In the Netherlands there are set minimum requirements to the salary of the managing director shareholder. Have you met the minimum requirement? If not, please solve this before the final 2014 wage tax return is filed.
The managing director shareholder in the Netherlands cannot freely determine his or her salary. In the past these employees employed by themselves have stated not to need any salary. The result is that instead of wage tax due over the salary income, a dividend was paid at 25% dividend withholding tax.
Example salary versus dividend income
EUR 100.000 is the result of a company. If this is paid in a salary to a managing director shareholder, EUR 42.570 is due in tax and premiums and EUR 56.429 is received in net salary. If this is paid in a dividend, then first the EUR 100.000 is taxed at 20% corporate income tax. The result after taxation is EUR 80.000. 25% dividend withholding tax over EUR 80.000 is EUR 20.000. Hence EUR 100.000 is taxed with EUR 40.000 and EUR 60.000 is received cash.
A minor difference.
It was not so much the difference between wage tax and dividend withholding tax that decided the Dutch Government to set rules, it was the managing director without a salary that was recognized in the system as a poor person, hence all kind of benefits were issued. Benefits such as rent benefit, health care benefit and more. But this is not a poor employee.
Minimum salary managing director
To prevent the above from happening a minimum salary was introduced, for 2014 that is EUR 44.000. However, the salary cannot be much different from an equal positioned person. As every managing director thinks he or she is unique, the jurisprudence has come up with the 70% demand. The salary cannot be lower than 70% of the result made. In 2015 that will be 75%.
In 2015 also the compared salary person definition is changing. You no longer need to find an equal positioned person, you can also find an equaled enough position person. And use that salary. A minor issue might be that no Dutch sane person ever informs anybody about what his earnings are. Nevertheless you need to match the unknown salary. If you do not, then the tax office assumes the 75% amount of the result is the correct salary. The tax office being the only organization in the Netherlands that has all the information about every employee.
We recommend you build a case with any information you find on an equal enough person his or her salary. If the tax office challenges this salary, then new rules also dictate that the tax office should show why they disagree. That implies show the salary details of comparable persons. That can only help your case.
Action for 2014
Match your salary with the minimum requirements as the tax office will compare BV company’s results with the salaries of the managing directors. The penalty for not complying is at least 25% and the audit is for a five year period.