Operating your business in a BV vehicle presents at a certain moment the issue of the income generated open to be paid to the managing director shareholder. There are two choices, salary or dividend. But is it a choice?
It is not.
You do not need to be a rocket scientist to calculate which payment is cheaper tax wise. The salary at max 52% tax or the dividend at 25% income tax. Or do you need to be a rocket scientist? Because you can only pay the dividend when it has already been taxed with corporate income tax. If you have a profit of 100, then the corporate income tax is 20%. That implies 80 is left over. This 80 is taxed at 25% dividend withholding tax, which is 20, so 60 arrives in your bank account.
If you pay income tax, and we assume you are a high salary earner, then you pay 52% tax and 48 arrives. If you are a moderate earner you pay 42% and 58 arrives.
So paying a dividend is cheaper.
Can you choice to pay a dividend instead of salary?
No, you cannot. The reason is simple. If you earn dividend instead of salary, you are a low income earner. Low income earners can receive a rent benefit, health care benefit, childcare (higher) benefit and many more benefits, whereas the managing direct is actually a high income earner.
That is one of the reasons why it has come to the rules that a managing director that earns at least 90% of the profit for his company, cannot have a lower salary than 70% of the profit of the company, excluding his salary costs. The salary cannot be lower in any case then € 44.000.
The tax office is rather severe in the calculation of the 70%. If you have not complied with the 70% rule, the tax office will charge you for the difference, plus a substantial penalty, for the 5 past years. Most companies that have had such an audit went bankrupt as they could not pay for the tax and penalties. The tax office can easily check this with the current system where the corporate profit is compared with the salary earned, all provided in digital tax returns.
Please check in the last quarter of the year if your salary is in line with the profit made.
