What DGAs need to know in domestic and cross-border situations
As a director-major shareholder (DGA) in the Netherlands, you are subject to the customary pay scheme, a measure that determines the minimum salary you must pay yourself. According to section 12a of the 1964 Wage Tax Act, the salary you receive as a DGA must be at least equal to the highest of the following three amounts: €56,000 (before 2024), the salary of the best-paid employee within the company, or the salary that is customary in the sector for similar positions. The scheme aims to prevent DMSs from underpaying themselves a salary to avoid tax. In specific cases, such as when the company’s financial situation does not allow it, a lower salary may be justified.
There is also an option for certain companies, such as start-ups, to grant a lower salary. Between 2017 and 2022, innovative start-ups could, under certain conditions, set their customary salary at the statutory minimum wage. Although this scheme expired from 1 January 2023, an approval remains in place. Start-ups that can demonstrate that they cannot pay the regular customary wage may still suffice with the statutory minimum wage.
Application in cross-border situations
The customary pay rule is a Dutch tax measure, but what happens if you live abroad and have shares in a Dutch BV? In cross-border situations, the application of the scheme becomes more complex and tax treaties play an important role. Tax treaties prevent double taxation and determine which country has the right to levy taxes on your income. The Netherlands can only apply the customary pay scheme if the other country has a similar scheme or has explicitly accepted the Dutch scheme. Thus, in the relationship with Belgium, the scheme does apply because the tax treaty between the Netherlands and Belgium explicitly recognises the scheme. In the relationship with Portugal, this is not the case because Portugal has not accepted the scheme and there are no comparable rules in Portuguese law.
For the relationship between the United Kingdom and the Netherlands, we have determined in consultation with the Inland Revenue that the customary pay scheme does not apply, as the establishment history does not show that the United Kingdom has accepted the scheme. Of course, the applicability of the scheme should always be assessed according to the specific circumstances of the case.
In conclusion, in cross-border situations, a thorough analysis of the tax treaty is important to determine whether the Netherlands may apply the customary wage rule. This depends on the agreements between the Netherlands and the relevant country and whether the scheme has been accepted there or whether a similar scheme exists.
