e tax return, a special box with a much lower tax percentage. Very tempting, does that imply I pay much lesser tax than in Box 1?
Box 2 income tax return, a special box with a much lower tax percentage. Very tempting, does that imply I pay much lesser tax than in Box 1?
Box 2 income tax return
Box 2 is out of the row Box 1, Box 2, Box 3 the Box in which you report the result from your BV company, or the company in which you hold more than 5% of the shares. If that does not apply to you, Box 2 does not apply to you.
Some entrepreneurs chose to run their business in a BV company. The reasons to do that can be multiple. One of the differences between a self-employed or ZZP company is that you can pay a dividend. This dividend is than tax in Box 2 that has a substantially lower tax rate than Box 1.
It is correct to state that the tax rate in Box 2 of 26,9% is lower than that of Box 1 which starts from 36,93%. But comparing Box 1 and Box 2 like this, is like apples and pears.
Apples and Pears in Box 1 versus Box 2
The income you earn in Box 1 as a ZZP profit for instance, is in the end taxed at the rate starting from 36,93%. In Box 2 the calculation is slightly different.
First the BV company of which you own the shares needs to make a profit. Such a profit that possible losses of the past have been compensated. The general reserve needs to have a positive balance. Only then the meeting of the shareholders can decide on paying out a dividend.
The dividend is a result of the company profit after tax. Example. The company makes a EUR 10.000 profit, then first 19% (2023) corporate income tax is levied. Hence EUR 8.100 goes into the general reserve. That amount is taxed in Box 2 at 26,9% tax, being EUR 2.179 in this example. The EUR 10.000 profit yields you EUR 5.921 in your hand. If you would have been a ZZP company with a EUR 10.000 taxable result, the tax would have been EUR 3.693 and you would have had EUR 6.307 in your hand.
As you can see, a lower tax rate in the Box does not imply you pay less tax. Apples and pears. Of course, the more you earn as ZZP the more you pay. At one moment you go into the 49,5% tax bracket. The Box 2 bracket is static, the corporate income tax rate not.
How does it work – the tax on dividend?
The dividend is to be determined by the meeting of the shareholders. Than a dividend withholding tax return is filed in which 10% of the dividend is withheld. In that form you could chose the company to pay for your dividend tax. That implies no money is withheld on the pay out, but that does also imply the dividend amount (gross) has gone up.
Then in the following year you file your income tax return and you put in the gross amount of dividend payment, the amount already withheld by the company. The tax rate is 26,9% in total, if the employer withheld 10% already, you are still to pay 16,9% Box 2 income tax.
Move country before you pay out profit
Some are creative and thought it was a good idea not to pay out the profit in the Netherlands under the 26,9% Box 2 tax rate. No, there are countries in the world with lower tax rates or no tax rates. Let us move there, pay out and maybe return to make more profit.
For that leak not to exist the Dutch tax office has an exit assessment. Via the corporate income tax return the Dutch tax office is aware of the amount in the general reserve. The tax office can therefore calculate the Box 2 tax amount by multiplying this by 26,9%. For that amount an exit income tax assessment is made. Whenever in your life you sell the shares, put them to usufruct, pledge or whatever, you are to pay the tax instantly.
The moment you liquidate a company with a positive profit reserve, the tax over that reserve is to be paid in that years income tax return.
Box 2 only for a BV company?
No, Box 2 applies to all shares you have in any company, as long as your participation exceeds 5%.
Box 2 for foreign companies in the Netherlands?
Indeed. The moment you move your LTD or LLC to the Netherlands the Dutch rules apply. That said, the moment you move out again, the exit tax assessment is only over the amount of the value of the profit reserve increased during your stay in the Netherlands.
Tax is exciting
We think tax is exciting. Box 2 implies a dividend withholding tax return which is based on formal minutes of the shareholders meeting. To the dividend withholding tax return is connect a one month filing obligation. The Box 2 taxation follows therefore the rather strict and formal rules that apply to the company. We will be glad to assist you.