 48.000 salary.
If the profit is EUR 140.000, the salary needs to be EUR 105.000. If the profit is EUR 1 mln the salary is EUR 750.000. Which is a bit much, unless it is actually spend.
What to do to avoid the EUR 750.000 salary as mentioned above?
In order to avoid needing to pay EUR 750.000 you are going to look for a person that does more or less the same job as you do. The difference is, this person has no shares in the company. Then you ask this persons salary and you use that for your own company.
Two problems with this philosophy. The first problem is that a director shareholder often has either a unique position or in his or her trade a position that is always taken by the shareholder director. In other words, finding a comparable person is not really possible.
The second problem is that in the Netherlands you do not display to anybody your salary. You do your best to have the neighbors think you earn much more than they do. Talking about actual numbers is not done.
Who knows about all the salary amounts earned in the Netherlands?
Indeed, the Dutch tax office. The Dutch tax office counters your salary in a court case. That does not sound like a fair fight.
To make the fight more fair, the courts rule that when you state you should earn less than EUR 48.000, the director shareholder needs to proof that. If the director share holder takes out a salary exceeding the EUR 48.000 but not reaching the 75% of the profit. Then the Dutch tax office needs to substantiate that another person in the same position not being a shareholder earns more.
Current account shareholder
A side aspect of the minimum salary is the current account of the shareholder. The shareholder cannot set his salary at the bare minimum of EUR 48.000 and at the same time takes money from the business bank account via a loan. That is the current account with the shareholder. If that is the case, the Dutch tax office will address that during an audit. Possibility is there that this could be regarded as net salary payments.
Minimum salary court case
A holding company earned EUR 80.000 management fee. The director shareholder did not take any salary. The Dutch tax office made in his income tax return an adjustment. EUR 44.000 (2014 minimum salary, the year under discussion) was added to his Box 1 employment income.
The director shareholder appealed this adjustment in court and stated that the salary should be substantially lower. The tax office argued that a person in his position (logistic manager) should earn much more than the EUR 44.000. The court agreed with the Dutch tax office. The tax office won as the director was not able to present proof of other persons in more or less the same position earning less.
Tax is exciting
We think tax is exciting. The salary discussion we do not always understand. The one moment the director shareholder asks us to keep the salary at the bare minimum. The next moment, often after a call of the wife, the salary needs to be sky high. Why sky high? The higher the income, the more mortgage loan can be obtained to purchase a bigger house.
In other words, the salary impacts more than only the tax rates. It helps you pay your bills, it offers you opportunities to indeed purchase a house. We prefer to set your salary based on your needs. The higher the salary is above the EUR 48.000, or the more close to the 75% moment, the less hassle is to be expected with the tax office about this topic. Tax is exciting, hassle with the tax office is not.