Excessive borrowing from your own company

When you as a director-major shareholder (DGA) have a loan from your own company, you must pay taxes over this loan, if the borrowed amount exceeds the threshold of EUR 700,000. From January 1 2023,  the Excessive Borrowing Act will come into effect. Due to the new legislation, excessive loans from shareholders are taxed. The main reason for this measure is to prevent tax deferral by DGA’s. In this blog you can read whether you ‘borrow excessively’ from your BV.

  1. What does excessive borrowing mean?
  2. What is covered by the loan?
  3. What can I do until 2023?
  4. Avoidance of double taxation
What does excessive borrowing mean?

If the “Excessive borrowing Act” is adopted, from January 1 2023 a natural person who owns at least 5 percent of the shares of a company (AB holder) will no longer be able to provide from his own company without fiscal restrictions. From that moment on, the AB holder can borrow up to EUR 700,000 (together with his fiscal partner) from his own company without fiscal restrictions. If the borrowed amount from the own company exceeds the threshold of EUR 700,000, the borrowed amount that exceeds EUR 700,000 from 31 December 2023 onwards, will be taxed with substantial interest tax at a rate of 26.9%.

What is covered by the excessive loan?

The debts that you as a DGA owe to your own company and the debts that your fiscal partner owes to the same own company are added together to establish whether the excessive loan threshold is met. It is also the case that various loans from the DGA together with his or her partner are added together to establish the total debt to his or her own company. So if your own company has provided several loans to a DGA and or his/her partner and those loans together amount to more than EUR 700,000, the excessive loans threshold is met, regardless of the amounts of the separate loans in question.

Loans to a family member of yours or your partner in the straight line (these can be your grandparents up to your grandchildren) can also be seen as excessive loans. If you have provided several loans in this type, each loan individually is checked whether more than EUR 700,000 is lent to your family member (together with his or her partner). Additionally, for these loans it also applies that if the total balance of the loans exceeds EUR 700,000, there is taxable excessive borrowing.

In addition, for the Excessive borrowing Act all types of loans are included, regardless of the business or the non-business character of the loan. It therefore does not matter what reason the loan was granted for. The only exception that applies is that a loan for the benefit of the owner-occupied home, these loans are explicitly exempt.

What to do in case of excessive loans?

You have until the end of 2023 to ensure that the balance of outstanding debts to your own company falls below the limit of EUR 700,000. There are a number of options to reduce the debt to one’s own company. For example, you can repay the loan or refinance the loan. It can also be chosen to maintain the debt with one’s own company if this is more beneficial than the other options.

Avoidance of double taxation

In order to prevent double taxation from taking place, the threshold for excessive borrowing in the event of an overrun will be increased. For example, if you borrow EUR 730,000 from your own company in a book year, the threshold will be raised to EUR 730,000 in the following year, so that you do not pay tax again in the following book year over the same excessive part of the loan amounting to EUR 30,000. This thus prevents double taxation of the same object. In addition, there may be an exception for DGA’s with a Dutch company who live outside the Netherlands.

DTS can help you find the best and most practical options to reduce the loans from your own company. If you have any further questions about this proposed bill, please feel free to contact us. We are happy to help you.

More posts by Joost de Leeuw