Excessive borrowing from your own company

As a director-major shareholder (DGA), you must pay taxes on loans from your company if the borrowed amount exceeds 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 person owning at least 5% of a company’s shares (AB holder) cannot borrow from their own company without fiscal restrictions. From then, the AB holder and their fiscal partner can borrow up to EUR 700,000 from their company without restrictions. If the borrowed amount exceeds EUR 700,000 by December 31, 2023, the excess will be taxed at a substantial interest rate of 26.9%.

What is covered by the excessive loan?

The debts you and your fiscal partner owe to your company are combined to check if the excessive loan threshold is met. Loans from the DGA and their partner are added together to determine the total debt to their company. If the total exceeds EUR 700,000, the excessive loans threshold is met, regardless of individual loan amounts.

Loans to your or your partner’s direct family members (e.g., grandparents to grandchildren) can also be considered excessive. Each loan is checked individually to see if more than EUR 700,000 is lent to the family member and their partner. If the total balance of these loans exceeds EUR 700,000, it is considered 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 is a loan for the owner-occupied home, which is 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

o prevent double taxation, the threshold for excessive borrowing will increase in case of an overrun. For example, if you borrow EUR 730,000 from your company in a year, the threshold will be raised to EUR 730,000 the next year. This ensures you do not pay tax again on the 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.

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