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By Taxperience on April 2025
The Excessive Borrowing Act – The Foreign Substantial Interest Holder
The Excessive Borrowing Act takes effect on January 1, 2023. This legislation aims to discourage excessive borrowing from one’s own private limited company (BV). To this end, the Excessive Borrowing from One's Own Company Act has been introduced. A substantial interest holder (SI-holder) who borrows more than €500,000 will face a deemed regular benefit.
When an SI-holder (someone who owns at least 5% of the shares in a BV in their personal capacity) has a debt exceeding €500,000 with their own company, the excess amount is considered a deemed regular benefit and is taxed in Box 2 at a rate of 26.9%. This measure may also affect foreign SI-holders. Foreign SI-holders may be subject to tax partly in the Netherlands and partly in their country of residence. Is this deemed regular benefit taxable under treaty situations? And what are the implications in cases of immigration or emigration?
The Regulation
With the Excessive Borrowing Act, the legislator sets limits on borrowing from one’s own BV. Once the SI-holder borrows more than €500,000, the excess is taxed in Box 2 as a deemed regular benefit. Loans for a primary residence are excluded. We also refer to our earlier newsletter dated July 19, 2021.
For amounts under €500,000, existing case law still applies. If (and insofar as) the tax inspector can demonstrate that a loan (under €500,000) from the company qualifies as a disguised dividend, that amount will be treated as a regular benefit in Box 2. The excessive borrowing measure applies not only to the SI-holder but also to their partner. The debt threshold of €500,000 applies jointly to the SI-holder and their partner. If related persons in the direct line (such as (grand)children or parents) have debts exceeding €500,000 (per person) with the company, the excess is attributed to the SI-holder. Loans used to finance a primary residence are also excluded for related persons.
Differences for the Foreign SI-Holder
Is the Netherlands entitled to levy tax in the case of a deemed regular benefit for foreign SI-holders? The State Secretary explicitly states that the proposed deemed regular benefit “cannot, under the current wording of the existing tax treaties, be enforced as such.” So even if a deemed regular benefit arises under the Excessive Borrowing Act, the Dutch Tax Authorities cannot collect the corresponding tax based on current treaties. However, if a tax treaty is amended, the Excessive Borrowing Act might be enforceable if both countries reach an agreement on this matter.
That said, if a protective (conserverende) assessment has previously been issued, then the tax can be collected, and the debt from the protective assessment will be reduced by the amount of tax collected relating to the regular benefit.
Immigration and Emigration
When a foreign SI-holder immigrates to the Netherlands, a “step-up” is applied for existing debts to their own BV. This means the €500,000 threshold is increased to match the amount of debt already outstanding at the time of immigration. This makes sense, as the Netherlands had no claim on undistributed retained earnings prior to immigration, and the step-up ensures it does not retroactively gain one. The risk here is that SI-holders may borrow significant sums from their BV just before immigrating and repay them immediately after immigration. Since repaying the loan does not count as a negative regular benefit, the maximum amount remains pegged to the pre-immigration borrowing. This seems to conflict with the intent and purpose of the law.
In the case of emigration, any previously recognized deemed regular benefit under the Excessive Borrowing Act may be deducted from the capital gain on the shares for which a protective assessment is imposed. This means that, unlike in domestic situations, this negative deemed regular benefit does not result in an immediate tax refund, even though the original deemed benefit was taxed immediately.
Do you have a large debt with your own company?
Please contact us. We’ll help you assess the best course of action.