The minimum Director/Major-shareholder salary of €51,000
The DGA salary of €51,000 makes many entrepreneurs refrain from choosing a BV as their legal form. But is that justified? The DGA salary is often decisive for starting entrepreneurs to choose a certain legal form. Unfortunately, this often happens unjustly. If the BV has no income yet, (which is often the case in the initial phase) the DGA salary can also be set at a lower amount than the notional minimum salary of €51,000. In many cases it is conceivable that in the first year no salary is paid to the DGA at all, because he or she also has another salaried job, or every euro is needed to run the new company. In this article we will explain everything you need to know about DGA salary as an entrepreneur.
What is a DGA?
The abbreviation ‘DGA’ stands for director-major shareholder. You are considered a DGA by the tax authorities when you own at least 5% of the shares in a private limited company and also work in the private limited company. The title of your position is not important. It is practically the performance of work. In a holding structure, you are a DGA in the holding company. Here you hold the shares as a natural person. It is interesting in such a structure to get the money "up" as much as possible, and to keep the risks "down" as much as possible. For example, you can place ownership of computer software, brand name or real estate in your holding company, and have your operating company pay for its use. In this way, your ownership is safely separated from your risky operation, and you create a steady cash flow upward.
What is the DGA salary 2023?
The customary salary for a DGA is set at least at one of the following amounts: 100% of the salary from the most comparable employment in a comparable company, the highest wage of the employees employed by the company for which the DGA performs work or entities affiliated with it; or €51,000. The background of this regulation is that the legislator wants to avoid the DMS escaping the progressive rate in Box 1. Otherwise, every director would pay a very low salary and distribute the rest of the BV's profits as dividends, which is taxed at a lower rate. Also, entrepreneurs with a holding company are subject to the minimum DGA salary for the holding company. Entrepreneurs with a BV are thus required to pay a salary in the first place.
Reducing the DGA salary
One of the most frequently asked questions at Firm24 is, what about the DGA salary? The tax authorities specify a minimum DGA salary of €51,000, but is this actually mandatory? Dear entrepreneurs, don't panic: The minimum DGA salary is a fiction. The rules on the minimum DGA salary were created by the tax authorities to ensure that you, as a DGA, do not pay out dividends before, at least, €51,000 in salary has been paid out. Paying out dividends is taxed much lower than salary. On balance, dividend is taxed at 40%, while salary can be taxed up to 52%. You also have to pay various premiums on salary. Think of contributions for health care and social security (ZVW and Social Security contribution). A starting entrepreneur often does not yet have sufficient liquid assets to meet the minimum DGA salary. The question we are asked: 'How much should I pay out as a minimum DGA salary if we are unlikely to make any money at all in the first period?' Our answer to this is simple: 'What isn't there you can't pay out'. And that's how the tax authorities look at it.
Advantages of a holding company
Risk spreading. You can place valuable assets, such as brand names, patents and any reserves, in a holding company. The ‘risky activities’ are placed in another limited liability company. This prevents the ‘risky activities’ from leading to a possible complete bankruptcy of your company. You can also transfer your self-administered pension to your personal holding company. This prevents creditors of the operating company from taking recourse against your retirement provision. To read more about the advantages, click here.
There are two ways to make sure you don't have to pay yourself a €51,000 DGA salary:
This is the easy option. You register your BV as a withholding agent and file a monthly payroll €0 tax return. At the end of the calendar year, you review whether or not some of it should still be paid out as wages. Suppose you have €40,000 in free cash in the bank in mid-December. You reserve €20,000 as working capital for a new website. You will have to pay €20,000 as salary. After all, there is enough free cash flow to pay at least some of the DGA's salary.
Send the Inland Revenue a request containing a forecast of the first period of a year, indicating that there is not enough free cash flow to meet the minimum DGA salary.
Please note that the Dutch Tax authorities are of the opinion that a certain minimum salary should always be paid to the DGA if there are sufficient means to do so. We advise you to choose option 1.
Don't try to get around the DGA salary the wrong way. Below are two possibilities that you should especially not implement:
Dividend yourself before at least €51,000 has been paid out in salary. This is exactly what the Inland Revenue wants to avoid and will pay very close attention to.
Do not build up a significant current account debt to yourself privately. You will see this debt reflected in the financial statements on a corporate tax return. If you can lend money to the DGA, this implies that there are sufficient free funds to pay out as DGA salary. Tax authorities will therefore be able to argue that the entire current account debt should be regarded as DGA salary. Should you have borrowed money from your BV during the year, make sure that this money is paid back to the BV or pay out the current account debt as salary.
Which legal form best suits you depends entirely on your own situation and what your intentions are with your business. Many entrepreneurs therefore choose to have a brief sparring session with one of our advisers. This is completely free of charge and can be scheduled via this link.
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