A “stamrecht BV” is a popular tax construction in The Netherlands. You can utilise it for incurring less income tax on a redundancy payment when you have a Dutch based employment agreement.
From a legal perspective a “stamrecht BV” (literally: annuity company) is a regular Dutch limited company (“besloten vennootschap”). When you receive a redundancy compensation (“ontslagvergoeding”), you can request your employer to transfer the compensation directly into your stamrecht BV. The stamrecht company then signs an agreement with you to make periodical payments on a future moment. If other tax conditions are met, your employer is then allowed to transfer the severance compensation to your stamrecht BV without withholding salary taxes.
The legal basis of this construction is the “stamrechtvrijstelling” (stamrecht exemption) as defined in Article 11, first paragraph, under g, Salary Tax Act of 1964 (“Wet op de Loonbelasting 1964”). Until 2010 the stamrecht company needed to have its residence in Holland but as from January 1, 2010 the company can reside in any country of the European Union.
Though alternatives exist to benefit from the stamrecht exemption, the use of an annuity company has the benefit of flexibility. Alternatives like banking or insurance products usually have hidden costs proportional to the amount of your severance compensation. Due to the one-off constitution cost, a stamrecht BV is only attractive however for severance compensations as from approximately 50,000 euro, depending on the set-up costs.
You have four ways to obtain money from your stamrecht company:
1. making periodical payments (annuity payments) to yourself
2. paying yourself a salary
3. paying dividend
4. taking a loan from your company
1. periodical payments
These are the payments that are stipulated in the contract between you and your company. It does not need to be an annuity in the strict meaning of the word: the payments may diverge where the highest payment should have a maximum relation of 5 to 1 to the lowest payment. The payments can be defined when signing the agreement or at a later moment in time. The payments should begin at the latest when you become 65. The payments are bound to a minimum due to the 1% risk of decease requirement: over the total duration of the payments your risk of decease should be at least 1% in order to maintain the required life insurance character.
Apart from a tax construction a stamrecht company is a normal company. You can use it for any entrepreneurial activity you like if the articles of association allow it. If you begin a business from your stamrecht BV you are obliged by law to pay yourself a wage and the company has to withhold salary taxes.
3. paying dividend
If your company has accumulated profits (after accounting for the stamrecht liability) you can pay yourself a dividend. For a majority shareholder dividends are taxed at a lower percentage than the highest income tax scale.
4. loan Borrowing from your company is possible if the conditions are “at arm’s length”. That is the interest and redemption schedule should not be much different from the conditions you would obtain when receiving a loan from a commercial bank. Therefore taking a loan from your company should always be a temporary solution. An exception could be to finance your home from your stamrecht BV, again at arm’s length conditions.
When paying substantial sums out of the company to yourself you have to be careful not to pass the line of “disposing” of your severance payment. That would be the case when for example the company lends out the full amount of your compensation to yourself without the obligation to redeem on a pre-determined moment in time. In that case it could be impossible for the company to make the periodical payments therefore violating the terms of the stamrecht contract. The consequence would be that you will be faced with a tax claim of the income tax initially exempted plus a penalty.
Setting up a stamrecht company is a process where a public notary, a tax specialist and in some cases (when annuity calculations need to be made) an actuarial specialist will be involved. Due to a changes in legislation in 2011 and 2012 the set-up of a BV will be affected by fewer restrictions and therefore less expensive.