Points to consider when borrowing from one's own BV as a director-major shareholder
Borrowing from one's own private limited company for major purchases
Many director-major shareholders (DGAs) accumulate funds in their private limited companies (BV) over an extended period. It can be attractive to borrow money from one's own BV for a major (personal) purchase, such as a home or holiday home. This allows funds to be withdrawn from the BV without tax being immediately due. The BV then receives the principal repayment and interest as profit. It is important to structure the loan properly to avoid incurring unwanted tax liabilities.
The importance of business terms
If a BV distributes money (profit) to a director-major shareholder, the director-major shareholder owes tax on it. This is different if money is borrowed from the BV. In that case, the money remains the property of the director-major shareholder.
The BV and the director-major shareholder pay interest and principal to their own BV. This interest then constitutes profit for the BV. The lending must be conducted on arm's length terms, and the director-major shareholder and the BV must comply with these agreements.
(Business) agreements are made with the BV regarding the date on which the loan must be repaid in full. These agreements concern the repayment terms, the installment amount, and whether interest is due monthly, quarterly, or annually. It is advisable to always record the agreements regarding the loan in a loan agreement.
The interest rate charged on the loan must be at arm's length. The terms must correspond as closely as possible to a loan that is
entered into with a bank or another independent lender. According to the Tax and Customs Administration, account must be taken of the interest rate on the market for private investors, the risk that the borrower will not repay the loan, and whether the interest rate is fixed or variable. It is not permitted to use interest rates that the bank applies to the business market. If the interest rate is not at arm's length, it is adjusted to a commercial rate. An interest rate that is too high then leads to a lower deduction for the director-major shareholder and a lower profit for the BV (the reverse applies in the case of an interest rate that is too low).
Another point of attention is the amount borrowed. If the director-major shareholder (with his partner) borrows a total of more than €500,000 from the BV, tax is payable on the excess.
due. A final point of attention is the retention of the right to deduct mortgage interest if the loan is taken out with the BV for a home in which the money
borrower is going to live. The agreements with the BV must stipulate that the loan must be repaid on an annuity or linear basis within a maximum of 30 years, and again that the amount of
the interest rate is commercial and that the payments are actually made.
Ask the notary for advice regarding a loan from your own private limited company.
Borrowing from one's own private limited company involves a number of points of attention to prevent the loan from having a tax disadvantage. It is also important to include the loan terms in a
to record in writing. Your notary can apply these points to your specific situation and help you draft the necessary documents.
This article is taken from 'Notariskrant', a product of FBN Juristen. This article is not to be considered legal advice. FBN Juristen and MAES Notarissen take the utmost care with the content of the articles, but accept no liability in the event of incompleteness or inaccuracy of an article, nor for the consequences thereof.
Many director-major shareholders (DGAs) accumulate funds in their private limited companies (BV) over an extended period. It can be attractive to borrow money from one's own BV for a major (personal) purchase, such as a home or holiday home. This allows funds to be withdrawn from the BV without tax being immediately due. The BV then receives the principal repayment and interest as profit. It is important to structure the loan properly to avoid incurring unwanted tax liabilities.
The importance of business terms
If a BV distributes money (profit) to a director-major shareholder, the director-major shareholder owes tax on it. This is different if money is borrowed from the BV. In that case, the money remains the property of the director-major shareholder.
The BV and the director-major shareholder pay interest and principal to their own BV. This interest then constitutes profit for the BV. The lending must be conducted on arm's length terms, and the director-major shareholder and the BV must comply with these agreements.
(Business) agreements are made with the BV regarding the date on which the loan must be repaid in full. These agreements concern the repayment terms, the installment amount, and whether interest is due monthly, quarterly, or annually. It is advisable to always record the agreements regarding the loan in a loan agreement.
The interest rate charged on the loan must be at arm's length. The terms must correspond as closely as possible to a loan that is
entered into with a bank or another independent lender. According to the Tax and Customs Administration, account must be taken of the interest rate on the market for private investors, the risk that the borrower will not repay the loan, and whether the interest rate is fixed or variable. It is not permitted to use interest rates that the bank applies to the business market. If the interest rate is not at arm's length, it is adjusted to a commercial rate. An interest rate that is too high then leads to a lower deduction for the director-major shareholder and a lower profit for the BV (the reverse applies in the case of an interest rate that is too low).
Another point of attention is the amount borrowed. If the director-major shareholder (with his partner) borrows a total of more than €500,000 from the BV, tax is payable on the excess.
due. A final point of attention is the retention of the right to deduct mortgage interest if the loan is taken out with the BV for a home in which the money
borrower is going to live. The agreements with the BV must stipulate that the loan must be repaid on an annuity or linear basis within a maximum of 30 years, and again that the amount of
the interest rate is commercial and that the payments are actually made.
Ask the notary for advice regarding a loan from your own private limited company.
Borrowing from one's own private limited company involves a number of points of attention to prevent the loan from having a tax disadvantage. It is also important to include the loan terms in a
to record in writing. Your notary can apply these points to your specific situation and help you draft the necessary documents.
This article is taken from 'Notariskrant', a product of FBN Juristen. This article is not to be considered legal advice. FBN Juristen and MAES Notarissen take the utmost care with the content of the articles, but accept no liability in the event of incompleteness or inaccuracy of an article, nor for the consequences thereof.
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