Dividends from your limited company

As this is a detailed memo, we advise you to here available to download in PDF format.

For many entrepreneurs, a private limited company (BV) acts as a savings pot. Corporation tax is paid on the profits. And whatever remains after that stays within the BV. But there comes a time when you want to start enjoying the fruits of that savings pot. The BV then distributes profits (dividends).

Resolution of the shareholder(s)

The decision to pay a dividend is taken by the shareholder(s). This decision is recorded in writing in the minutes of a General Meeting of the BV.

Ability test

The shareholders may resolve to pay a dividend to the extent that the private limited company’s equity exceeds the reserves that must be maintained. It is advisable to record this in the minutes of the General Meeting.

Naturally, the provisions of the BV’s articles of association must be complied with when dividends are paid out. In addition, a shareholders’ agreement or administrative conditions (if the shares are certificated) may, for example, be relevant.

Board approval

The board of directors of the private limited company must approve the payment of the dividend.

Benefits test

The board must grant such approval, unless it has reasonable grounds to believe that the private limited company will be unable to meet its obligations following the dividend payment. It is advisable to document the payment assessment (or have it documented). This can be recorded in the minutes of the General Meeting.

Pension scheme cover

In addition to the asset and benefit tests, you must determine whether, following the dividend payment, the pension and annuity provisions are still adequately covered by the assets remaining in the private limited company. To this end, the market value of the retirement provisions at the time of the dividend payment must be taken into account.

Dividend tax

The private limited company must deduct dividend tax from the dividend it pays out. The dividend tax amounts to 15% of the gross dividend.

Dividend tax return

Within one month of the dividend becoming payable, the BV must notify the Tax and Customs Administration declaration claiming a refund of the withholding tax on dividends. You can find the form for this at www.belastingdienst.nl.

Paying dividend tax

Furthermore, dividend tax must be paid to the tax authorities within one month. The dividend tax return form sets out the procedure for making the payment.

The private limited company is itself responsible for the timely and correct filing of its tax return and for the timely and correct payment of dividend tax to the Tax and Customs Administration. The Tax and Customs Administration does not send out a tax return form or a reminder for this purpose.

If the private limited company fails to file a tax return, or files it late, and if it fails to pay tax, pays it late or pays too little, the Tax and Customs Administration will impose late payment penalties.

Income tax – Box 2

If you hold 5% or more of the BV’s outstanding share capital as a private individual, you are considered to be a significant shareholder. The income from the shares is then taxed under Box 2. You must therefore include the dividend in your income tax return. The tax amounts to 25% of the gross dividend[1]. You may offset the dividend tax withheld.

[1] In 2020, the AB rate is 26.25%, and in 2021 and subsequent years: 26.9%.

Example

Your private limited company pays out €250,000 in dividends in 2017. The company withholds dividend tax: 15% * €250,000 = €37,500. You receive a net dividend of:

You should declare the gross dividend in your 2017 income tax return as income from a substantial interest (Box 2):

You must pay this tax on the income tax assessment. If this assessment is issued after 30 June following the year in which you receive the dividend, the Tax and Customs Administration will charge tax interest. The interest rate currently stands at no less than 4% on an annual basis.

That is considerably higher than the interest rates currently offered by banks. You can avoid paying tax interest by asking the tax authorities for a provisional assessment in good time. Naturally, the income tax must already have been paid in full.

Example

If the income tax assessment from the previous example (where the dividend was paid out in 2019) is issued with an effective date of 1 January 2021, the tax interest amounts to: €622. The amount payable on the income tax assessment will then be €25,622.

Tax-free

Are there ways to withdraw capital from your private limited company without paying tax? Yes, but it must not take the form of a dividend. It may be possible to write down the share capital. And, of course, you can borrow from your private limited company. These options are subject to their own (additional) conditions.

If the distribution is made to a private limited company (BV) that holds 5% or more of the shares, the distribution is tax-free (participation exemption)

VWG Takes Care of Everything

VWG takes care of everything for you by handling all the formalities relating to the payment of dividends by your private limited company. The only thing you need to ensure yourself is the timely payment of dividend tax and income tax.

We will, of course, advise you on the means test and the benefit test. We will also calculate the market value of the retirement provisions within the private limited company, so that it can be established that these remain adequately covered following the dividend payment.

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.