Developments in the Excessive Borrowing from Your Own BV Act: A Comprehensive Guide for Medium and Small Businesses
Introduction
The fiscal world is constantly evolving, and the recent introduction of the Excessive Borrowing from Your Own BV Act is a crucial development that affects directors-major shareholders (DGA’s) and their businesses. This law, intended to counteract tax deferral through borrowing from one’s own BV, has significant implications, especially for medium and small businesses. This article provides an in-depth overview of the law, its impact, and practical solutions to manage the consequences.
The Essence of the Law
From 2023, borrowing more than €700,000 from your own BV will be taxed as income from a substantial interest (box 2), as outlined by the Tax and Customs Administration. This threshold is crucial; loans above this amount are seen as a disguised form of dividend distribution and thus taxable. Importantly, debts for one’s own home are excluded, provided certain conditions are met.
This regulation was introduced in response to the practice where DGA’s borrow significant amounts from their own companies, often without concrete repayment plans. This leads to deferred tax collection, which the government aims to address with this law. The law’s goal is to revise the fiscal treatment of such loans and ensure a fairer and more transparent tax system.
Who Is Affected?
The regulation affects substantial interest holders and their partners. This includes anyone with an interest of 5% or more in a company. It is important to emphasize that not only the loans of the DGA themselves count, but also those of their fiscal partner and connected persons. Connected persons are, for example, children or parents who themselves do not have a substantial interest in the company but do have a substantial debt to the company.
This means that the financial activities of an entire family can be influenced by this legislation. It is therefore crucial for DGA’s and their family members to carefully assess and plan their financial situation in light of these new rules.
Practical Implications
The introduction of this law has direct consequences for the financial planning of DGA’s. It requires a reconsideration of how they and their family members borrow money from their companies. One of the most obvious consequences is the need to review existing loans and, if necessary, reduce them to stay below the €700,000 threshold.
This review can be a challenge, especially for those who have borrowed significant amounts for personal expenses or investments. It may be necessary to find alternative sources of financing or liquidate assets to reduce the debt burden. This process requires careful planning and consultation with tax advisors to ensure compliance with the new requirements without unnecessary financial stress.
Strategies and Solutions
- Debt Repayment: The most direct way to comply with the law is by repaying debts. This can be done by using liquid assets privately or by selling assets. Repaying debts not only reduces the tax burden but also improves the financial health of both personal and business finances.
- Dividend Distribution: Another strategy is to distribute dividends to reduce the debt. This can offer a dual benefit: it reduces the debt and provides a legitimate way to extract money from the business. However, with the split rates in box 2 from 2024, one must consider the fiscal consequences of this choice.
- Refinancing: Debts can also be refinanced with external parties, such as banks. However, this can have implications for taxation in box 3. Refinancing can be a good option for DGA’s who want to restructure their debts under potentially more favorable conditions.
- Avoiding Fiscal Partnership: By avoiding fiscal partnership, the threshold can effectively be doubled, which can be an interesting option for some DGA’s. However, this requires careful consideration of the broader fiscal and personal consequences.
- Transferring Assets: Transferring assets to the BV can also be a way to reduce the debt. This can be particularly useful for DGA’s who have personal assets that can be converted into business capital.
Future Changes and Points of Attention
An important future change is the planned reduction of the threshold to €500,000 in 2024. This requires extra attention and possible adjustments in the financial planning of DGA’s. It is crucial to keep an eye on these changes and proactively plan for the future.
Additionally, there is criticism of the complexity and potential inaccuracies of the law, suggesting that further adjustments or clarifications may be possible in the future. DGA’s and their advisors must remain alert to any changes in legislation and the associated fiscal guidelines.
The Importance of Expert Advice
Given the complexity of the law and the potential impact on personal and business finances, it is advisable to seek expert fiscal and financial advice. A tax advisor can help navigate the nuances of the law, provide tailored solutions, and plan for future changes.
Conclusion
The Excessive Borrowing from Your Own BV Act requires a careful reconsideration of the financial strategies of DGA’s. By acting proactively and implementing the right strategies, DGA’s and their businesses can adapt to this new fiscal reality. It is essential to collaborate with an expert tax advisor to determine the best approach for your specific situation. Looking to connect with a knowledgeable advisor? Click here.
