Year-End Tips 2023: 16 Tips for the director—major shareholder (DGA)
This is the perfect time to consider what tax actions you still need to take before the end of the year, or whether you should postpone them until the new year. We provide you with the most important current tax tips for DGAs.
1. Small-Scale Investment Allowance (KIA)
Have you invested enough in assets in 2023 to qualify for the small-scale investment allowance (see the table below)? If not, there may still be some tax benefits to be gained! To qualify for this investment scheme, an investment must be at least € 450 excluding VAT. Also, you are able to depreciate the invested amount annually.
Small-Scale Investment Allowance Table 2023
|No more than € 2,600||0%|
|€ 2,601 – € 63,716||28% of the investment amount|
|€ 63,717 – € 117,991||€ 17,841|
|€ 117,992 – € 353,973||€ 17,841 reduced by 7.56% of the portion of the investment amount exceeding € 117,991|
|More than € 353,973||0%|
2. Investing and temporarily random depreciation in 2023
For many new investments in 2023, you are allowed to depreciate-at-will a portion of the cost. This scheme allows you to reduce your profit in 2023 by taking into account a maximum of 50% of the invested amount – minus the residual value. The remaining 50% must be depreciated in the regular depreciation method from the moment the asset will be used. There are exceptions to this random depreciation in 2023, such as investments in buildings.
With this random depreciation, you can lower your profit in 2023, resulting in saving taxes immediately. If you choose to depreciate-at-will in 2023, it will reduce your future depreciation possibilities in the following years and usually, as a result, you may pay more taxes in the years to come.
Note! Random depreciation is not always advantageous, especially if you expect your profit in 2023 to be taxed lower than in the coming years. You can also choose not to depreciate or depreciate less than 50% of the investment amount – minus residual value – in 2023. As a result you can depreciate more in the future and possible reduce your future profit amounts in the following years.
Would you like to take advantage of this random depreciation in 2023? In that case you need to commit yourself to this investment this year, for example, by signing an order confirmation. The possibility of a random depreciation will expire as per 2024.
Will you not put this investment into service in 2024?
If you will not put the investment into use in 2023, consider making a down payment in 2023! Otherwise, you cannot benefit from the possibility of random depreciation.
3. Invest in energy-efficient assets in 2023
The Energy Investment Allowance (EIA) will decrease from 45.5% to 40% in 2024. Are you planning to invest soon in an asset listed on the energy list of the Dutch enterprise agency (RVO)? It could be financially advantageous to start investing in 2023. This means, that you need to have a signed order confirmation or signed engagement letter before the end of this year. However, it is essential to ensure that the energy investment is reported to the RVO on time.
4. Terminating fiscal unity by December 31, 2023
If you no longer wish that your entities will be part of a fiscal unity for corporate income tax as of January 1, 2024, the request for ending of the fiscal unity must be submitted before December 31, 2023. In certain cases, this can be advantageous when there are multiple profitable companies within a fiscal unity. This allows the companies to individually benefit from the lower ‘SME bracket’ in corporate income tax. The rate difference between the first bracket up to € 200,000 (19%) and profit exceeding that amount (25.8%) is 6.8%.
The ending of a fiscal unity can also result in the application or increase of investment allowances. Of course, there are also disadvantages to not being part of a fiscal unity for corporate income tax. Consider these pros and cons with an advisor before proceeding with an ending of this fiscal unity. Lastly, in case a fiscal unity is formed during 2023 and terminated before the end of 2023 this will result in a situation that this fiscal unity never existed.
Note! Consult with your advisor regarding any potential tax sanctions that may come into effect due to the termination of the fiscal unity.
5. Taking out dividend income in 2023, or not?
As of January 1, 2024, the tax rate in box 2 on received dividend income, will change. The current rate of 26.9% will be replaced by a two-bracket system. A rate of 24.5% on income up to € 67,000 (for fiscal partners a combined amount of € 134,000) and a tax rate of 33% on the exceeding amounts.
We advise you to anticipate on these upcoming changes regarding the tax rates changes and the introduction of a two-bracket system in box 2. The question is whether it is recommended to take out dividend income in 2023 or wait until 2024 and subsequent years. The same applies on a planned sale of shares: is it advisable to execute this in 2023, or is it better to wait until 2024? Such an assessment and decision requires customization and depend on your personal circumstances.
Tip! If you are interested, we recommend contacting your advisor in a timely manner. This prevents the possibility of being unable to anticipate on this legislative change before the end of the year.
6. Borrowing money from your private limited company (B.V.), including excessive lending
As a director-major shareholder (DGA), you can finance your investments with a loan from your B.V. The loan, like the investments, falls under box 3. The lending of money must take place under businesslike terms, and a part of this is a written agreement. Discuss with your advisor which conditions you need to agree upon. If the loan is related to your primary residence, under conditions the interest is deductible if the loan qualifies as a primary residence debt in box 1 based on the Dutch tax law.
If you, as a DGA, have a consistently high current account with your B.V., there is a possibility the Dutch Tax Authority will take the stance that (a part of) the debt needs to be regarded as dividend income and that they will make an adjustment, potentially even increased with a penalty. You can reduce this risk by ensuring there is a proper documentation.
Note! In 2023, based on the excessive lending bill, you (and your possible partner together) can borrow a maximum amount of €700,000 tax-free from your own company. Loans related to your primary residence are exempted from this regulation and are not part of the mentioned threshold amount. The first reference date is December 31, 2023, so you have until this date to repay debts above the limit. This prevents the excessive part of the loan will be taxed against a tax rate of 26.9% in box 2 as if you received dividend income.
Tip! In a recently agreed amendment by the House of Representatives, it is proposed to reduce the threshold amount to €500,000 in 2024. As of next year a substantial increase in the substantial interest tax rate will become of force. If you just meet the debt threshold this year and expect that you will not be able to reduce the total outstanding amount of your debts with your own B.V. to € 500,000 in 2024, you might consider reducing an additional part of the total outstanding debt amount with a dividend income this year. This may result in saving a significant amount of taxes. Whether this is advantageous for you depends on your personal situation. Therefore, consult your advisor to determine option for your situation.
If you want to defer profits, consider whether you can create a provision. It is sufficient for this purpose that future expenditures have their origin in facts and circumstances that occurred before the balance sheet date, and that there is a reasonable degree of certainty that the expenditures will be made in the future. Furthermore, future expenditures must also be attributable to the period preceding the balance sheet date. Possible provisions are for example, restructuring, maintenance, remediation costs, providing guarantees on products, or anniversary expenses for employees.
8. Final wage tax return 2023
Verify whether all payments made to your employees have been correctly accounted for. Also consider aspects such as fictitious additions for a company car and/or vans, as well as other favorable forms of compensation.
9. Last VAT Return of the Fiscal Year 2023
When preparing the final VAT return for the year 2023, please consider the following points:
Adjustments related to private usage:
- Correction of VAT for private use of a car (both for you as an entrepreneur as well as your employees).
- Correction of VAT for private use, for example, gas, water, electricity, and heating.
- Correction of VAT for personal usage of goods belonging to the business for purposes other than businesslike (including private use, such as assets used for both business and personal purposes).
- Correction of VAT for services provided by you as an entrepreneur for purposes other than business (including private usage).
- Correction within the framework of the company canteen scheme.
- Other corrections on the deduction of prepaid taxes on distributions to employees (providing opportunities for sporting or recreation, private transportation, and housing), as well as for business gifts and similar items.
- Entrepreneurs who do not exclusively provide VAT-taxed services must calculate the pro-rata deduction percentage for the past year. This may result in an adjustment (upwards or downwards) of the previously deducted VAT on general costs.
- If the pro-rata deduction percentage falls below 90% (or 70% for, among others, travel agencies), you must assess the implications for possible ‘optional taxed rental’ in rental contracts.
- Revision of prepaid tax on movable and immovable investment goods.
In some cases, under conditions, it has been approved that corrections can be made at the end of the calendar year (if the calendar year is not the same as the fiscal year).
Deadline for reclaiming foreign VAT:
Are you economically active in multiple EU countries? Dutch entrepreneurs who have tax deduction entitlement can reclaim VAT paid in other EU countries through an electronic request with the Tax Authorities. Note that separate login details are required for this, and the application process may take several weeks. The request must be submitted no later than September 30th of the year following the year for which you are reclaiming VAT. Received requests after this date may not be taken into account by the other EU country.
10. Does a debtor not pay your invoices? Request for VAT refund in a timely manner
If a debtor does not pay your invoice, you may, under certain circumstances, request for a refund of the VAT you have already paid to the Tax Authorities.
Please note! If you make arrangements with your debtor regarding the payment of your invoice(s), your claim may be converted into a loan. In that case, you cannot submit a refund request to the Tax Authorities. Before proposing a payment scheme, make sure to carefully assess whether your debtor will ultimately fulfill its obligations or not. Ultimately, one year after the claim became due and payable, it is assumed that the debtor will not pay your invoice, and you must request the VAT refund.
You must submit the refund request in a timely manner. This means within one month after it becomes clear that your customer will not pay your invoice.
11. Retention obligations
Cleaning up and destroying old administrative records can certainly result in cost savings, but keep in mind the legal retention period of at least seven years for your administrative data. Regarding real estate and the rights subject to it, you must keep the VAT administration for ten years.
For VAT, there is a special retention obligation in certain cases (for ten years). Permanent documents (deeds, pension and annuity policies, etc.) should not be discarded.
Tip! If you store the data from sales receipts digitally and are able to make it available for the Tax Authorities, it is no longer necessary to keep paper receipts, cash register rolls, and similar information. This also applies to invoices, provided that no information is lost during scanning.
12. Averaging ruling 2021-2023
If your income fluctuates annually significantly within 3 years, under certain conditions, it is possible to average your taxable incomes in box 1 (income from employment and home ownership) from 2021 to 2023, potentially resulting in a lower amount of taxes due over these years.
The years to be averaged may only be included once in the calculation of the averaging ruling. It should be assessed which of the years gives you the highest possible tax refund entitlements. It is also possible to average previous years, depending on the issued date on the definitive assessment Dutch income taxes for those years.
As of January 1 of this year, this averaging ruling has been abolished. The last period you can apply the averaging ruling is for tax years 2022-2024. This legislative change is in particular disadvantageous for entrepreneurs.
13. Information provision on amounts paid to third parties
Starting from January 1, 2022, employers are required to provide information to the Tax authorities about paid amounts without wage tax withholding to third parties. If you make such payments to a private person, you must inform the Tax authorities about several details, including name, address details, place of residence, date of birth, Citizen Service Number (BSN), and the amounts paid, including expense allowances, in a calendar year. The provision of information obligations does not apply to payments to employees, artists, professional athletes, or volunteers, among others. The provision of information obligations also does not apply to individuals who have issued an invoice, provided that the invoice complies with the requirements of the Dutch VAT law. For 2023 and subsequent years, you can provide the information during the year itself, but no later than January of the following year.
Tip! Start as soon as possible with identifying which individuals you will need to gather and provide information for and check if you have all the required information, such as a BSN number.
14. Make full use of the possibilities within the work-related cost scheme (WKR)
For 2023, optimize the possibilities within the work-related cost scheme. This is particularly important because the so called free space will be reduced again from 2024. Up to a wage sum amount of € 400,000, the free space is still 3%, but in 2024, it will be reduced to only 1.92%. For the exceeding amount, the free space in 2024 remains 1.18%, similar to 2023.
Tip! Evaluate whether you still have any remaining free space in 2023 and consider whether items you plan to reimburse or provide in 2024 can possibly be reimbursed or provided in 2023.
15. Increase in tax-free travel allowance
If you do not provide a company car to your employee, you can provide the employee with a tax-free travel allowance of a maximum amount of € 0.21 per km in 2023. It does not matter how the employee travels, and this applies to both commuting and businesslike travelling. For travel by public transport, you can also reimburse the actual costs. The amount of the tax-free allowance will increase to € 0.23 per km in 2024. Check in a timely manner if you are obliged to take this increase into account.
Note! As an employer, you are generally not obligated under the labor law to take into account this increased amount for your employees. This is different if it is stated in an employment contract, employment conditions, or the collective labor agreement that the maximum tax-free allowance must be paid. In that case, you have no choice and must comply with the increase.
16. Limitation of the 30% ruling from 2024
Employees recruited from outside the Netherlands to work in the Netherlands incur many double costs (so-called extraterritorial costs). Under certain conditions, an employer is allowed to reimburse these costs tax-free. This can be done on a declaration basis, where the actual costs are reimbursed. Easier (and often more advantageous) is to reimburse 30% of the total remuneration tax-free as a standard (without further evidence).
From 2024, this measure will be limited. As per next year, the 30% ruling can only be applied to the so-called Balkenendenorm (2024: € 233,000). It is no longer possible to apply it to the exceeding amount. However, there is still an option to choose to reimburse the actual costs instead of using the 30% ruling. Both the 30% ruling and the reimbursement of actual costs have a total maximum duration period of five years (periods of previous residence in the Netherlands may be deducted from this). In addition to the 30% ruling, the actual fees of an international school can be reimbursed.
Note! Apply for the 30% within four months of starting date of your employment so that the ruling can be applied retroactively to the starting date of the employment. If you apply for the ruling later, you are not able to apply the 30% ruling retroactivity, and the ruling can only be applied from the first day of the month following the month in which the application has been made.
Tip! When changing employers, there is a right to continue the 30% ruling. There must be less than three months between the two employments. Continuation can also be requested within four months after the start of the new employment relationship.
Amendment related to the 30% ruling from 2024
Note! It is possible that the benefits of the 30% ruling will be further reduced. The maximum duration of the 30% ruling will remain at 5 years, but the tax-free allowance amount will be gradually reduced. The maximum 30% tax-free allowance will only apply for the first twenty months. In the subsequent twenty months, the maximum tax-free allowance will be 20%, and for the remaining twenty months, it will be reduced to a maximum of 10%.
There will be transitional law for existing cases. Employees who were already using the 30% ruling before January 1, 2024, will not be affected by this change.
Note! The Senate still needs to vote on the 2024 tax plan and the adopted motions. Unfortunately, the voting will only take place just before Christmas. Until then, it is uncertain whether the tax plan and all amendments will come into effect. Given the short time frame between the voting within the Senate and the end of the year, we recommend, despite the uncertainty, to prepare for this in a timely manner. Therefore avoiding last-minute challenges to anticipate and as a result potential undesirable tax consequences.
While utmost reliability and care have been aimed for in the compilation of the Year-End Tips 2023, this version has been put together based on knowledge up to November 9, 2023. We have assumed that the Senate will approve the Tax Plan 2024 and the adopted amendments. Our organization cannot be held liable for any inaccuracies and their consequences.