2022 is almost over. As tax specialists, we prefer to look ahead: what lies in store for us in 2023? But above all: what can or must we do about it? In this article, we highlight two key points.
Excessive borrowing
The reference date falls on the last day of 2023. If the total amount of the director-major shareholder’s debts to their “own” private limited company (‘s’) exceeds the threshold of (€700,000 + the tax-deductible debt on the director’s own home), the DGA must pay income tax in 2023 (26.9%). For debts owed by related parties (e.g. children), the aforementioned threshold applies separately from that for the DGA, but the DGA pays the tax (not the children).
The good news is that we still have the whole of 2023 to assess whether it is worth avoiding this levy and which measure(s) would be most beneficial in doing so. In our factsheet Excessive borrowing from own company law You can read about how the scheme works.
Unfortunately, the €700,000 threshold is not a safe haven. For debts up to €700,000, the Tax and Customs Administration can still argue that it is not realistic for them to be repaid by the director and major shareholder, meaning that this constitutes a disguised dividend payment. Naturally, this argument usually leads to an extensive discussion, which the tax authorities do not automatically win. Where the private limited company’s assets include a pension or annuity obligation, or a retirement obligation, the discussion can become somewhat more complicated.
Business succession
The Government has announced to put forward proposals in the first half of 2023 to amend the rules governing (tax) business succession. This follows an evaluation of these rules. It seems likely that the scope of the rules will be (significantly) restricted.
This concerns the DSR and the BOF. These abbreviations stand for the Carry-Forward Scheme and the Business Succession Facility. The DSR applies to income tax and regulates the carry-forward of the substantial interest claim (deferral of this tax). The BOF is a conditional exemption from inheritance and gift tax.
We do not yet know exactly what the restrictions on the facilities will entail. However, it certainly seems sensible to examine to what extent processes can be carried out differently and/or more quickly. We may not even have until the end of 2023 to finalise business successions under the current (generous) scheme.