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Reference date for the Excessive Borrowing from Own Company Act is the last day of each calendar year. This means that up to and including 31 December 2024 can anticipate possible taxation in 2024.
Core
The essence of the scheme is that if the total nominal value of the debts outstanding at the reference date with the director and major shareholder or his/her partner to their own private limited company exceeds the threshold, the excess is taxed as income from substantial interest (box 2). There is then a notional regular benefit.
The tax is calculated at a rate of 33%[1] (Provided that per tax partner - income in box 2 can be freely divided between tax partners - the first €67,000 of box 2 income is taxed at 24,5%).
The notional regular benefit is not taxed with dividend tax.
The scheme applies in respect of debts to all types of entities in which a substantial interest is held.
Debts
Debts refer to all civil law loans, but also current account relationships (insofar as on balance there is a debt of the DGA) and other liabilities.
Except in the context of an overdraft, debts are NOT netted against any receivables from the BV for the purposes of the measure.
For the measure, it does not matter in which box the debt on the shareholder's side is taxed with income tax.
Corporate loans too
For the application of the scheme, it is irrelevant whether the debt should be classified as business or non-business for tax purposes. In other words, fully business debts are also taxed under the excessive borrowing from one's own company scheme.
Debts for which a profit distribution was previously taken into account (sham loans), but which are still a money loan under civil law, do not count towards the determination of the notional regular benefit.
Threshold
The threshold is € 500.000 (2023: € 700.000). For tax partners not the double amount as the threshold.
With regard to related persons - other than the tax partner - a separate threshold of €500,000 does apply. Again, tax partners are not subject to the double amount as a threshold.
The threshold is increased by the realised notional regular benefit and reduced by the negative notional regular benefit (see below), but always remains at least €500,000.
Housing debt
Owner-occupied housing debt for tax purposes is disregarded when determining total debts. There is no ceiling for this.
We do not discuss the criteria on the basis of which there is a taxable owner-occupied home debt in the present note.
For owner-occupied home debts incurred after 31 December 2022, the additional condition under the Excessive Borrowing from Ownership Act applies that a right in rem to mortgage the owner-occupied home must have been established in favour of the BV in respect of the owner-occupied home debt.
Fictitious regular benefit
Example 1
A dga borrowed from the BV on 31-12-2024:
- €250,000 for the taxable owner-occupied home (secured with mortgage);
- €550,000 for a holiday home;
- €300,000 for the property he rents to the BV.
And his spouse borrowed €100,000 from the limited company to start her business.
Elaboration 1
The total debts to the BV are: €250,000 + €550,000 €300,000 + €100,000 = €1,200,000. Of this, €250,000 remains out of account.
The threshold is €500,000. In 2024, a notional regular benefit of: €950,000 - €500,000 = €450,000 is taxed in Box 2.
Spouses may freely divide this benefit between themselves in their income tax returns. The threshold is raised to: €500,000 + €450,000 = €950,000.
Example 2
Dga A owes €500,000 to his BV. Dga B owes €400,000 to her BV. In 2024, A and B marry each other.
Elaboration 2
In 2023, the debts of both A and B remain within the €700,000 threshold and no notional regular benefit is at issue.
In 2024, as a result of their marriage, the joint debts (€900,000) must be set off: at once the threshold of €500,000.
As a result, a notional regular benefit of €400,000 will be taxed in 2024.
Everything else remains unchanged
Taking the notional regular benefit into account for tax purposes does not mean that up to this amount, the debts disappear. In civil law, of course, this is not the case, but for tax purposes, the loans also remain in full force. This means that interest remains due, which is taxed and deductible in the same way as before the notional regular benefit was taken into account.
No safe haven
The €500,000 threshold is not a “safe harbour”. The same applies to the home equity tax debt excluded from the measure.
The tax authorities can continue to question the (un)arm's length nature of all money loans unimpaired. Regular case law on profit distributions and (un)business loans remains in full force.
Negative notional regular benefit
A negative notional regular benefit arises when the total debts are lower than the threshold (e.g. due to debt repayment). Subject to a minimum threshold of €500,000.
Example 3
The partner of the dga from example 1 repays her loan in full in 2025.
Elaboration 3
The total debts at 31-12-2025 then amount to: €250,000 + €550,000 + €300,000= €1,100,000, of which €250,000 is disregarded. The (increased) threshold (see above) is: €950,000.
The notional regular benefit in 2025 is then: €850,000 -/- €950,000 = -/- €100,000.
The spouses may also freely divide this negative benefit between themselves.
The threshold is reduced to: €950,000 -/- €100,000 = €850,000.
End of substantial interest
A person who no longer has a substantial interest at the end of the year, other than through emigration, is deemed at that time:
- do have a substantial interest, but;
- no more debts.
These 2 assumptions create a negative notional regular benefit (see example 4), reversing the previously taxed notional regular benefit.
We do not describe the termination of the substantial interest due to emigration and the creation of a substantial interest upon immigration in this note.
Example 4
Suppose the dga sells all the shares of the BV to a son on 1-7-2025.
Elaboration 4
The dga is deemed to have no more debts to the BV on the reference date 31-12-2025.
The threshold is still €850,000.
Under the fiction, a notional regular benefit would arise in 2025 of:
€ 0 -/- € 850.000 = -/- € 850.000.
However, the minimum threshold is €500,000, so the notional regular benefit is -/- €350,000.
Connected person
For the purposes of the Excessive Borrowing from One's own company Act, they are considered related persons:
- a relative by blood or marriage in the direct line;
- of the dga or his partner.
To the extent that a related person's debt to the BV exceeds the €500,000 threshold, this debt is regarded as a debt of the DGA.
Example 5
The former managing director still has the €1,100,000 in debts to the BV acquired by the son on 31-12-2025, of which €250,000 is not taken into account.
Elaboration 5
Father is a direct blood relative of the dga (his son).
Father's debt, exceeds the threshold (€850,000 - €500,000 = €350,000).
As a result, €350,000 of father's debt in 2025 is classified as son's debt and then with the son as income from substantial interest (box 2).
If the son has no debts to the BV, the tax will be: (€350,000 - €500,000 = €0).
Example 6
The former managing director fully repaid the debts to the BV prior to the sale of the shares. The shares are sold for €850,000 to the son, who remains indebted to father for the purchase price.
Elaboration 6
Then there is a debt to father privately and the proposed scheme has no effect.
However, if the son were to buy father's holding company, the son would have a debt to father's holding company. In that case, father would have to pay substantial interest tax on €850,000 - in connection with debts owed by a related person to his BV. € 500.000 = € 350.000.
Loss relief
The negative notional regular benefit is of course offset against positive (regular and/or disposal) benefits from substantial interest in the relevant year.
If and to the extent that a substantial interest loss remains in any year, it is set off against the substantial interest income of the previous year and then against the substantial interest income of the following 6 calendar years[2].
Tax rebate
If a substantial interest loss has not been set off and both the director and tax partner do not have a substantial interest in the calendar year and the previous calendar year, the outstanding substantial interest loss can be converted into a tax credit[3] in the amount of 24.5% of the outstanding loss.
This tax credit is offset against the tax on income from work and home (box 1) of the following seven years (but no later than the ninth year following the year in which the loss was incurred).
The tax credit is determined by the Inland Revenue, at the request of the taxpayer, by order.
The discount is determined in the name of the tax partner to whom the loss from substantial interest has been allocated[4]. Only in case of death can the tax credit be transferred to the partner.
Timing
The rules around loss relief and tax credits require precise timing to avoid the inability to offset negative benefits.
Anticipate
A shareholder who meets the conditions of the levy on 31 December 2024 must include the notional regular substantial interest benefit in the 2024 income tax return.
Until 31 December 2024, measures can be taken to anticipate the scheme. But most measures have tax (and possibly other) implications. It is important to have these well mapped out in advance.
Naturally, there are also consequences for the tax and financial planning of both the BV and the dga. VWG will be happy to map out these consequences for you.
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] With effect from 2025, this rate will most likely be reduced to 31%.
[2] Section 4.49 IB Act 2001.
[3] Section 4.53 IB Act 2001.
[4] The determining factor is the allocation of the income (loss) from significant interest in the year in which this loss is recognised. This allocation generally cannot be changed in later years.