Introduction
The Dutch tax authorities state that a managing Director/Shareholder (DGA) must be paid a salary of at least € 56.000. This is not obligated! The Dutch tax authorities introduced this minimum salary requirement so that a Dutch B.V. can’t pay dividends to its DGA before at least € 56.000 of salary is paid to him, the Dutch B.V. can pay dividends to others. In the Netherlands, dividends are subject to lower taxes compared to salary. Without this threshold, no salary would be paid and all available liquid assets would be distributed as dividends to the Director/Shareholder (DGA).
This is often regarded as a myth: in many cases, DGAs do not need to pay themselves that amount in salary. Many clients prefer to reinvest all their earnings back into the company rather than taking it as salary. In reality, tax authorities tend to be lenient with this regulation. If there are no funds available to pay out, it simply cannot be done. Conversely, if sufficient funds are present, a minimum salary should be paid.
What Is A DGA?
A Director-Major Shareholder (DGA) is an individual who holds a substantial share interest (more than 5%) in their BV (private limited company) while also serving as its director. In the Netherlands, DGAs are subject to specific legal requirements regarding the minimum salary they must receive for their role. These requirements are in place to ensure that DGAs contribute fairly to the social security system and to prevent tax avoidance through artificially low salaries.
What Are The Minimum Director’s Salary Requirements?
The minimum salary for a DGA is determined based on the highest of the following three criteria:
- Comparable Job Salary: This refers to 100% of the salary earned by an employee working in a comparable position within regular employment. Establishing this can be complex, particularly for freelancers or those in unique roles. However, it is particularly relevant for freelancers working within large organizations alongside regular employees performing similar tasks. The Dutch Tax Authority (Belastingdienst) may require evidence to substantiate claims about comparable job salaries.
- Highest Earning Employee: If there are other employees in your company, the minimum DGA salary must match or exceed the salary of the highest-earning employee. This rule ensures fairness and prevents DGAs from paying themselves significantly less than their employees.
- Set Amount: The fixed minimum amount is €56,000 (as of 2024). This benchmark provides a straightforward reference point for DGAs when determining their minimum salary. This amount is periodically adjusted for inflation and changes in the economic environment.
Reducing Salary Obligations When Starting A BV
When starting a BV, the general rule is that a salary must be paid out if possible. However, instead of avoiding salary payments entirely, which is often impractical, you can focus on reducing the amount of salary. Here are some strategies to help reduce your salary obligations:
- Demonstrate Lower Comparable Salaries: If you can show that the salaries in equivalent positions are lower than the minimum DGA salary, this can justify a reduced salary. Note that comparisons must be within the Netherlands, as lower salaries in equivalent roles in other countries are not considered valid. This requires thorough documentation and possibly industry benchmarks to support the claim.
- Show Structural Losses: If your company is experiencing continuous losses, you can demonstrate that paying the full salary would jeopardize the company’s financial health. This can be a valid reason to propose a lower salary to the tax authorities. You will need to provide financial statements and projections to support your claim.
- Consider Part-Time Work: If you work part-time or have periods of inactivity within the year, these factors can be taken into account when determining the minimum salary. This flexibility allows for adjustments based on actual working conditions. Documenting your work schedule and responsibilities is crucial for this approach.
Investment Phase
During the start-up phase, you may need to make significant investments and may have little to no income. This situation can be used to justify a lower salary, reflecting the company’s financial reality. You should prepare detailed business plans and cash flow forecasts to illustrate the need for reinvestment over salary payments.
Appointing a Personal Holding as Director
If you appoint your personal holding as the director, rather than yourself, you operate under a management agreement. It’s crucial to formalize this agreement, ensuring it is dated, signed, and filed appropriately. This agreement differs from an employment contract and involves paying a “management fee” to your holding.
Key points about this arrangement:
- Management Fee: This fee is not subject to the DGA salary requirements and is not liable for insurance premiums. It simplifies the financial management between the BV and the personal holding.
- DGA Salary in Holding: The minimum salary requirements apply to the directors of the personal holding, based on its generated cash flow. This means that while the holding receives a management fee, the DGA must still ensure compliance with minimum salary rules within the holding itself.
Filing and Tax Compliance
Upon the establishment of a Dutch BV, it must be registered as a withholding company with the Dutch tax authorities. This registration mandates the BV to file withholding tax returns regularly. Initially, these may be monthly nil returns if no salary is paid out.
Key steps and considerations:
- Assessing Liquid Assets: At the end of the fiscal year, the BV must assess its liquid assets to determine its capacity to pay a salary to the DGA. For example, if the BV has filed 11 nil returns and has €35,000 in liquid assets in December, part of this amount can be allocated as working capital, while the remainder can be paid as salary.
- Request for Lower Salary: If the BV cannot meet the €56,000 salary threshold, a formal request can be made to the tax authorities, explaining the financial situation and proposing a lower salary. This request should be well-documented with financial statements and a detailed explanation.
Practical Considerations
- Monitor Company Growth: As your company grows and becomes profitable, you will need to adjust the DGA salary upwards to reflect the improved financial position. Regularly review financial statements and consult with your accountant to determine appropriate salary adjustments.
- Consult with Accountants: Regular consultations with your accountant are essential to ensure compliance and make necessary salary adjustments. Accountants can provide insights on tax-efficient salary structuring and compliance with Dutch tax laws.
- Documentation: Ensure that all agreements and filings are properly documented and submitted to avoid any compliance issues. Keeping detailed records of all financial transactions and agreements is crucial for audits and regulatory reviews.
Additional Points to Consider
- Social Security Contributions: Paying a DGA salary involves contributions to social security schemes. Understanding these obligations is crucial to avoid unexpected liabilities.
- Dividends vs. Salary: While salaries are subject to income tax and social security contributions, dividends are typically taxed at a lower rate. However, relying heavily on dividends without an adequate salary can attract scrutiny from tax authorities.
- Loan Arrangements: Some DGAs opt to loan money to their BV or receive loans from their BV. These arrangements must be properly documented and comply with market conditions to avoid reclassification by tax authorities.
- Start-Up Exemptions: Newly established BVs can sometimes benefit from start-up exemptions or reduced salary requirements. Exploring these options with your accountant can provide financial relief in the initial stages of the business.
Social Securities
In essence, every Dutch resident is subject to social insurance contributions in The Netherlands. The social insurance of The Netherlands includes:
- The General Old Age Act;
- The General Widows/Widower and Orphans Act
- The Act on long-term care
In The Netherlands, a DGA usually doesn’t have to pay social securities because there is no relationship of authority between the DGA and the Dutch B.V. Meaning that the DGA of a Dutch B.V. can’t be fired by the company.
Conclusion
The minimum DGA salary is a threshold, it differs from company to company what has to be paid. No dividend can be distributed before at least €56.000 is paid as salary to the DGA. We can help with the negotiations with the Dutch tax authorities, the employment contract and all other necessary contracts regarding these issues (for example management contracts and current account contracts).
The above-mentioned wage requirements are for any Dutch DGA, who is physically living in the Netherlands. Each situation is unique and requires personalized advice.
Please contact us at launch@bolderlaunch.com / corporate@bolderlaunch.com. We are more than happy to assist with guidance!
The publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No presentation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Bolder Launch B.V., its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in reliance on the information contained in this publication or for any decision based on it.
