The BV company is the Dutch limited liability company. 10 common mistakes when setting up a BV is what this article is about.
Mistake 1: share capital
The share capital of a BV company can be as low as EUR 0,01. Often this amount is used or the silly EUR 1 share capital is used. Why is this amount silly? What have you recently business wise purchased for EUR 0,01 or EUR 1? You would surprise me if you did do a purchase for that amount.
The result of this EUR 0,01 or EUR 1 share capital is that the working capital of the BV is limited to that amount. However, the notary charged the BV with a fee for incorporation. Maybe you took out an office for rent, phone subscription, internet connection, travel costs, advertising costs. We assume these costs exceed the EUR 0,01. Hence instantly the shareholder needs to provide funding to the BV company.
Mistake 2: share capital payment
One of the common mistakes when setting up a BV in the Netherlands is that the silly share capital is set at EUR 0,01 or EUR 1. The limited liability only kicks in the moment the share capital is actually paid. As the share capital amount is this silly, most of the time the shareholder forgets to actually pay the share capital.
Mistake 3: shareholders loan to the BV company
Another one of the common mistakes when setting up a BV in the Netherlands is that the silly low share capital makes the shareholder needs to contribute money to the BV. Officially this is a loan and over a loan interest is being paid.
The interest needs to be a percentage that is also charged to a person or company that is not a shareholder. Quickly it is assumed the interest could be as low as 1%. That is an error in thinking. Collateral determines the risk which is shown in the interest percentage. No collateral is ever provided, hence the interest percentage is identical to that of a negative bank balance: 14%.
Mistake 4: interest received on loan and income tax
The shareholder providing a loan to its own BV company is a special person providing this loan. Hence the interest received from the BV company is taxed as taxable income in Box 1. The Box 1 holds the progressive tax rate, hence the interest is taxed at 49,5% income tax.
Mistake 5: assuming the loan is in fact a loan
The silly EUR 1 share capital shareholder that provides his or her BV with a loan has the opinion this is a loan. However, no sound thinking investor would loan an amount to a newly incorporated BV that has no track record. In other words, in case the BV goes bankrupt, the tax office will assume the loan is in fact capital. No write off, of the loan in case of bankruptcy.
Mistake 6: the obligatory minimum salary of the shareholder director
The BV company is often incorporated while the company does not do any business. It is assumed that in that case the shareholder does not need to meet the minimum shareholders salary that is roughly EUR 56.000. This is indeed another one of the common mistakes when setting up a BV in the Netherlands.
Only if it can be proven the company is a structural loss making company the minimum salary is no longer in place. A structural loss making company shows three years in a row with a loss.
Mistake 7: the shareholder salary is set at the minimum of roughly EUR 56.000
The shareholder director of the BV assumes that paying the minimum salary is good enough. That is not correct. The minimum salary of the shareholder director cannot be less than that of a person in more or less the same position that does not hold shares in the company he or she works for.
For the Dutch tax office this is an easy puzzle. Most shareholders directors left an employee position to start this self-employed adventure, hence the tax office uses that previous salary as match for the shareholder director minimum salary.
Mistake 8: dividend payment
Another one of the common mistakes when setting up a BV in the Netherlands, especially by entrepreneurs from the United Kingdom, is the dividend. A low salary and high dividend is stated at the start of the working relation. We then need to explain that a minimum salary demand is in place in the Netherlands, and the moment that is met, the dividend has evaporated.
Regardless of the salary, a dividend can only be determined after a financial year has been closed. The shareholders meeting then decides what to do with the positive result, and a dividend could be the chose. In other words, during the year no dividend can be paid for that exact year.
Mistake 9: a profit is required to pay a dividend
The shareholder director prefers the salary to be low and the dividend to be high. The most important aspect of this story is profit. If no profit is made, or if the general reserve is negative, there is no base to pay a dividend. This can come as a surprise to some.
Mistake 10: residence of the BV company
The most dangerous mistake is that of the tax residence of the BV company. This is connected to the tax residence of the director shareholder. The moment the director shareholder decides to move his or her fiscal residence, the BV company follows this path instantly. This can be prevented, but involves creating substance.
Tax is exciting
We think tax is exciting and we are excited to assist you with the BV company accounting and tax aspects. You find above a list of the 10 common mistakes, but we could easily continue with another 10 common mistakes. Especially when investors or partners get involved.
The point is, a BV company is a legal entity with rules and regulations that need to be taken seriously. Often it is not taken seriously, the BV is used as a necessity to get from point A to point B. If the incorporator would be open to what we inform them about, it would make everybody’s so much easier.
