One of the measures contained in the draft legislation on the 2024 tax plans is the abolition of the tax deductibility of donations made by a private limited company. See the article Deduction of gifts from BV abolished.
Are you a director and majority shareholder (DGA) of a private limited company (B.V.)? If so, you have a choice. Your donations can be deducted from the income on which you pay income tax. Alternatively, they can be charged against the profit on which the B.V. pays corporation tax (and the DGA, following the distribution of profit, pays substantial interest tax). This allows the DGA to optimise the tax treatment of the charitable donations.
Choice
In our article A director and major shareholder may opt for the gift tax deduction We have already described this option. It concerns the situation in which the private limited company pays the gift. The key point is that an expenditure by the private limited company, made to meet the personal needs of the director and major shareholder, results in a (disguised) distribution of profits. However, it is permitted for this distribution not to take place and for the charitable donation deduction to be claimed by the private limited company.
The State Secretary for Finance recently issued the decision updated, setting out the rules governing this option. The update clarifies the approval process and adds a number of examples. We describe these examples below. For the conditions governing the deduction of donations and the approval process, please refer to our article mentioned above.
Example 1
X B.V. transfers €50,000 to Foundation A in connection with the personal charitable needs of its director and major shareholder. Foundation A has ANBI status. The donation is less than the statutory maximum of €100,000 and is therefore tax-deductible for X B.V.
Example 2
Instead of €50,000, XY B.V. decides to make a donation of €125,000 to the A Foundation. The donation exceeds the statutory maximum of €100,000.
Donations of up to €100,000 are tax-deductible.
The remaining €25,000 represents an allocation for income tax, corporation tax and dividend tax. The charitable donation scheme may still be applied to this amount in the director-and-major-shareholder’s income tax return.
Example 3
Y B.V. transfers €50,000 to Foundation B in connection with the personal charitable needs of its director and major shareholder. Foundation B has ANBI status and is classified as a cultural institution. The donation is less than the statutory maximum of €100,000 and is therefore tax-deductible for Y B.V. As the donation was made to a cultural institution, the amount is increased by 50%, which is €100,000. However, the increase may not exceed €2,500. Consequently, a total of €52,500 may be claimed as a tax deduction.
Naturally, in all these cases, the charitable donation deduction for a private limited company can only be claimed to the extent that the general conditions for that deduction are met (such as the profit requirement, for example).