Dividends on shares representing a substantial interest (AB dividends) are subject to income tax in box 2. The rate is proportionally 25%. However, if the dividend is paid out in 2014, up to €250,000 is taxed at a rate of 22%. This tax bracket applies per taxpayer. Tax partners can therefore have their private limited company (or one of their private limited companies) pay out up to €500,000 in AB dividends at the one-off AB rate of 22%. However, they must allocate the dividend correctly between themselves (in their income tax return and/or in the application for a provisional assessment).
In practice, however, the taxation works slightly differently. At the time the AB dividend is paid out, the B.V. must, in fact, dividend tax withhold at a rate of 15%. The private limited company must declare and pay this dividend tax to the Tax and Customs Administration within one month of the dividend becoming payable. The shareholder receiving the dividend must then include the dividend in his or her income tax return. The dividend is then subject to 25% (or 22%) income tax, with the dividend tax withheld by the B.V. being set off against this amount.
The net amount still owed by the shareholder income tax is therefore 10% (25% – 15%) or 7% (22% – 15%) of the dividend paid out. This tax is payable on the assessment issued following the tax return to be filed in 2015 (or later, if an extension has been granted). If that assessment is issued after 30 June 2015, the Tax and Customs Administration will charge tax interest for the period commencing on 1 July 2015 and ending on the last day of the payment period for the (provisional) assessment (the payment period runs for the 6 weeks following the date of the tax assessment). The interest rate applied by the Tax and Customs Administration in this regard is (at a minimum) no less than 4%! That is far higher than the return currently available on virtually all savings accounts.
This is why many taxpayers choose to pay the tax due before tax interest becomes payable. Most taxpayers opt to pay the tax in 2014 by asking the Tax and Customs Administration to issue a provisional assessment before the end of 2014. The reason for this is that the tax liability is not deductible from income from savings and investments (the capital gains tax in box 3). However, once the tax has actually been paid, the bank balances are reduced by the amount paid and no capital gains tax is payable on the tax.
The Tax and Customs Administration’s software does not provide for the processing of the tax bracket step described above. In provisional income tax assessments for 2014, AB dividends are therefore taxed in full at a rate of 25%. For some time now, it has even been laid down by law that the Tax and Customs Administration is not required to ensure that assessments are correctly issued on (among other things) this point. The consequence is that, in the case of an AB dividend equal to the maximum of the 3% tax bracket of €500,000, €15,000 too much income tax is charged. Naturally, this is rectified once the income tax return has been filed, but the Tax and Customs Administration does not pay tax interest on amounts due to be refunded.
The Tax and Customs Administration has recently (at last) approved the practice of not declaring the full amount of AB dividends up to €250,000 in a request for (amendment of) a provisional 2014 income tax assessment. By declaring 22/25ths of the dividend (which, in the case of an AB dividend equal to the maximum of the tax bracket, amounts to €220,000), and offsetting the total dividend tax (15% of €250,000 = €37,500), the correct amount of tax is calculated. After all, 25% of €220.00 is equal to 22% of €250,000.
Of course, we had already come up with this solution ourselves, but formally speaking, we were not permitted to act in this way. Shareholders who have already been issued with an excessively high provisional tax assessment may, of course, request the Tax and Customs Administration to adjust that assessment on the basis of the recent approval.