How can I pay the dividend to myself?
Imagine, you have a business with which you made a huge profit last year. You naturally want to make as much use of this money yourself as possible. You know that you have to transfer some of it to the tax authorities, but of course you try to minimize this. Basically, you are now faced with two choices: reinvest the profits back in the business, or distribute the profits to your shareholders. (and thus to yourself). But, how can you do this? And most importantly, how much tax do you have to pay on this? Do you recognize this situation? Then read on quickly!
What is Dividend?
If you own a Dutch BV it means that you logically own shares in this BV. If this BV makes a lot of profits, there is the possibility that you, as a director-major shareholder (DGA) or substantial shareholder (you are a DGA or substantial shareholder when you own more than 5% of the shares in the company), may also make a profit yourself. This profit is called dividend. In essence, dividend is nothing more than the part of the profit of the BV that it may/can distribute to its shareholders. It is not always the case that the profits are distributed to the shareholders. The profit of the BV, after corporation tax, can also be kept in the company. Do you still choose to distribute the company’s profits to its shareholders? Then tax has to be paid on the received dividend. The rate of this tax is in 2023 15%.
What can you do with your profits?
As mentioned earlier, you can use your company’s profits in several ways:
- You can use the profits to help your business;
- You can hoard the profit (or save it in your business), this is called profit reserve;
- You can distribute profits to shareholders. As a business owner, you often pay dividends quarterly or annually, which you need to let your shareholders know in advance. You can pay out dividends in cash, but you don’t have to! You can also pay your dividend in (certificates of) shares. This is called a scrip dividend. This can be advantageous, because it increases the company’s equity. This money can then be used for purposes.
In which box does the dividend distribution fall?
The dividend distribution falls in box 2, because dividends are a form of substantial interest. As mentioned earlier, you have a substantial interest in a company if you own more than 5% of the company shares. The rate of box 2 is 26.9% in 2023.
Paying taxes as a business
There are in general two kinds of dividends that can be distributed: the participation dividend and the investment dividend. The participation divided applies to substantial interest holders of the company. You are considered a substantial interest holder if you own 5% or more of the shares in the relevant company. When this is the case, a withholding exemption can often be applied, which means no dividend tax needs to be withheld. This is not always the case, as it only applies under conditions for a dividend distribution to an entity within the European Union. You don't have to file a tax return in that case! Besides the withholding exemption, there is also the participation exemption. This exemption only applies to dividends you pay out to yourself and/or your shareholders. The moment your BV makes a profit in 2023, you will have to pay 19% tax on this. From an amount of €200,000, the tax becomes 25,8%. The participation exemption was created to prevent tax being levied twice on the same money.
There is also the investment dividend. This is the dividend that a shareholder receives that doesn’t have a substantial interest. This does require payment of the 15% dividend tax. In this case, you have to file a tax return and pay tax within a month after the distribution.
At Firm 24, we understand that managing dividends and taxes can be a complex process, and we’re here to help! Our team of experts can provide you with guidance on dividend distribution, tax implications and more. Contact us today to learn how we can help you make the most of your business profits!
Not quite getting it right? We are here for you.
Thanks to years of experience, we know how to help entrepreneurs with the right advice.