The Dutch Government has submitted a bill to parliament that will restrict the amount that shareholders can borrow from their own companies without the imposition of tax.
Under the proposals, those who own five percent or more of a company’s shares will be able to borrow up to EUR500,000 (USD561,320) tax-free. Income tax will then be payable on borrowings in excess of this threshold. The measure is set to be introduced on January 1, 2023.
The Government points out that while wages and dividends paid to shareholders are subject to income tax, loans are not, creating an incentive for excessive borrowing from companies and the long-term deferral or non-payment of tax.
The measure will apply to all debts acquired by a shareholder with a substantial interest in a company. Special rules apply to mortgages, applied for by the company, that are used to purchase a shareholder’s home.
The draft bill was subject to an online public consultation in 2019. The Government subsequently decided to amend the draft proposals to prevent potential instances of double taxation.