The process towards filing of the corporate income tax return

The process towards filing of the corporate income tax return

The process towards the filing of the corporate income tax return in the Netherlands you might wonder about. We explain the steps to be taken.

The process towards filing of the corporate income tax return

If you are the shareholder and or director of a BV company, you are the person in charge of the procedure. It all starts with the bookkeeping. The BV company needs to run a bookkeeping like a bubble.

The bubble cannot let escape money to the shareholder, without it being labelled. It is labelled either salary or dividend. When neither is the case, the money flowing to the shareholder in cash or costs is a loan the shareholder needs to pay back.

We are often confronted with new clients who keep an excel bookkeeping for the BV company. Excell is not ideal for a one man company, but really not possible for a BV company. You cannot keep track of the outstanding debts and receivables in excel.

Annual report

The result of the bookkeeping is in the annual report. The annual report is a requirement set by the Dutch law. Some find the annual report obsolete, expensive or irrelevant. It is super relevant.

Above I mention the shareholder and director in one line. Actually it is the director of the BV company responsible and in charge of the tax filings and the bookkeeping. However, the moment the annual report is finished, it is the meeting of the shareholders to approve or dismiss the annual report.

This formality is of great influence of the director. In the shareholders meeting the director is given discharge for his or her actions during that year. This legal phrase implies the director is set free from liability with respect to the day to day activities of that concerning year.

The process towards filing of the corporate income tax return

Publication

The moment the shareholders meeting has agreed upon the annual report, the annual report can be published with the Chamber of Commerce. Again this publication is an obligation set by Dutch law. The annual report is to be published within max 12 months from the end of the financial bookyear.

The penalty for not sending in publication of the annual report with the Chambers of Commerce can be EUR 900 fine. That said, we have not seen many of these fines over the years. The true penalty is in the board of the BV being held responsible in person the moment the BV company goes bankrupt.

Corporate income tax return

The moment the annual report is approved, the corporate income tax return can be filed. This is the moment the heart of a tax advisor starts to pump more vividly. In the corporate income tax return the commercial fiscal differences aspects of the annual report come to light. Or balancing out the fiscal unity of several BV companies is finalized in this tax return. All very exciting.

Tax is exciting

We think tax is exciting. Assisting you with running your BV company from an accounting and tax filing perspective is getting us excited. A simple BV company is already exciting.

That said, some in our office really get excited when the BV company is far from simple and challenging. Within the rules that is. One of them is Hans. Hans is a very experienced international tax advisor that is eager to sort out your international fiscal unity. The questions  you might have about how to set up best your structure. Hans is also experienced enough to inform you up front already what is possible and what is certainly not possible.

Hans

Too late received tax assessment for appeal

Difference employment versus self-employed: disability insurance

Too late received tax assessment for appeal implies the assessment was received by the tax payer on a date when the time line for appeal has already passed. What to do?

Too late received tax assessment for appeal

Receiving a tax assessment very late or not at all is common practice the last few years. The reason can be many. Regardless, the tax office denies your complaint as you are too late. If you counter that decision, the reply is that the tax office used Postnl, hence the assessment was send correctly.

Mail not received

Not receiving mail is common practice, we suggest to use registered mail for important messages. A big envelop often takes at least a week longer to arrive in our office, then a small envelop. We even receive mail three months later. The claim that Postnl is good enough for the Dutch tax office, is not good enough for us.

There are more aspects that can cause mail not to arrive at your address.  Recently we had the case of a liquidated BV company. A liquidated company implies the BV company no longer exists. That is registered with the Chamber of Commerce. The office address of the BV company is no longer used, no longer accessible. Still the tax office kept on sending assessments and reminders to that address.

You emigrated from the Netherlands. Before you emigrated you deregistered at city hall with your new forwarding address details. Still the tax office keeps on sending letters to your old address in the Netherlands, or if you kept owning the property in the Netherlands, to that rented property.

Too late received tax assessment for appeal

Too late received tax assessment for appeal – court case

A Dutch tax payer was confronted on February 21, 2019 with a message from the collector of the tax office. The message stated that the tax refund was to be compensated with an outstanding 2013 (!) tax assessment. He was told that this assessment had a date of December 20, 2018.

An assessment can be appealed within 6 weeks from the moment the assessment has become known to you. That is not the same as 6 weeks from the date of the assessment.

On May 31, 2019 this Dutch tax payer was still unknown about the assessment, as it never arrived. That day he filed a complaint against the assessment.

The Dutch tax office was keen enough to immediately disregard the  complaint, as it was not filed within 6 weeks from December 20, 2018. The first court denied an appeal to the denied  complaint for the same reason.

Only the higher court agreed with the Dutch tax payer. This implies the assessment will be made known to this tax payer and then he still had 6 weeks time to make a complaint.

Tax-is-exciting

We think tax-is-exciting, fighting windmills is not. And this Don Quixote feeling is also known to us. We have had a similar case with a 2013 huge assessment popping up in 2019 and you need to move heaven and earth to get it solved.

Or a penalty  issued for an ICP obligation that was apparently introduced. That announcement of obligation to file a monthly ICP return was never received. Neither was there any reason a monthly ICP return should be file. A reason is a EUR 50.000 quarterly EU goods turnover in the previous 4 quarters, but the turnover was nil in that period. Fighting this type of non received assessments is what we do. It comes with Don Quixote at your side, could be us.

Innovation box and 7% corporate income tax

Innovation box and 7% corporate income tax, that must be music to your ears. What is an innovation Box?

Innovation box and 7% corporate income tax

The Dutch Government stimulates innovations, as a result a lower corporate tax rate applies to the profit made related to the innovation box income. Another tax credit that can be obtained in case knowledge is attracted from abroad. That is the case when the 30% ruling is applied. The income of the employee less taxed.

Furthermore we have an R&D development tax credit. These three credits, innovation box, 30% ruling and R&D development go hand in hand.

Conditions set to the innovation box by the Dutch tax office

The subject is about intangible assets created by the company. This implies that the company performs the research and development. The result of the R&D is an intangible asset.

However, the intangible assets can be owned by the company, but the company is not in charge of the R&D, this is not regarded an innovation box type of company.

In the event of purchased intangible assets and the company continues to perform R&D on the intangible assets, then the innovation box tax rate applies. The box applies to the yielded income related to the R&D. Not the yielded income related to the purchased intangible assets.

innovation box and 7% corporate income tax

Condition to small companies

An R&D statement is obtained for the work done related to the intangible assets.

The criteria of a small company are as follows:

  • The turnover from this innovative intangible assets does not exceed EUR 37,5 mln in the current and 4 proceeding years combined, and
  • the profit of the company cannot exceed EUR 250 mln in the current and 4 proceeding years combined.

Condition to large companies

The same as for small companies, however, also one of the following criteria need to have been met:

  • An octroy is present
  • There is a growers right
  • Development of innovative biological plant protection products
  • Program software
  • License to introduce a drug on the market
  • Registered user model for protection of the innovative development
  • An extended protection certificate issued by the Octroy board in the Netherlands

As tax lovers we are also uncommon with some of the above mentioned points. That said, if your company is a large company operating in this field, the above mentioned points will be familiar to you.

Nexus approach and the innovation box

In the situation the company outsourced the development of the intangible asset to an affiliated company the nexus approach applies. A rather specific calculation agreed by the tax offices around the world to avoid tax evasion.

Tax-is-exciting

We think tax-is-exciting, paying less tax than required makes everybody exciting. The innovation Box in the Netherlands helps companies that truly do innovative work, to pay less tax. You can see this as a support the Dutch Government want to give to innovative work.

The conditions that apply to this box are very specific and strict, so please have all the administrative work in place and properly processed . This enables you to indicate what part of your turnover is related to the innovative intangible asset, hence the reduced corporate tax can be applied.

UK Ltd contracting in the Netherlands

On a daily basis we are contacted about a UK Ltd contracting in the Netherlands and how Dutch tax can be avoided. What is happening?

UK Ltd contracting in the Netherlands

Part of our core business has become explaining UK Ltd companies about the rules we have in the Netherlands.

The standard message is more or less like this: we have won a contact in the Netherlands, we will be paid by a UK Ltd company in the UK. Low salary, high dividend. Can you assist?

Obviously not, hence this article.

UK Ltd contracting in the Netherlands
UK Ltd contracting in the Netherlands

Anti exploitation rules

In the Netherlands we have anti exploitation rules as some Dutch employers were exploiting Polish fruit pickers. I doubt any of the UK employees earning on average EUR 8.000 a month experience the feeling of being exploited. Nevertheless, these rules also apply to them.

What do anti exploitation rules imply?

The UK Company needs to register the UK Ltd with the Dutch Chamber of Commerce as so called Waadi employment agency. The Dutch Chamber of Commerce reports this company to the Dutch tax office. Then a Dutch Value Added Tax number is issued. A Dutch wage tax number with the ABU collective labour agreement is issued and a Dutch corporate income tax number.

The UK Ltd needs to run a Dutch payroll under the ABU collective labour agreement. The philosophy of high dividend low salary is not accepted in the Netherlands.

The penalties for not complying are huge.

Tax-is-exciting

We think tax-is-exciting, paying a lot of tax can be exciting too! That implies you earned a lot. Then again, not everybody thinks the same. Solutions are brought to light that the Dutch tax office has already ruled.

We cannot assist WAADI companies as we cannot run the ABU collective labour agreement. I hope this article updates the UK Ltd contracting companies about the obligations in the Netherlands.

Conversion one man company into BV company

Conversion one man company into BV company is a procedure that often is done by native Dutch, but what is this about and is such a conversion suitable for you?

Conversion one man company into BV company

There can be a point in your business life where the situation is such that the one man company is no longer enough. A company with a share capital is more suitable.

When can that be the case? For instance in the situation you would like to attract investors. Investors often like to invest in return of part of the company. With a one man company that is impossible, with a BV company that is possible.

Or in the situation that in the long run you would like to transfer your company to your children by using the facilities that make it attractive, which are all in the BV  company structures. 

Some entrepreneurs fear liability and feel more comfortable in a BV company than a one man company. Hence the conversion.

Conversion one man company into a BV company: two methods

You can convert your one man company into a BV company in two manners. Simply terminate your one sole proprietor company and start a BV company.

You can also silently convert your one man company into a BV company. The silent part stands for all the contracts the one man company has are converted without change also into the BV company.

Conversion one man company into BV company
Conversion one man company into BV company

Silent conversion into a BV, why?

As explained, the silent conversion into the a BV, convert also the exciting contracts. This can be crucial. A colleague one time explained to me he had for many years Ajax season tickets in name of the company. He brought business relations with him to Ajax, hence the tickets on the company. I believe if you then change the structure of the company, new tickets needs to be applied for and that is not possible. The waiting list, or something like that, I know tax, not soccer, prevents being able to get the tickets in the name of the new company. The silent conversion bypasses this issue.

Maybe you have important contracts with business relations of which you are afraid they will renegotiate when you change your structure. Or employees that are keen to use the opportunity. The silent conversion make this all unnecessary.

Silent conversion info BV tax wise

Tax wise the convertion of a one man company to a BV can hurt you as the tax office could take the standpoint that the value of the goodwill the company build, is subject to taxation. The silent conversion also prevents such taxation.

In other words, the silent conversion is the way to convert into a BV company.

Costs involved in conversion one man company into  BV company

The costs involved in such a procedure are high. The reason is very simple, a lot of expertise is required from an experienced fiscal advisor to get the one man company lined up, to set up the BV companies in the right manner and to address the topic with the Dutch tax office in such a manner that it can only be accepted by them.

Tax is exciting BV –OrangeTax

Those who noticed, we have converted our company which was similar to a one man company, into a BV company: Tax is exciting BV. Even though we think tax is exciting and we love international taxation. Local tax aspects concerning such a transaction is not part of our expertise. We used the excellent services of Jos Blank tax and accounting. Jos Blank who is a friend and colleague in the field of taxation has done a super job in our transition.

If you have the urge to convert your company into a BV, or if you would like to convert your BV the other way around into a one man company, then the office of Jos Blank is keen to assist you. Also when you are unsure what to do with your structure, keep the one man company or continue in a BV company, the office of Jos Blank can advise you thoroughly in a meeting what are the options and consequences.

How to start a BV?

The limited liability company we know in the Netherlands is called a Besloten Vennootschap, but referred to everybody as BV. How to start a BV?

How to start a BV?

A BV company is to be incorporated by a Dutch notary. The Dutch notary will have a list of questions for you to reply to. Simple things like what will be the name of the BV company and for what purposes will you use the BV company. Then there are less simple questions like if there are multiple shareholders, who will get what percentage of the shares. Does everybody get voting right, dividend rights. Questions we can help you with answering and also the notary is able to explain to you what you can do.

How to start a BV – share capital

If you incorporate a BV then you are the shareholder. But how many shares would you like to have? You may think I only need 1. But what if you would like someone to participate in your BV over time? That is then not possible. So more shares than one are normal.

What will be the share capital? The share capital can be any amount between EUR 0,01 and the highest amount you can think of. But, you do need to pay the share capital to start the limited liability part of the BV. The notary can incorporate a BV, you can start your company, but as long as the share capital is not paid to the bank account of the BV, you are personally liable for the obligations of the BV company.

You might tend to choose for the EUR 0,01. I can understand your feelings, but our experience learns us that nearly all shareholders that have chosen for this amount simply forget to make the EUR 0,01 payment  to the BV. Hence they are personally liable all that time.

How to start a BV
How to start a BV

Then if you use the EUR 0,01, we need to put on the balance of the company the share capital. The rounding of the numbers make on your balance the share capital being zero. Investors or other persons you might need can get confused and assume you have not paid your share capital.

What can you pay for EUR 0,01 these days? I cannot think of anything, but if you incorporate a BV with EUR 0,01 share capital you put in EUR 0,01 to start running the business. The first invoice you will receive is that of the Chambers of Commerce for the registration being EUR 50, then the notary invoice arrives, the office rent company wants you to made a deposit equal to one month rent plus the one month rent. We suggest you make a calculation how much money the BV initially needs to pay the first running costs and use that as the share capital. For instance EUR 5.000 or EUR 10.000. Is also a nice share capital to show on the balance.

How to start a BV – no money

Let us assume you were very intrigued by the EUR 0,01 share capital amount and the invoice mentioned above are coming in. How will you pay for that without being called out bankrupt before you even started? The solution is to loan to your BV company the amount the BV needs to run the company. But by doing so you set immediately one step in a snake hole, fiscally.

If you loan money to me, a person you do not know, it is a big risk for you. You tend to cover yourself for this risk with collateral, but obviously I have nothing to give, so you even out the risk in the interest percentage. As this is a big risk for you, you charge a high interest rate. Let us say 14%. How do I get to 14%? That is the maximum percentage a bank can charge you by law when you take out more money from the bank than is in your bank account.

Of course you do know the BV company as it is your BV company, but that is not how you can look at it. You need to look at the BV as a third party person, currently with no track record in the financial field so you should charge them 14% interest over the money you loan your BV  to pay for the costs. Of course the interest is tax deductible in the BV, but at the BV corporate income tax rate of 20%. The interest you receive is taxed in Box 1 under the progressive rate that goes up to 52% max.

That is what I refer to as snake hole, if you charge a much lower interest rate, like the 2% you see for mortgages, you are not acting business wise. The 2% is possible as the house is collateral. If you use the low percentage nevertheless, then the tax office dismisses the fact that this is a loan, but will assume it is capital you put in. And this capital you cannot pull out easily.

This you can avoid by setting the share capital at an amount that can pay for the initial costs, then you need to make a turnover to pay for the other costs.

How to start a BV – one client

One client is no client is an expression we use in the Netherlands to avoid so called employees to turn themselves in self-employed, so they pay less tax and the employer pays less social premiums. However, if everybody can start a new business with a full portfolio of clients, everybody would be successful starting a business. Hence we have the opinion you can start a BV company with one client. But keep in mind, one client is no client. In other words, if this one client decides to become a client elsewhere you have no turnover anymore.

One client is therefore not a problem, the tax office gives you a three year holiday to find more clients. We also recommend you to find more clients.

The exception to the rule are foreign clients. The reason for the tax office to pursue you finding more clients is that the tax office is afraid you are basically avoiding paying Dutch social premiums. But with a foreign client this is not the case. They have never paid Dutch social premiums and they will never pay Dutch social premiums, because if they are required to, they take their business to another country. If your one client is a foreign client, you can continue to work for this client for a longer period.

BV – administration

The BV company is a closed circuit organization. Everything that is leaving the bank account needs to be labelled. Either you pay costs for services, or if you pay yourself it can be salary, dividend or repayment of a loan. For salary payments you need to run a payroll administration, for dividend you need to have a positive result (profit after tax) plus file a dividend tax return and for the repayment of a loan you need to have a loan.

The administration we recommend you not to do yourself, but have it done by us.

Orange Tax Services

Our corporate tax advisors will hold your hand through the process of incorporating the BV company. We will advise you what we think in the best choice in your situation. We can run the full administration of your BV company and we can file all relevant tax returns. We work for all services with fixed fees, expect the fee for the administration. Feel free to apply for a quote of your services. Or look at our site where most service fees are mentioned.

Corporate tax: rent privately owned office to your company

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).

Rent privately owned office to your company
Rent privately owned office to your company

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.

Year end balance – less tax due to more costs?

One of the more frequently asked questions is about saving tax by spending money on business costs.

Year end balance – costs

Most entrepreneurs learn during the year the amount of profit they expect to have made by December 31. Then they do a quick calculation of how much income tax is involved, and that could be a bit frightening.

Some entrepreneurs have then an immediate response to spend more on costs, hence the profit is lower, which results in less tax to be paid.

If the costs were to be made regardless of the result of the company, then this could be a good idea. However, if these costs are not truly necessary, but simply made to reduce the taxable profit, then this is a bit silly.

Why is this silly? Example:

You make EUR 100.000 profit and the tax rate is 52% (a tax rate for this example). So over EUR 100.000 you pay EUR 52.000  income tax.

Now you spend EUR 10.000 on silly costs, hence your profit is down to EUR 90.000. When we apply the 52% tax rate, then you are now due EUR 46.800. You saved EUR 5.200 income tax by spending EUR 10.000. That is not something a wise man would do, so to say.

It is better not to make the silly costs and pay the tax, as you then have EUR 4.800 more cash in your hand to spend.

Year end balance
Year end balance

Year end balance – investments

In line with the above some entrepreneurs make an investment that the company needs, to reduce the tax burden. An investment is an amount spend on costs exceeding EUR 450 ex VAT. Costs like study costs or licensee costs do not qualify. It is for example a lap top, server, company car etc.

Investments are not silly costs, but neither do they reach the desired effect, as investments are to be depreciated over a minimum of 5 year period. That implies a EUR 10.000 investment made on December 1 yields in only EUR 167 deduction of the profit. The EUR 10.000 is to be depreciated over a 5 year period. Then the investment was made on December 1, hence 1/12 of the EUR 2000 is deductible in the year of the investment.

That said, if the investment still has a value after 5 years of depreciating, for instance EUR 1500, then you can only depreciate over EUR 8.500.

 Year end balance – costs versus income

The downside of a lower profit is that you have a lower profit. That is a logical consequence, but the moment the entrepreneur would like to purchase a house, then the bank would like to see the result of the company over the past three years. If then the profit of each year was reduced to save tax, it is very well possible that the bank denies you the loan by lack of sufficient profit.

Orange Tax Services

The above question is one we are often asked. In my opinion you as entrepreneur should do your best to earn as much as you can, regardless of the tax rate applicable. There will be plenty of occasions in the future that make that you no longer can make the profit you can make now. Not only you become older hence less energetic, but economy can go down or your product/service is no longer a desired product. That might make you wish you were not so much blinded by the tax during the period of plenty.

Dividend versus salary

The most frequent asked question is about dividend versus salary in a BV company. How to correctly weight this question in the corporate income tax return.

Dividend versus salary

We notice mainly clients from the United Kingdom have the strong opinion that paying out dividend instead of salary is much better tax wise.

Whether that is true depends.

The issue in the question dividend versus salary is not so much the alleged tax advantage,  but the rules we have in the Netherlands. The rule is that the salary of the managing director of the limited liability company cannot be less than 75% of the profit. This rule is more elaborate, but for the purpose of this article we focus on the 75%.

Dividend versus salary
Dividend versus salary

Is dividend cheaper tax wise?

Let us assume you make a EUR 100.000 profit. If you do not take out any salary, then this profit is taxed with 20% corporate income tax, being EUR 20.000. The after tax profit of EUR 80.000 that is open for dividend is subject to 25% dividend withholding tax, being EUR 20.000. Hence net in your pocket is EUR 60.000.

To be clear, the above situation is not legal, you cannot have no salary, so this is only for calculation purposes.

Is salary cheaper tax wise?

In 2018 EUR 100.000 salary is EUR 45.965 wage tax/social premiums and EUR 54.304 net salary. As now the profit is fully consumed, no corporate income tax is due. This is a legal salary. But not cheaper than dividend.

However, if we introduce the so called 30% ruling in this story and the criteria have been made, the application made, then suddenly the wage tax / social premiums amount to EUR 29.047 and the net salary is EUR 70.952. This is a legal salary. It is very much cheaper than dividend.

Why can we not pay a dividend instead of salary?

There is a very logical answer to this question. If you pay 100% of the profit as a dividend, you have not earned a salary. In the Netherlands you are regarded poor when you have no salary income. If you are poor, you are entitled to benefits. Benefits such as the healthcare benefit, rent benefit, higher child care  benefit etc.

But, are you poor? You were paid EUR 60.000 in dividend, then you are not poor. And if you are not poor, you should not be open to facilities that are for the true poor. Hence rules have been installed.

Minimum salary requirement

The rule, to prevent managing directors / shareholders to benefit from tax credit that are not entitled to them, implies that all managing directors in the Netherlands need to have a minimum salary of at least EUR 45.000. Of course if the company does not make this amount of profit (excluding salary costs managing director), then a lower salary is to be paid.

Besides this EUR 45.000 the salary cannot be less than 75% of the profit. This is automatically checked by the Dutch tax office when the corporate income tax return is processed. If it does not match, the tax office will demand you to have it matched plus increase the amount of wage tax due with at least 25% penalty.

But do you want to have dividend versus salary?

We think not. Not only you need to be in line with the rules and regulations. For the formal dividend payout there is an additional rule. That rule basically states that should the limited liability company be liquidated due to shortage of money. In other words, the company goes bankrupt as it cannot pay its invoices anymore. Then the liquidator appointed will state that the dividend paid in earlier years was an act causing this bankruptcy. Such a process makes you become personal liable for the debt and that is exactly what the liquidator is after, because then your house can be sold to pay mainly his invoice.

Orange Tax Services

We are often asked about dividend being paid, instead of salary. When no 30% ruling is in place, it is very tempting. However, most people in the Netherlands know that purchasing a house is cheaper to maintain, then renting a house. The bank that provides you with a mortgage will look at the employment income over the past three years. Not at the dividend payments. If then the salary was not high enough for the loan that was applied for, you cannot purchase the desired house. So the question dividend versus salary is a much more intense question, but the answer nearly always the same. Salary can be experienced as being better, but also more costly tax wise.

 

 

The corporate income tax return

The corporate income tax return is the tax return for Dutch legal entities such as BV company or for instance Dutch branch of Ltd company to report their result.

The corporate income tax return

The corporate income tax return is in general  equal to the calendar year. The obligation is to file a corporate income tax return before June 1 of the following year. Often a company asks for delay or it is the tax advisor that asks for a delay as he simply has no time to file the tax return.

The fine

The fine on not filing the corporate income tax return is huge. The standard fine is EUR 5.278. The Dutch tax office does as if she does the company a favour the first time the company is too late by giving a 50% discount on the fine. Still we think that is not proportional.

The corporate income tax return

The chambers of commerce

After the client agrees with the annual report the corporate income tax return is done, but another obligation is to publish the annual report with the Chamber of Commerce no later than 12 months after the financial year finished.

The penalty for not complying is EUR 900.

Orange Tax Services

We stand for shielding your company for getting any of such penalties. We are not the company that looks to stretch the law. That is more an adventure you best can do with other firms. We like to comply as you should, you pay the tax as you could have expected. And in case you are audited, you can relax.

 

Salary of the shareholder of the branch registration

Your company might have a branch in the form of a BV company in the Netherlands or an identical registration of your foreign legal entity. The issue that might arise then is the salary of the shareholder of the branch registration.

Salary versus dividend

The fun for most managing directors sole shareholders is to earn a lot of money, not get paid a salary at high progressive rate, but only enjoy a dividend payment. That fun was spoiled many years ago in the Netherlands.

In the Netherlands we have social benefits for poor people. Poor people are people with no or nearly no income. Such as the managing director sole shareholder who earned no salary income, but did cash a million in dividend. He is poor as he has not salary income.

The consequence is that this poor managing director sole shareholder can take out a rent benefit, should he rent, a health care insurance benefit or a day care center benefit.

But is he poor with the one million in dividend? I doubt that is the case. So why have him benefit from social benefits for the true poor?

Salary of the shareholder of the branch registration

Salary of the shareholder of the branch registration – Minimum salary requirement

That made the Dutch Government make that the salary of a shareholder employee cannot be less than EUR 45.000 or less than the highest paid employee other than himself in the company or less than 75% of a person in a similar position.

That rules out the salary of the shareholder of the branch registration to be used to obtain social benefits, as the minimum of EUR 45.000 makes that most benefits cannot be applied for anymore.

How to determine what is the salary of a person in a similar position in a country like the Netherlands where nobody tells anybody their true salary, but with loans and open curtains at night showing off their latest TV screen. On the other hand, the tax office knows the salaries of all persons, but they will not share their information. Bottom line is then that you simply take 75% of the result of the company from which the salary of the managing director shareholder has been deleted from.

But does this rule apply to me, I have a UK Ltd registered in the Netherlands. The UK does not have this rule.

The UK, or any other country, might not have this rule. But for Dutch tax purposes you are a managing director sole shareholder. The company is subject to corporate income tax in the Netherlands, your salary is subject to Dutch wage tax, hence you are under the Dutch rules.

How will they ever know about the correct salary of the shareholder of the branch registration taken out?

This is a simple answer. The Dutch tax office only works with digitally filed tax returns. So in their control room they tick the box result company, tick the box salary of the shareholder and the computer calculates if it is correct. The 2011 court cases show that if not correct, the tax office will make corrections going back 5 years, which made each company in those court cases go bankrupt, as the amount is increased with penalties. The court cases also show that minor shortages in salary are equally harshly adjusted, which made us wonder if it really should be this harsh.

How can Orange Tax Services help out?

That is easily answered. If your company is our client we do our best to have done the fourth quarter VAT return in early January, so we know the result of the full previous tax year. Based on that result we calculate what the salary should be. Under the 30% ruling a salary using 100% of the result, so no taxable result left over, is most efficient. Non 30% rulers we will set at 75% salary of the result. That implies in January we update the previous December salary to match the criteria of this legislation.

branch setup in the Netherlands

One of the frequently asked questions in a regular work week by potential clients is for a branch setup in the Netherlands, However, nearly all of them ask for a so called BV company to be setup. Why however? When we ask if the director of that BV will be residing in the Netherlands, the answer is nearly always No. Then we have a problem.

Branch setup in the Netherlands

A branch is basically opening a shop or office for a company outside the Netherlands. The reasons can be various. Some have an import and export company and like to have a Dutch VAT number, some would like to hire an employee and think a branch makes that easier, some would like to defer income to the Netherlands.

The import export company with no presence whatsoever in the Netherlands we recommend to contact a freight forwarder that can act as fiscal representative and have the VAT collected much more efficient.

The foreign employer who thinks making the employee in charge of the VAT filings, wage tax filings, publishing annual report with the Chambers of Commerce, filing the corporate income tax return and be liable for the action of the branch, actually is an efficient way to employ a person, that foreign employer we inform about the possibility of the non-resident employer. Then the employee is a genuine employee and the company is not exposed to any other tax in the Netherlands, than tax on the employment. There are some restrictions. Read more about that in our articles.

Deferring income to the Netherlands for avoiding tax is basically the wrong way around. Most Dutch companies like to get money out of their Dutch limited liability company to a lower taxed country.

Branch setup in the Netherlands

Branch setup in the Netherlands – 2 flavors

BV company

You have basically two flavors for setting up a branch. One is the so called BV company. That is the Dutch equivalent of the Ltd company. And you can set up an identical registration of your foreign limited liability company.

The BV company is strong from a commercial perspective, but if the director of that BV company is not residing in the Netherlands, then it has no point setting up a BV company.

The director his private address determines where the BV company is a tax resident. The thought is that the director is in charge of the BV and where that is, is where the BV should be taxed. This is immediate effective with for instance Value Added Tax. VAT is paid in the Netherlands over costs like housing, advisors etc. That VAT the BV would like to claim back, but cannot claim this back if the company is not resident in NL. The VAT legislation is made in such a manner that if the BV company sends out an invoice with Dutch VAT, that, regardless of the BV being a resident in the Netherlands, this amount of VAT is to be paid to the Dutch tax office.

The same applies for corporate income tax. The corporate tax law does have an article that a Dutch BV company is always regarded to be subject to Dutch corporate income tax, but if the director lives abroad, in that other country the result is to be taxed.

Branch setup in the Netherlands

The difference with a branch in the manner of an identical registration with the Dutch Chambers of Commerce of the foreign company is that the director does not need to be resident in the Netherlands for the branch to be fully taxed in the Netherlands.

The logic is of course that if the director of the foreign company moves to the Netherlands, the vehicle of that other country will have issues, as the director left the country.

Such a registration solves the tax issue, but is maybe not so strong from a commercial point of view. However, it gives the company time to investigate the market, get a team of employees and then one of them could become the director of the new to be incorporated BV company.

Branch setup and accounting

Till about the year 2012 the at arms length principle what understood not the be applicable to the branch that is an identical registration. But since then it is understood that these rules do apply. Therefore from a tax point of view there is no difference between a BV company and an identical registration of a foreign company.

Tax treaty wise the BV company stands stronger.

Orange Tax Services

If you would like a branch setup in the Netherlands, Orange Tax Services can set this up for you. The setup of a BV company is charged at EUR 1800 ex VAT and we pay for the notary costs. The setup of a branch as identical registration of foreign company is charged at EUR 950 ex VAT. The latter is not a quick process and patience with the client is very much appreciated. The BV can be set up rather quickly if all the documents are in place.

Orange Tax Services can also fully support with the accounting, tax filing and questions the client has about processes in the Netherlands.