When you start a business in The Netherlands, it’s likely that you are planning to make a profit. Once that happens, you are able to pay out dividends to yourself, being one of the shareholders of the Dutch company.
When you are also acting as director of the Dutch company, you must also consider to pay yourself a salary. In this article we will discuss the advantages, and legal requirements, of being employed by your own Dutch business.
Why would you payroll yourself as director-shareholder?
Most entrepreneurs understand the concept of dividends. And because dividends are typically taxed at a fixed rate, most entrepreneurs understand the mechanics of the dividend tax as well. If the (withholding) tax on dividends is 15%, you simply need to consider a tax of 15% on your paid out dividends. Side from the simplicity of the tax, the dividend tax is also considered relatively low.
This is also the reason why most entrepreneurs prefer to avoid salaries (and it’s high income taxes), and focus on withdrawing capital from the company in the form of dividends.
However, the Dutch tax regulator anticipated on this preference of company owners, and they implemented the so-called director-shareholders salary, which is applicable to Dutch businesses (in particular, to it’s director-shareholders, owning more than 5% of the company while acting as a director).
So the answer to the question mentioned above is: because the Dutch (tax) law says so!
But there are advantages as well, of being on the payroll of your Dutch company:
In case you wish to open (or maintain!) a Dutch corporate bank account for your business in The Netherlands, it can be important that an employee if on the payroll of the company.
In a similar manner, the Dutch bank’s desire for ‘substance’ among it’s account holders, is shared by Tax & Custom Administrations. Especially if you plan to apply a double tax treaty (for example to reduce withholding taxes), or if you want to ensure that your Dutch profits are only taxes in the Netherlands, it would be advised to spend extra attention to creating more substance in the Netherlands. Appointing a Dutch staff member, such as a director, can be great measure. If necessary, INCO can even assist you (or your staff member) to obtain residency in The Netherlands.
Can you avoid any payrolling requirements in The Netherlands for the director-shareholder?
Yes, you can avoid this requirement. A simple solution might be, not to act as director or shareholder. But if you are a sole shareholder/director, this is obviously not a solution.
An exception to the minimum salary requirement is given to a start-up companies that do not have sufficient liquidity. For such a start-up it is possible to pay a lower salary, but only for the first 3 years of the company. After the first 3 years the company will have to pay the required minimum salary.
But even for companies that are not considered a ‘startup’, but indeed are operational and even profitable, the minimum salary requirement can be avoided. See our article on this subject.
As long as your Dutch company does not pay out (substantial) dividends, or (high) salaries to other Dutch staff members, we can discuss the options to avoid the salary requirement as stated by Dutch tax law.
If you decide to payroll staff, or yourself as director, in your Dutch company, INCO can assist you. We will register your company as Dutch Employer, and can arrange the payrolling requirements. Read more about paying taxes and social contributions in The Netherlands.
Contact our team to discuss more details!