The tax plan provides more clarity about how the rates for income tax and corporation tax will change. This provides a good basis for income planning. Here are some possibilities to consider.

 

 

Payment of dividend

One notable proposal in the tax plan is the proposal to raise the box 2 levy over the next few years from 25% to 26.9% in 2021. The Coalition Agreement initially included a proposed increase to 28.5%. Although the increase would appear to be more modest it still represents an increase of 7.6%! This cost increase is all the more disagreeable because the higher rate will also apply to past profit. To limit the damage we recommend that during the course of 2019 you check whether it would be possible to distribute this profit while the 25% rate still applies.

 

Sole proprietorship or private limited company (B.V.)?

If we take profits of up €200,000 the percentages for the combined corporation tax/box 2 rate over the next few years will be as follows:

 

 2018       40%
         
 2019       39.25%
         
 2020       39.16%
         
 2021       38.60%

 

 

The downward trend would appear to be good news. However it should be noted that DGAs who work through their own B.V. cannot receive all the profit at this favourable rate. As a DGA you are deemed to earn a customary salary of at least €45,000. This customary salary is subject to tax under the progressive box 1 rate (maximum 51.75% in 2019). Thus only a limited share of your profit will be subject to this more favourable combined corporation tax/box 2 rate. 

 

On balance it will therefore often be attractive to switch from a B.V. to a sole proprietorship. Then you do not have to pay yourself a salary and the entire profit is taxed in box 1, plus there is the SME profit exemption. This would work out at total a tax rate of no more than 44.5% in 2019. Over the next few years the impact of the Small and Mediumsized Enterprises (SME) profit exemption will become less, as will other deductions. In 2023 it will only still be possible to apply the SME profit exemption at 37.05%. But given the proposed further reductions in the top tax rate in box 1(49.5% in 2021), the tax burden on sole proprietorships will not increase over the coming years.

 

If you then also take into account the entrepreneur facilities which you are entitled to claim in box 1 (e.g. self-employed person’s deduction, new business deduction, etc.) and the lower financial accounting costs for a sole proprietorship, then making the switch to this type of business could certainly be worthwhile.

 

We would be happy to help you with the calculations!