Excessive loans

Almost every director and major shareholder (DGA) has a current account with their BV. This current account often arises because the DGA pays personal expenses with the business account or temporarily borrows money from the BV. Normally, debts and claims between the DGA and BV are not a problem for the legislator. However, in some cases, the debts become so high that they will be seen as excessive.


By withdrawing money through a loan instead of through salary or a dividend payout, tax is deferred or even canceled in some cases. The DGA can then use this money to cover their living expenses or to invest.


When a DGA withdraws money from their BV to invest, it is essentially paid out as a dividend. Income tax must be paid on this dividend in box 2 (at a rate of 26.9%). The DGA then retains 73.1% to invest. The invested capital is then subject to wealth tax in box 3. As a result, the DGA invests with an amount on which tax has been paid and then pays wealth tax on this capital.


Another option for the DGA is to borrow from the BV’s capital. In that case, no tax needs to be paid in box 2, allowing the DGA to invest 100% of the borrowed amount. This loan creates a debt that corresponds to the investments, resulting in no net wealth. This leads to higher returns and no tax release. This option is therefore very attractive for the DGA!


In principle, the legislator has no problem with this construction. However, the legislator wants to prevent DGAs from accumulating too much debt to their BVs, which is called excessive loans.


Reasons for the legislator to want to prevent excessive loans are:
Preventing more or less infinite tax deferral
Preventing debts to BVs from becoming so high that they cannot be repaid in practice.


What is excessive borrowing?

To determine whether there is excessive loans, the amount of the DGA’s debt to the BV is examined. If this debt exceeds €700,000, it falls under the excessive loans scheme. It does not matter whether the loans are taken out from different legal entities. Thus, a DGA with three BVs and each with a debt of €300,000 can still fall under this scheme.


However, there are exceptions to this rule. Loans for own homes are disregarded. For example, if a DGA has borrowed €1,000,000 from their BV to finance their own home, this does not fall under excessive borrowing. From January 1, 2022, loans for own homes must be mortgage loans to be exempt from the excessive borrowing rules. Loans to children and parents also count towards the debt. It is therefore not possible to take out a loan in a child’s name to circumvent the rules.


When there is excessive borrowing, this can have mayor consequences for the DGA. The regulation means that if they have a debt to their BV of more than €700,000, the part above 700K is automatically considered as box 2 income. This means that the DGA pays 26.9% tax on the part above seven hundred thousand euros. It is essential for the DGA to prevent the penalty for excessive borrowing as much as possible.

The most logical solutions are:

  • Pay out dividends to keep the debt below the €700,000 threshold. Keep in mind that you will effectively pay 26.9% on this payout.
  • You can sell your own home to the BV. This will pay off the loan to the BV, and then you can rent the house from the BV. This way, you can continue to live where you live.
  • You can transfer the loan to someone else. This can be, for example, friends or acquaintances, but also an unrelated BV (Dutch: Besloten Vennootschap, which means private limited company), or a bank.
  • Suppose you have a property that you rent out, then you can also sell the leasehold to your BV. In this way, the BV obtains the right to collect rent. The leasehold represents a certain value that the BV pays for, and this payment can count as repayment of the current account.

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