Usual salary day (no work)

The usual salary of a DGA may be reduced in the event of a long-term poor result on the part of the company or if the DGA does not work for the BV or if the DGA does not work for the BV. However, care should be taken here as the tax authorities are not quick to assume that a BV would not be able to pay the salary or the DGA does little or minor work for the BV.

How and when can a reduced usual wage be taken into account? That's what we'll discuss in this article.

What is the usual salary/DGA salary and why does it exist?

The usual salary is the minimum salary that a director and major shareholder (DGA) must pay himself if he or she works for their own company, for example. This measure was created to prevent DGAs from paying themselves too low a wage and thus avoiding tax by paying income as a dividend (which is usually taxed lower than salary).

This concept exists for fairer taxation. Salaried employees pay payroll tax and contributions on their salaries, while without this scheme, DGAs would be able to pay most of their remuneration as dividends and thus avoid social security contributions and higher income taxes.

However, in some cases, the usual wage regime goes too far and therefore has limits. It must be taken into account what the salary for a comparable employment would be.¹ The 'hard' lower limit of €56,000 per year is in many cases too high.

Our advice? Talk to the tax authorities to determine the amount of the usual salary.²

A real-life example

A BV is regularly used as an investment vehicle to purchase and rent real estate. The DGA of such a BV usually has another function besides holding the shares in the real estate BV. After all, this is an investment.

The question that then arises: should the DGA take into account a usual salary, even if he actually does nothing more than own the shares and outsource the management of the BV's properties and accounting?

However, the court finds here that it is well known that managing a BV always requires activities of some magnitude, such as keeping the administration (or having it run), filing the financial statements and filing tax returns. This states that if someone should be recruited for this, who is employed as general manager, they will earn a significant salary, even if the activities are limited in scope.

In this specific case, it was concluded that the usual salary is €10,000 on an annual basis.³‍

So when does a DGA have no or a lower usual salary?‍

We have taken the most common reasons for a lower usual salary from the case law and listed them for you:

1. Restricted employment or part-time employment: If a DGA only works a few hours a week, a lower salary can be assumed. In 2001, it was considered that the part-time nature of the employment relationship is relevant to the burden of proof to make a lower salary plausible.⁴ In 2010, a wage of €7,500 per year was accepted for someone who worked ten hours a week in addition to a WAO benefit.⁵
2. Few activities or low profit on the part of the company: When a company has hardly any activities or makes a loss, a lower salary may be justified. In this context, see the included practical example.
3. Usual salary below €5,000: If the annual salary is less than €5,000, it may be omitted altogether, in accordance with article 12a paragraph 4 Act LB 1964. This means that no salary has to be received and the bv cannot raise a deduction.
4. Multiple companies: Does a DGA work for multiple companies? Then one business salary is often set for all activities together. However, this often requires recourse to the “continued payment scheme”.

So how is the usual salary calculated “as a rule”?

The usual salary is set at least at the highest of the following amounts:

• the salary from the most comparable employment relationship;
• the highest salary of employees employed by the body, referred to in the introductory words, or bodies associated with the body;
• €56,000.

So how does it work at a start-up?‍

For starting companies that are not classified as an 'innovative' start-up (a separate scheme applies), a DGA can temporarily charge a lower usual wage.

This is especially important when the company does not (yet) have sufficient cash flow (also known as the “burn phase”). In this situation, the lower limit is the statutory minimum wage, appropriate to the number of hours worked.

However, this scheme may be applied for a maximum of three years! When a company is first run as a sole trader or a joint venture and is later incorporated into a BV or cooperative, this period is shortened.⁶ The previous period in which the company was already operated must then be deducted from the three years.‍

Conclusion: Flexibility is possible if well motivated

The usual wage is not a harsh law of averages. There are situations where a lower DGA salary is justifiable, but you have to come up with a rock-solid foundation. The tax authorities are taking a critical look and do not simply accept that a company would not be able to pay the salary or that the DGA does not carry out substantial work.

However, there are options. Think of start-ups with a low cash flow, part-time employment, loss-making companies or situations where a DGA manages multiple companies. But be careful: even if a BV does little, a certain salary value is still assigned to administrative responsibility.

Do you want to avoid having a discussion with the tax authorities afterwards? Make sure you properly record your position and consult with the tax authorities if necessary. With the right approach, you can respond smartly to the rules without ending up in the danger zone.

Documentation used

1. Article 12a Wage Tax Act 1964
2. https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/themaoverstijgend/brochures_en_publicaties/checklist-vooroverleg-gebruikelijk-loon
3. https://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBNNE:2018:889
4. https://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:GHAMS:2001:AB1741
5. https://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:GHSHE:2010:BP3536
6. For more information about restructuring: Save on your income tax with tailored strategic advice.