During the coronavirus crisis, a much larger number of self-employed people have converted their businesses into private limited companies. This is reported by BNR.
Tax: set out your intention
For tax purposes, the transfer of your business into a private limited company (BV) can be backdated to 1 January 2020. You must then declare your intention to make the transfer by 30 September 2020 at the latest record this in writing and notify the Tax and Customs Administration using a form. This written record usually takes the form of a letter of intent (sole trader) or a preliminary agreement (partnership or general partnership).
The incorporation of the BV and the transfer of the business must then be completed by 31 March 2021 at the latest (this must be done before a notary). If you incorporate the BV after 31 December 2020, you should bear in mind that profits from more than one calendar year will be taxed within a (long) tax year. This may be to your advantage or disadvantage.
In order to benefit from retroactive tax relief, it must be possible to make use of the tax relief scheme for silent contributions.
The dates stated apply to companies whose financial year coincides with the calendar year. For companies with a non-calendar financial year, the dates are adjusted to the end of that financial year.
No retroactive effect in legal terms
We suspect that the main reason for converting a business into a private limited company (BV) during the coronavirus crisis will be to limit the entrepreneur’s liability. However, this does not apply retrospectively. Where limiting the entrepreneur’s liability is the (primary) purpose of the conversion into a private limited company, it is generally advisable to incorporate the private limited company and transfer the business into it as soon as possible.
It is important, however, that business owners realise that a private limited company is not a magic solution for keeping all personal liability at bay. It remains essential, amongst other things, that the entrepreneur manages the private limited company as a “prudent director” and that the separation of personal assets from the company’s assets is strictly observed.
The contribution of the company must be made on the basis of a balance sheet that is less than six months old at that time. The 2019 annual accounts, containing the balance sheet as at 31 December 2019, can no longer be used for this purpose. A contribution made in the second half of the year must be based on interim figures.
Tax benefit
Of course, for entrepreneurs who are doing well during the coronavirus crisis, the tax benefit in particular will be the deciding factor in their decision to convert to a private limited company. These entrepreneurs can certainly benefit from the retroactive tax effect, provided that this does not result in a one-off tax benefit for them.
Entrepreneurs whose businesses are performing less well as a result of the coronavirus crisis should view the tax disadvantage associated with converting to a private limited company as a kind of insurance premium. However, it is important that they have a clear understanding of which (liability) risks are actually reduced or prevented by incorporating as a BV. We can calculate the tax disadvantage for you.