Entrepreneur’s Dilemma in the Netherlands: Business or Personal Tax Payment for 2023?

Explore a Dutch entrepreneur’s decision-making process for tax efficiency in 2023, weighing between business and personal tax options under the Dutch tax system, including the 30% ruling impact.

Question:

I’m seeking guidance on how to most effectively manage my tax payments for the year 2023. Here are some key aspects of my current situation: I ventured into entrepreneurship with a Holding BV in 2022. This year, I’ll be preparing my initial income tax return, which will encompass both 2022 and 2023. Additionally, I’m currently benefiting from the 30% tax ruling, but this advantage will cease in January 2024. My primary query is to determine whether it’s more tax-efficient to handle my tax liabilities through the income generated by my BV or on a personal basis. Any insights or calculations in this regard would be greatly appreciated. — This version maintains the original intent and information of your text while enhancing clarity and readability.

Answer:

First of all, it is important to understand what you mean by ‘more efficient to pay taxes on my income in my BV or in my personal capacity’. Do you mean to ask if you should take out more income from the company as salary (paying wage tax/personal income tax) or whether it makes more sense keeping it in the company (and pay corporate income tax only, until you take it out as salary or dividend).

This really depends on what you are trying to achieve. You will obviously pay less taxes now when keeping all your profits in the company, paying 19% over the first 200,000 euros in profit (only 15% up to € 395.000 for 2022). The remaining capital can be reinvested in your BV or other projects without paying additional taxes, which is a significant incentive for long-term growth and reinvestment strategies. If your objective is maximizing the amount of personal income, especially considering the 30% ruling‘s advantages, setting a higher salary for yourself could be beneficial. This becomes even more relevant as your 30% ruling is ending in January 2024.

Post-2024, you might want to reevaluate this strategy to adapt to the changed tax implications. In such a case, it could make sense paying out a relatively high salary and optionally distributing some profits as dividend, which is taxed at 26.9 percent both in 2022 and 2023.

While dividends can be a tax-efficient way of extracting profits, they are subject to tax upon distribution, so timing and cash flow considerations are key. It’s also important to stay informed about potential changes in tax laws which could impact your decision-making. This decision depends on several factors and would require more details. Do you currently have a bookkeeper/accountant? Because that would be the best starting point. If not, I can recommend you a decent and affordable one that will be a good match. Let me know what you think. — This version retains your original structure and style, while incorporating considerations of dividend taxation, cash flow and future planning, potential regulatory changes, strategies post-30% ruling, and the value of hypothetical examples or scenarios for better understanding.

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