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

What does owning a BV company imply?

What does owning a BV company imply?

What does owning a BV company imply is a question you should ask yourself, or us, before you are involved. It is more than the fancy director title.

What does owning a BV company imply

I would like to go through the steps of setting up a BV company up to and including the annual obligations.

Set up of BV company – the notary

A BV company is an official public company with limited liability. Such a company can only be incorporated by a notary, a Dutch notary.

The notary will ask you about the name of the company. Important to do some research. Even if your name is Albert Heijn and you sell groceries, you cannot register a company with such a name. There was an Albert Heijn, not family of the large supermarket store, who tried and lost. Or if you think you are clever and you call your store Loods 6 based on the success of Loods 5, you will be asked to change the name. Mind the name.

What will the company be doing? What is the service you provide or the goods you sell. How much share capital will you issue. Will you have an extended first financial bookyear. Who are the directors, are they fully authorized? These questions and more are to be addressed with the notary.

We work with Buma Algera notaries, very experienced notaries, fully equipped for internationals.

What does owning a BV company imply?

BV has been incorporated

The BV has been  incorporated, the notary updates the Chamber of Commerce. The Chamber of Commerce updates the Dutch tax office. The Dutch tax office will issue a corporate income tax number and often also a value added tax number (VAT). Sometimes you provide a service that is not subject to VAT, then no VAT number is issued. For instance when you set up a holding company that is a pure holding company.

The wage tax number can be applied on request.

Obligations of the BV company

We have a number of obligations the BV company needs to meet. That makes the BV stand out from the much more simple one man company.

Filing the VAT return and wage tax return is not different from the one man company. Also the bookkeeping merits are the same with the one man company. The limited liability aspect of the BV makes that the content of the annual report is different. You will see share capital and general reserve on the balance of the BV. This is not shown on the one man company balance.

That said, if the share capital of the BV company has not actually been paid by the shareholder, you also do not see this amount on the balance with the BV. Neither has the limited liability started then. Limited liability only applies when the share capital was actually paid.

The bookkeeping will result in an annual report and the shareholders meeting needs to approve this annual report. In the same shareholder minutes the board can be granted discharge for the concerning period. That implies the persons of the board cannot be held liable themselves for that period, should anything occur later. However, if the annual report is reported too late with the Chambers of Commerce, the persons of the board are always held personally liable in case of bankruptcy or things like that.

The deadline of publication of the annual report is within one year after the calendar year has finished.

Corporate income tax return

The BV company is to file a corporate income tax return within 5 months after the book year has finished. The Dutch tax office has yielded experience in this field, hence the fine for filing too late is set at EUR 5.514. The first time 50% discount is granted, as if it is a bargain, but still a lot of money for nothing.

Dividend paid out

The moment the BV has made a profit and the director was paid at least the required minimum salary, the profit is taxed with corporate income tax. The net result (after tax) is allocated to the general reserve in the shareholders meeting.

The shareholder can decide to issue him or herself a dividend. In order to do so, the shareholders meeting needs to decide on the dividend. A dividend note is to be created. Then the dividend withholding tax return is to be filed.

Very important to realize is that when a dividend paid out in the one year creates later in time insolvency issues, there is problem. That implies, the company has not enough funds to pay for the costs or tax. Too much dividend was apparently paid out. That is an economic crime with consequences. Mind the accounts!

Income tax return

In the income tax return you report the salary you earned with the BV company. If you loaned money to the BV company, the interest is taxed as income in Box 1. Dividend you received from the BV are taxed in Box 2. Via the dividend withholding tax return 15% tax was withheld, in the income tax return you pay the remainder up to 26,9% (2022). Loaned money taken from the BV are reported in Box 3.

Now your obligations have been met.

Tax is exciting

We think tax is exciting. We are excited to assist you with the setup and or running of your BV company. However, we will ask the question if a sole proprietorship would be sufficient as well. We have to ask, as the administrative costs and formalities with the sole proprietorship are much less.

The moment we learn the BV is commercially, logically or strategically the best, we are happy to serve. Our fees you find on the website, we will be glad to email them to you as well.

When do you set up a holding structure?

income tax

A holding structure is easy to set up, expensive to maintain, so when do you set up a holding structure?

A holding structure – what is that?

Often the phrase one BV is no BV is stated by some who thinks they know it all. When you have a company that is ran only because of the person owning the shares in the company, then one BV is perfect.

The purpose of a holding structure is to eventually sell the working company. If you sell the working company, the profit can be received tax free by the holding company. So what is a holding structure. A holding structure is a BV company set up by a private person. Then the what we refer to as holding BV sets up a working BV. The holding company holds the shares of the working company. The working company is the company that is actually running the business.

set up a holding structure

A holding structure – what does it do?

The holding BV needs to be a very passive BV. Passive in the sense of not attracting liabilities to anything else than the shareholder. The only activity is holding the shares of the working BV. More experiences or seasoned entrepreneurs hold shares also in other companies with this holding company. Or they invest with the holding company, but very passively. Should the working BV makes a profit, the working BV can pay via dividend the profit into the holding company.

The holding BV holds then the profits made. Should anything happen to the working BV from going bankrupt to being sold, the proceeds are then not lost, but save in the holding BV.

The holding BV can decide to pay this to the ultimate shareholder via dividend or salary, depending on the setup and desires.

When to set up a holding structure?

If you build up the working company as a company that can be ready in the near future to be either sold to another shareholder, or management buyout by the employees, then the profit made on the share value is taxed in Box 2. Currently the tax rate in Box 2 is 26,5%.

If the shares are held by the holding bv, the profit of the sale of the shares is not taxed. Only if the proceeds are paid out by the holding company to the ultimate shareholder, the proceeds are taxed.

When to set up a holding structure is in the event your business is open to be sold or for a management buyout.

Why is the profit made by selling the shares in the working company not taxed in the holding company?

The answer is simple, you are the entrepreneur, you invested, took the risk and made the proceeds. Maybe you would like to reinvest the proceeds in a new project. Than it would be a pity you first  need to pay tax and can only invest the net amount. Hence the so called participation exemption has been introduced. That implies no tax is due till the proceeds are paid out via dividend or salary to the ultimate shareholder.

Do you need a holding structure?

The answer of that question is basically in our explanation above. If you create a business that is open to be sold in the future, maybe yes. Before you enthusiastically set up this structure, mind you, regardless if the holding BV is active or passive, the annual accounting obligations need to be met. So the holding BV does costs accounting fees. Our experience is that clients become annoyed with these costs, as the BV is not doing anything. Still you need to run a bookkeeping, create an annual report, publish the report, have a shareholders meeting and file a corporate income tax return.

Tax-is-exciting

We at tax-is-exciting are excited to have a talk with you before you start what would be the best set up. If you have no idea how your business will develop, maybe even starting as a so called one man company would be an option. Then if it develops well, you can transfer the one man company to a BV company. If it is clear from the start you can easily sell your business, we recommend a holding structure. If it is not clear and only later you find out there is potential to sell the company, still, under conditions, a holding structure can be set up, but then it is an expensive and time consuming effort. Therefore we suggest to, as good as possible, predict if you need a holding structure or not.

Sorry for the dashes in the middle of the word tax-is-exciting. Apparently Google has a dirty mind and sees only a three letter word that we refer to when we practice to reproduce ourselves. Anything related to that word is spam, hence this devout solution.

Holding BV or no Holding BV, that is the question

Enthusiastic entrepreneurs contact us for a BV set up with a Holding company and a working company. The question then is, is that wise?

Holding BV

A Holding BV holds the shares of the working BV. The purpose of the Holding BV is either to take the proceeds of the working BV out of the danger of possible bankruptcy or liabilities. The Holding BV can also receive tax free the proceeds of the sale of the shares of the working BV. Indeed, tax free.

But still, is it worth while to keep a Holding BV?

Holding BV – accounting fees

The enthusiastic entrepreneur often starts to complain soon after the structure is in place that the accounting fees are considerable. The general response is that the Holding BV is not doing anything, so why are the accounting costs necessary.

In the Netherlands we do not know dormant companies, so the corporate income tax return needs to be filed and the annual report needs to be published. Besides this fact, the Dutch tax office does not accept incorrect tax returns, plus the entrepreneur expects in the end that the Holding BV purpose is correctly administrated. Hence the services of a tax advisor are required and they are not for free.

Holding BV or not
Holding BV or not

Holding BV – shield of liability

The Holding BV is often used to pay dividends in from the working BV to keep this value save from possible liabilities of the working BV. However, rules make that if it becomes clear that a dividend payment was made when it could be for seen that the working BV needed to keep equity on the balance for possible liability claims, the dividend transaction was not legal.

Such a dividend transaction the director will be held liable and that can affect the Holding BV company. The dividend payment can be claimed back and that can result in bankruptcy of the Holding BV. If then the director of that Holding BV is held liable for this situation, the director can go bankrupt privately.

The Holding BV as shield of liability might not work.

Holding BV – tax free proceeds sale working BV

The Holding BV can receive the proceeds of the sale of the shares of the working BV tax free. The reason is that then the entrepreneur has a possibility to invest pretax  the proceeds in a new business.

If no Holding BV was holding the shares, the entrepreneur was due immediately 25% income tax over the proceeds.

Practice learned that the entrepreneur often creates a very undesired situation by receiving the proceeds tax free and taking up too much money via current account of the Holding company.

Example

Working BV shares are sold for EUR 1.000.000 and this 1 million is received tax free in the Holding BV company. The entrepreneur decides to pay off the mortgage of his house with the bank by taking out a loan with his holding BV for EUR 600.000 and on top of that EUR 200.000 for private spending.

As the Holding BV has EUR 200.000 in the bank, that is not enough to pay the 25% tax over the 1 million. When the tax inspector challenges the loan of the house and the private spending loan, this entrepreneur has a problem.

No Holding BV

Experience has learned us that often the proceeds of the sale of a company are immediately used for private spending by the entrepreneur. Then you can ask yourself: would it not be wiser to skip the Holding BV and accept the 25% income tax immediately instead of first receiving the amount tax free in the Holding BV and then pay the amount as dividend subject to 25% income tax. No Holding BV implies you are free to spend as you like the 75%?

Keeping a Holding BV in the air because you do not know how to pay the tax for many years is not only costly from an accounting costs point of view, but it is also not contributing to peace of mind, as you know you are due tax that you cannot pay.

Holding BV – introduction at a later stage

The moment your BV company turns out to be a huge success and you want to put a Holding BV in between and you have at least three years time to arrange this all. Then there are fiscal solutions to put in between the Holding BV. Still you need to ask yourself if the Holding BV is making the difference for the costs spend on this exercise.

Holding BV – multiple partners

The Holding BV is an immediate good idea when in the working BV you have several shareholders. The famous example is that the one shareholder insist on driving his Mercedes AMG as business vehicle, and the other shareholder prefers the bike. As a bike gets stolen very often, the Mercedes shareholder does not want to pay for these costs. Hence they can decide to put their means of transportation in their own Holding BV company, so their choice is not eating the profit of the other shareholder.

Orange Tax Services

We try to keep it simple. Start your company, maybe start with the so called one man company. If your company is indeed the success you anticipated, then you could consider for commercial reasons to transfer that one man company in a BV company. If then later the success continues you can put in between a Holding BV company.

The BV company we recommend especially when you would like to continue your 30% ruling. But if that is not the case, you can as well start the so called one man company. You can still employ as many employees as you like, as the one man stands for one man holding the capital, but this company can have plenty employees.

If you start the BV company to limit your liability, you should learn that the registers show that the shareholder of a BV often goes privately bankrupt in a one week time after the BV company went bankrupt. So the limited liability might not work. Even though the words BV stand for limited liability.

We will be glad to assist you with setting up the BV company for EUR 1800 ex VAT including notary fees and advise and run the annual tax and accounting obligations for you.

Does a BV limit your liability?

The Dutch BV company is a limited liability company, but does a BV limit your liability? My opinion is that it does not.

In the old days you could only incorporate a Dutch BV company when you were able to deposit at least EUR 18.000 on the issued shares. In the recent years the amount can be any amount and most incorporated chose to incorporate a BV company at EUR 0,01.

Incorporation BV company at EUR 0,01

Can you expect the same limited liability for EUR 0,01 as you did with EUR 18.000? In theory yes, in practice I think you should not expect that. In court common sense is part of the verdict and if you incorporated a BV company at EUR 0,01 and you are for instance a horror dentist, you should not expect that your liability is limited. The court could state that your clients did not come because of the BV company, but because of the dentist in person and then both the BV company and the person are held liable for damages.

Another aspect of the EUR 0,01 share capital is that incorporators think of it as a mickey mouse amount and tread it as a mickey mouse amount. Better said, the EUR 0,01 is forgotten about and never actually paid for the share capital. The rule is that an incorporator is personally liable until the moment the share capital was actually deposited. On top of that, while you are incorporating a BV company you will have immediate costs, like costs of the incorporating notary. A share capital that covers the initial costs would be the better option.

The above you can easily follow I assume, but there is an aspect which is more complex to understand, nevertheless, it is vital for being protected under the limited liability:

The director needs to act in the best interest of the BV company

In the situation your BV company goes bankrupt you should not think you can pull the plug and run away. There will be a curator appointed and to put the curator in perspective someone made it once picture clear to me. Assume Harvey Specter of Suits is your curator. That will make you nervous, if you would live in this TV series.

SUITS -- Season: 2 -- Pictured: Gabriel Macht as Harvey Specter -- Photo by: Robert Ascroft/USA Network

In the today’s news an article was published that a director of a BV company owes the curator EUR 1 mln. The curator asked for EUR 12 mln, but was appointed by the court with EUR 1 mln. My immediate question was how a director of a BV in liquidation can owe the curator a debt.

40342677 - veterinary great performing a scan to a young mare

The situation is as follows. The BV company traded in meat. Sold horsemeat under the name beef (cow). This was discovered, on the national news and clients of this company left immediately. Conclusion: company went bankrupt.

One of the obligations of the director of the company is to act at all times in the best interest of the company. The curator came to the conclusion during his audit that the director had failed to act in the best interest for the company by selling horsemeat under the name beef, as that caused the company to go bankrupt.

That is the origin of the EUR 1 mln charge the curator has on the director.

Why would a curator involve the shareholder in person?

Why would a curator take this strategy? All curators have one aim and that is to get the person behind the shares involved in the bankruptcy, as the money is with this person. A BV that goes bankrupt is a company that cannot pay its debts anymore. An empty BV. But the shareholder/director of the BV maybe has yielded a nice income from the BV in the years that have passed. Therefore it is key for the curator to get to that money by making the person liable and claiming his assets and that of his partner.

That is how I come to the conclusion that a limited liability company does not limit the liability. The above items addressed are only a fraction of the arsenal the curator has at his disposal. The curator has a special place in the civil law and is able to undo transactions and to make a direct claim on assets which are not possible in normal legal transactions. All to protect the debtors from not getting paid.

Orange Tax Services

The above is very much stated in my own words. Our business is to make aware entrepreneurs about the risks that come with doing business. If an entrepreneur has the opinion that a limited liability company will limit this entrepreneur to the amount deposited on the shares taken out to incorporate the BV company, then he is mistaken. That is the message.

Is your holding BV a true holding company?

It is the end of February and by now your BV company should have had its annual report from your accountant. Perfect time to actually open the report and try to understand what is stated in the annual report. If it is not clear to you, ask your accountant to make it clear to you. In the Netherlands the question would be to ask to have the annual report in Jip and Janneke language. Clear language without difficult words. An annual report is not a document that only contains value if complex words are being used.

What is a holding BV?

A holding BV company is a company that holds the shares of other companies, or participations in other BV companies. In the United Kingdom such companies can be dormant companies, in the Netherlands dormant companies do not exist. That implies you need to do the annual accounting, annual report and corporate income tax return.

A BV company is the Dutch equivalent of the limited liability company. A holding company can have many purposes. One of the purposes it to collect tax free the gain made in case of sale of the shares of the working company. A working company is the participation held in which the company is actually being executed. Within the participation exemption the gain made is not taxed, unless it is actually paid out to a natural person.

Another reason is to limited the liability more. A working company is also a BV company and BV stands for limited liability. You are liable for the value of the shares of the company. But in fact you are liable for the full value of the company. If you worked hard and earned a good profit in the working company, the company has a balance full of assets and a high equity amount. The moment the BV is in trouble, the full value of the BV company is liable.

Dividend pay out

Therefore it is important to pay out once in a while a dividend to the holding company, to take out some of the assets from the risk running company. A dividend is a decision made by the shareholders meeting and is only valid when future obligations of the BV are not harmed by this pay out.

Holding BV company orange tax

Current account

The commonly made mistake is that of the current account. The director of the working company either takes out himself more money than his salary or the holding company has no income source and has running cost being paid by the working company. Both scenarios are not desired. If the working company can no longer pay for its debts, the curator will try to get to the end of the line where is the money. That is either the managing director the natural person. The curator is very eager to hold him liable either for bad management. Or hold him liable for the current account debt. A bankruptcy of this person creates the possibility to sell his house for instance. The same is with the holding company, the curator would very much like to get to this company as well. The current account debt is the link. Solve if possible a current account.

Is your holding BV a true  holding BV?

Your holding BV should be out of harm in case one of the participations goes bankrupt. If for some reason a current account has been created, have the shareholders meeting decide on a legitimate dividend payment to settle the debt. Or if there is a substantial excess of equity in the working BV, have it paid out via a dividend to the holding company.

Annual report

So please open the annual report of your holding company. Under participations you find the participations the holding company holds. That is on the left side of the balance or assets side. If you find a name of the participation in other parts of the balance as well, you need to start ask questions why that is and how that situation can be solved.

If the bank balance of the holding company is rather high and the company has substantially less debts, decide about making dividend payment to set aside the liquid asset.

Orange Tax Services

We finished most of the annual reports for 2015. We are critical to current account situations, we address the issue, but sometimes the entrepreneur has reasons for the situation. Nevertheless, paying back the debts or fulfilling formalities is part of the job.