Recently, the State Secretary for Finance presented the Act on excessive borrowing from own company, to the House of Representatives. As indicated in our previous mailings, this Act was already announced in September 2018. It is proposed that substantial interest holders who borrowed more than EUR 500,000 from their company, will be taxed for income from substantial interest for the excess above EUR 500,000. An exception is made for owner-occupied home debts. The Act will take effect as off 1 January 2023. In this mailing we will explain the main points of the Act in more detail.
- The aim of the measure is to counteract the tax deferral in box 2 and to bring the levy more into line with the moment at which the substantial interest holder actually has the money at his disposal.
- In the case of a loan of more than EUR 500,000, the excess is taxed at the end of the year as a notional regular substantial interest benefit (i.e. for the first time on 31 December 2023), unless that excess part of the loan has already been taxed in an earlier year under the new scheme.
- Loans with several companies in which a direct or indirect substantial interest is held, are added together. This also applies to loans from partners.
- If a relative by blood or marriage in the direct line, has a loan of more than EUR 500,000 with the company of the substantial interest holder, that substantial interest holder will be taxed for the excess.
- Owner-occupied home debts falling under box 1 for which a mortgage has been granted to the company fall outside the scope of the scheme.
- There is limited transitional law for existing loans for the owner-occupied home. This does not require a right of mortgage to be granted.
- The effect of the measure only applies to box 2 and does not extend to boxes 1 and 3, corporate income tax and dividend withholding tax.
- The measure also has no civil-law effect. In other words, the loan continues to exist and the notional regular advantage is not regarded as repayment of the loan.
- If a substantial interest holder redeems the excessive part of the loan at a later point in time, the reduction of the debts is taken into account as a negative notional regular benefit.
Unfortunately, despite extensive internet consultation, the Act does not take into account many of the bottlenecks identified and put forward by fiscal experts.
Please note that it concerns a draft Act which may be amended.