The minimum salary requirement for a director when registering a company in the Netherlands

A director of a Dutch company who also (in)directly owns shares in this Dutch company can qualify as a director and major shareholder (‘DGA’). In case of being qualified as a DGA, entrepreneurs having a Dutch company are obliged to pay themselves out a minimum salary instead of solely dividend. The background to this regulation lies in the fact that the legislator wants to avoid the directors escaping the progressive rate in Box 1. Otherwise, DGA's could pay themselves a very low salary and pay the remainder of the profit of the BV as a dividend, which being taxed lower. In principal the minimal salary requirements shall be applicable from the moment of Dutch company incorporation and also apply to holding companies.

The minimal salary regulation is being referred to as 'customary salary scheme' (in Dutch language: gebruikelijk loon regeling). For the customary salary scheme, article 12 of the Dutch Wage Tax Act, regarding the substantial interest criterium is relevant. In case an individual or its spouse holds five per cent or more of the shares of a Dutch company, this person will qualify as DGA for customary salary scheme purposes. Despite the use of the phrasing DGA, please note that it is not necessary that the person holds a director’s position.

The general rule is that the salary paid to the DGA will be deemed to amount at least € 45,000 per year (the threshold is being determined on an annual basis and remained unchanged for the period from 2017 to 2019). Also the remuneration should not be lower than the best paid employee of a Dutch company or affiliated companies.

A lower salary can be applied under the condition of burden of proof on the tax payer. If a lower salary is normal practice in a comparable job position, it is optional to proceed on the basis of such remuneration. Then the remuneration can not be lower than 75 per cent of the benchmarked salary.

In situations whereby the customary salary shall be € 5,000 per year or less, art 12 of the Dutch Wage Tax Act is not applicable. This rule exempts from the requirement for a mandatory salary administration. In case of a weak financial position of the Dutch company, for example as a result of starting up business or bad results, it is possible to request a lower salary to the Dutch tax authorities. In case a request to the tax authorities is not favored a benchmarking shall take place.

For a large number of DGA's that work in Dutch companies and reside abroad the customary salary scheme does not apply. This because the Dutch Supreme Court has ruled that the country of residence of the DGA must have explicitly agreed to the application of the mimimal salary requirement. However, the Dutch customary salary scheme has not been discussed at the time of tax treaty negotiations with most countries.

It is recommendable to have a Dutch tax advisor provide guidance in respect the customary salary scheme. In any event it shall be discouraged to have a company distribute dividends when the minimal salary requirements have not been met. In case a lower salary is normal in your branch, it is good to have have substantiating documents thereof on file.

Robert Bron is co-owner and founder of ABiLiTieS Trust | Corporate Services Netherlands, a management owned trust company. Robert has a LLM title from Utrecht University and more than 10 years of legal experience.