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The director-major shareholder (dga) must receive a salary from the BV. This is also known as the usual wage scheme[1]. The present factsheet intends to describe the approvals specifically applicable in the context of the corona crisis. It is not an exhaustive description of the customary pay regime.
Dga
Specifically, for the purposes of the customary pay scheme, you are considered a dga:
- the employee performing labour;
- for the benefit of a body
- (Usually, it involves a BV);
- In which he/she and/or his/her partner;
- has a significant interest
- (5% or more of the outstanding share capital or a share type[2]).
Minimum wage to be received
The salary to be received by a director and his/her partner from the BV is at least the highest amount of:
- 75% of wages from the most comparable employment;
- the highest salary of the employees employed by the entity (or an affiliated entity);
- € 46.000.
For bodies with an R&D declaration, the salary of the dga may be set at the minimum wage (including minimum holiday allowance).
If the salary payable under the customary pay scheme does not exceed €5,000, no salary needs to be paid to the shareholder and/or his/her partner.
Payroll
Payroll tax must be deducted from the salary of the director and his/her partner. A payroll administration must be carried out for this purpose. The wages may not be processed (retrospectively) in the income tax return of the DGA.
Burden of proof
If the salary received from the BV is less than €46,000, in principle, the burden of proof, that the customary pay regulation is met, lies with the shareholder.
In principle, when the salary received from the BV is €46,000 or more, the tax authorities have the burden of proof that a higher salary is customary.
Coronacrisis
Fluctuations in turnover and/or profits of the company are, in principle, not a valid reason for the reduction of the (customary) salary of the shareholder. However, a temporary exception was made to this in the context of the corona crisis. This temporary exception was laid down in a decree[3].
Approval
The approval means that the customary wage for 2020 may be determined as follows:
customary wage = A x B/C
A = the usual wage for 2019
B = turnover for the first 4 calendar months of 2020
C = sales for the first 4 calendar months of 2019.
Application of approval may result in the dga's salary being lower than:
- € 46.000;
- 75% of wages from the most comparable employment;
- the highest wage of the remaining employees.
Conditions
This approval may be used if:
- the current account debt or dividend does not increase as a result of the lower customary pay;
- the dga did not actually earn a higher salary;
- turnover in 2019 or 2020 has not been affected by other special causes (e.g. incorporation, cessation, merger, demerger and special results).
No consultation
If the conditions are met, the approval may be applied without (prior) consultation with the Inland Revenue.
Bespoke
For other/special cases, customisation is provided by the Inland Revenue. If required, this can be discussed in advance with the Tax Administration.
As part of this customisation, it is also possible to arrive at a lower customary wage than under the approval.
Temporary reduction in dga pay
One of the conditions for applying the approval is that the dga did not actually earn a higher salary.
Via the Fiscal Service Providers Forum, the Inland Revenue informed that a temporary reduction in the salary of the director and principal shareholder will be approved. Even if the salary is thereby temporarily lower than that required by the customary pay scheme.
The condition, however, is that, no later than the end of the calendar year, the shareholder still receives at least the salary required under the customary pay scheme.
Reducing (or setting to zero) the salary of the DGA already in the course of 2020 will avoid owing payroll tax, for which the BV has to ask for deferral of payment.
But PLEASE NOTE: the application of this approval may obviously result in a substantial amount of payroll tax having to be paid in one go at the end of the year or at the beginning of the following year. It is not certain whether the current broad deferral rules still apply at that time.
In addition, (temporarily) lowering (or setting to zero) the salary of the director and major shareholder prevents that the approval described in this fact sheet cannot be used because the director and major shareholder has already actually received the salary. This is because it is generally not possible to retrospectively reverse wages that have already been processed in the payroll.
(Temporary) reduction of the salary of the DGA will generally also justify (temporary) reduction of the management fee. This may have the advantage that no deferral of payment needs to be requested for the VAT due on the management fee. But REMEMBER: if a management fee is still charged at the end of the year, the VAT must be paid at once.
The purpose of this note is to outline a scheme. For the sake of readability, matters have therefore been simplified. VWG is therefore not liable for the consequences of actions taken or not taken as a result of this memorandum.
[1] Section 12a Payroll Tax Act 1964.
[2] The substantial interest concept is obviously more extensive, but its description is not within the scope of this fact sheet.
[3] Decree of 6 May 2020, no 2020-9594 (Decree on emergency corona crisis measures).