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.
When am I considered a DGA?
If you hold shares >5% in a BV while working as a director, you will be considered as a DGA. If you hold shares <5% then you are not required to pay out a salary. According to Dutch law, DGAs need to receive a minimum salary for their work as directors.
How Can I Minimize Salary Payments When Starting a BV in the Netherlands?
The general guideline stipulates that you should allocate a salary if feasible. Instead of entirely avoiding salary disbursement (which is often impractical), the emphasis should be on reducing the salary amount.
Several options exist:
- Showcase that salaries in equivalent positions elsewhere are lower than the minimum DGA salary. It is not valid to argue that a comparable role in another country commands a lower salary.
- Demonstrate that your company is consistently incurring losses, and implementing such a salary would jeopardize its viability.
- If you work part-time or have periods of inactivity during the year, this may be considered when determining the minimum salary.
- During the initial stages of your company, highlight that numerous investments are imperative, and your income is minimal.
Dos
- Upon establishment of the Dutch B.V., it must be registered as a withholding company. Subsequently, the Dutch B.V. is obligated to submit withholding tax returns to the Dutch tax authorities. The B.V. submits monthly nil returns and assesses at the close of the fiscal year whether adequate liquid assets exist to remunerate the DGA. For instance, the Dutch B.V. has submitted 11 nil returns. By December, the B.V.’s liquid assets amount to € 35.000. A portion of this sum can be allocated as working capital, while the remainder can be disbursed as the DGA’s salary.
- A formal request can be forwarded to the Dutch tax authorities, outlining the insufficiency of funds to pay € 56.000 to the DGA. Within this request, a lower salary has to be proposed.
Don’ts
- As we mentioned above € 56.000 is a threshold to avoid all liquid assets being distributed as dividends. So don’t distribute dividends to the DGA before at least € 56.000 is paid as salary.
- Don’t build up a significant current account with the Dutch B.V. This implies there are enough liquid assets in the Dutch B.V. The Dutch tax authorities will regard the amount of the current account as salary, on which taxes are due.
What are the implications of designating my personal holding as director instead of myself?
When your personal holding is appointed as director, rather than yourself, you operate under a management agreement. It’s important to formalize this agreement with a dated and signed document and ensure it is filed appropriately. This arrangement differs from an employment contract. Instead, you provide a straightforward “management fee” to your holding, exempt from insurance premiums. This fee is not bound by the DGA salary criteria. However, the standard minimum salary requirement for directors applies to the personal holding, based on its generated cash flow.
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).
If you have any other questions, schedule a free consult with the Bolder Launch team.
