Start-ups were hot the last few weeks in Amsterdam. Digital Marketing Live, The Next Web Conference, Start-up Fest, the Young Creators Summit and a crowdfunding event in the Amsterdam Arena: everything in the start-up world was here. A topic of discussion for a lot of you was probably the new budget allocation to start-ups from the Dutch Government. Nice, all those millions, but how can you benefit from this in your start-up? What are the tax consequences? And how do you convert this money into growth or profit for your own start-up? You will understand in a few minutes.
// €50m to stimulate growths and start-ups
The Dutch Government will stop at nothing in their quest to make the Netherlands the center of the universe when it comes to start-ups. At Startup Fest Dutch MP Kamp brought welcome tidings of a new government budget allocation to stimulate growth for start-up. The budget is worth a reported € 50m, € 27m of which will be used to loosen regulations on the compulsory salary for directors.
// create your own turbo-booster for growth by applying these tax rules
At this moment, Dutch regulations stipulate that a business owner must pay himself a yearly director’s salary of at least € 44,000. For young and fledgling companies this is a heavy burden, as this money would be much better spent on growth. If the money is even there at all. The proposed loosening of these regulations would result in a lowering of the minimum director’s salary to
€ 18,295.20. This will give the start-up entrepreneur unprecedented financial freedom and a veritable turbo-booster towards becoming a bigger company!
// a special Start-up BV?
A new legal entity called the “start-up BV” is in the making by the Dutch legislators. This entity will be a variation on the regular Dutch BV. It will be tailored towards the specific needs of young and innovative firms, offering several legal advantages and tax breaks. Last year Dutch PM Kees Verhoeven first proposed his plans regarding this new legal entity. We already wrote an extensive article about this back them (in Dutch). The proposals have not yet materialized but it seems the loosening of the salary regulations is a first step towards the start-up BV becoming a reality.
// why is this € 27 million so interesting for me as a start-up entrepreneur?
As an entrepreneur you both own your company and are employed by it as a director. As a person working for your company, Dutch law states that your company is obliged to pay you compensation remuneration for your efforts and a minimum amount ?at that?. The Dutch Tax Office created this rule to battle the common practice of income tax evasion through lowered salary payments combined with higher dividend payments on shares held. Normal salary payments are incrementally taxed at rates that reach up to 52% in the highest scale, and normally added by further fees for insurances, social services and the likes. Dividend payments upon shares held are only taxed at a rate of 40%. This way of earning is much more tax-efficient; hence Tax Authorities don’t like it.
// how 3 entrepreneurs can earn more than € 200,000 through this initiative
If, for example, 3 entrepreneurs co-own a start-up and make full use of this new initiative, they will save over € 77,000 in compulsory yearly salary payments. This money can now be spent on new investments. In 3 years this benefit adds up to over € 231,000. Just imagine the amount of growth you can achieve with the extra cash.
// how to get more money to grow your start-up?
A lot of start-up entrepreneurs want to minimize their own salary payments, for both income tax and company finances reasons. There are currently two options available for minimizing director’s salary payments:
- Request an approval for a lowered salary at the Tax Office. This request needs to be made on grounds company liquidity, and needs to be supported by a financial prognosis for the next year that concludes that not enough funds will be available to make the payment.
- Sign your BV up as an income tax due company at the Tax Office and file a zero-salary
statement each month (“nul aangifte”). At the end of the year the Tax Office will calculate whether or not you are obliged to make additional salary payments.
Conclusion 1 // More cash for growth
Current options for lowering the director’s salary are based on the simple rule that you can’t tax what is not there. The new regulations seem to invert this by stating that if a salary is there, it’s better spent on growth. How about that for an entrepreneurial spirit!
Conclusion 2 // BV starting to gain more popularity in the Dutch Startup scene
Current regulations on minimum director’s salary are the main reason for not choosing the BV as a legal entity for most entrepreneurs, as many are still unaware of the two possibilities to avoid this. If the Dutch Government decides to drop the minimum, the BV will definitely gain a lot in popularity among entrepreneurs.
Conclusion 3 // You want your start-up to benefit? Just ask or hire the right people
Regulations such as these are written for a reason,. The Dutch government wants to stimulate start-ups to grow into larger companies, so they can in turn provide employment for Dutch citizens. Turning the rules into a benefit for your company is a matter of knowing what to do, and when to do it. Get advice from a tax advisor or someone that specializes in incorporating legal entities. Whatever you do, don’t let it rest for now because you are “so busy doing other things”. You wouldn’t want to miss out on over € 200,000 in cash to grow your business, would you?
Photo credits: Financieel Dagblad