Are you paying yourself enough?
This is a serious question if you have a Dutch limited company (B.V.) and you are the managing director. Each year, there’s a legal minimum amount that you should pay yourself –preferably written into your employment contract – and this year, it has risen to €47,000.
At Blue Umbrella, we see that many of our clients have experience running companies in countries such as the United Kingdom, Spain, France and Germany, but they are sometimes unaware of the different rules about salary in the Netherlands.
Some years ago, if you started a limited company here, you needed to invest €18,000 in starting equity, but this rule has gone by the wayside as the government decided it made the Netherlands less attractive for businesses. Now, it’s much easier to start but still you need to ensure that your company has sufficient equity to pay you the minimum salary, or be prepared to justify why it does not and accept some consequences.
“Some people suddenly realise they need to pay themselves salary but are not able to,” says a spokesman of Blue Umbrella. “There are a couple of solutions: you can go to the Dutch tax office and tell them you are a start up and cannot pay this salary or need the liquidity to reinvest in the company for future projects. It’s not easy to get such a status – you may also need a regional development subsidy from the Dutch government.”
A second option is to demonstrate to the Dutch tax office that your company does not have enough cash flow. In some cases, you may be able to pay yourself a salary based pro rata on the number of hours you work on your company, compared to a full-time salary for similar directorships in your profession.
If you pay yourself more than the legal minimum, this is no problem (although you will obviously have to pay income tax in your personal tax return). But if you have not paid yourself the legal minimum salary, and especially if the tax office suspects you have done this on purpose, this can cause problems.
“If you’re not able to pay yourself a salary, it can be seen as a debt still owed to the director at the end of the year,” says a spokesman of Blue Umbrella. “In the long term, the director should receive interest above debts of €17,500, which will increase the financial burden on your company. In my opinion, it only has negative consequences unless you are a start-up, really need liquidity and are willing to increase the debt position to the director and use all the money for your company.
“If you do not pay anything at all, the tax office can come to the conclusion that you should have paid yourself salary, which happens a lot. Then they will levy everything retroactively with a fine and interest on top. In the worst case scenario, they can levy 100% of the premiums that should have been paid.”
The key thing is to sit down and make a checklist before you start a limited company in the Netherlands to work out if this is really your best option. Think about the liquidity of your company, the cashflow coming in, how much you are going to pay yourself, a common salary in your profession, and how many hours you are going to spend on your firm.
And of course, if you have any questions or need expert advice on what (not) to do, Blue Umbrella is happy to help!