As you know, the special 22% rate for a substantial interest dividend still applies in 2014. The normal rate is 25%. It became clear with the presentation of the budget memorandum for 2015 that the scheme would not be continued. So it may seem like a good idea to still make use of the scheme in 2014. There are a number of points for attention that should be taken into account, however. These are discussed briefly below.
- The special rate of 22% applies for a maximum amount of € 250,000 per taxpayer. If the shareholder has a partner for tax purposes, this partner can also use the scheme for an amount of up to € 250,000 per year. The immediate advantage can therefore be as much as a net sum of € 15,000.
- The scheme seems attractive from a tax standpoint, but that is not always necessarily the case. If a BV pays a dividend to the director/majority shareholder, the BV must withhold and pay 15% dividend tax. The remaining 7% in income tax is levied via the income tax return. So, for example, the director/majority shareholder gets to keep just € 78,000 of a dividend of € 100,000. So a lower amount is available to invest. The amount received from the BV will generally be taxed in Box 3 (or will reduce the director/majority shareholder’s current account to the BV and as such increase the Box 3 assets). Income tax of 1.2% must be paid annually on the assets in Box 3. That is not the case if no dividend is paid out and the assets remain in the BV.
- On the other hand, if the BV does not pay out the dividend but continues to owe the director/majority shareholder, the director/majority shareholder acquires a claim on his BV. This claim is regarded as so-called ‘assets made available’, which ends up in Box 1. The consequence is that the BV will have to pay the director/majority shareholder commercial interest. The interest to be received by the director/majority shareholder is then taxed (progressively!) in Box 1. That is not a desirable situation, of course.
- If the BV has pension or annuity commitments under its own management, the actuarial value of these is often much higher than the balance sheet value. The tax and customs administration can take the position that paying out dividend must in essence be regarded as the buying out of pension or annuity. This will mainly be the case if the dividend payment means that the BV will no longer be able to satisfy its pension or annuity commitments. The consequences are disastrous in that case. The full pension claim is taxed progressively in one go in that case. Furthermore, the BV must pay 20% revisionary interest.
- Upon the introduction of the Flex BV as of 1 October 2012, strict rules were imposed for making dividend payments. The management of the BV must approve the dividend payment. If the BV is unable to pay its debts after the dividend payment, this can result in joint and several liability for the deficit. The shareholder is also required to repay the dividend payment it received.
All in all, it must be concluded that the director/majority shareholder must be careful with dividend payments and that the temporary rate in effect should not be the only consideration. Consultation with your tax adviser is a must.