Closing a BV or, more specifically, liquidating a BV is part of the life of a business. A BV may be closed down due to the Expat emigrating to another country or the BV simply ceasing business operations. Simply stopping business operations is insufficient, as the BV will remain. A dormant BV will continue to generate costs as annual financial statements, VAT returns, and corporate income tax returns must be filed even with zero income. It may be worth it if the decision is made to resume operation in the near future. However, it may be worth it to close down the BV.
To start the liquidation process, an overview of existing assets and liabilities must be made. Closing a BV is impossible if liabilities to third parties exist. The liabilities must be repaid or may be waived if these liabilities are owed to the shareholder(s) and if the BV cannot pay those shareholders. It will depend on facts and circumstances if waiving a loan is a possibility, and it may have tax consequences. i.e., taxed or exempted from tax for the BV.
Any liabilities owed by the shareholder(s) to the BV may be repaid to the BV or may be converted into a dividend payment, thereby reducing any shareholder receivables to nil on the balance sheet.
Any capital gains on assets will be taxed for corporate tax purposes upon liquidation of the BV.
Any remaining cash in the bank account must be distributed to its shareholder(s) as liquidation payment. The distribution is subject to a dividend tax of 15% and an income tax of 26,9%. Please note that the dividend tax paid may be credited against the income tax paid. If the shareholder is another BV, no dividend or corporate tax is payable, provided the corporation owns at least 5% of the shares.
A shareholder resolution must be prepared to state that the shareholders will liquidate the BV. The resolution must state the amounts paid out to shareholders (if any). The shareholder resolutions must be sent to the Kvk together with the deregistration form listing information on the liquidation of the BV.
The above briefly describes the core issues of liquidating a BV. Apart from the tax rate, calculating the taxable liquidation income is an important aspect. In general, the difference between the purchase price of the shares (i.e., initial and subsequent capital contributions) and the liquidation payment per share is used to calculate the taxable amount. Discussion may occur about what constitutes a capital contribution, as higher capital contributions lower the taxable liquidation payment.
Liquidation of a BV when transferring residency abroad
A transfer of residency of the shareholder will trigger a protective tax assessment on the shares held in the BV. The transfer of residency is classified as a transfer of shares by fiction which is a taxable event. The accrued capital gains are taxed at a rate of 26,9%, i.e., a tax assessment will be issued by the Dutch tax authorities on the accrued capital gains of the shares. However, the protective tax assessment will not have to be paid immediately.
An extension payment will be granted for an unlimited duration if you change residency to an EU country. The extension of payment will be cancelled as soon as the shares in the BV are sold or if the BV is liquidated. At that moment, the protective tax assessment will have to be paid. If you transfer residency to a country outside the EU, an extension of payment of the protective tax assessment must be requested. The tax authorities may request a pledge or security.
Tax treaties may interfere with Dutch taxation
However, tax treaties will ultimately decide if The Netherlands is allowed to enforce payment of the protective tax assessment. Depending on the tax treaty, either The Netherlands is allowed to collect any taxes related to the protective tax assessment upon selling the shares or liquidating the BV or the country of residency of the shareholder is allowed to tax the liquidation proceeds of the BV. This depends on the tax treaty and whether or not treaties contain specific clauses related to protective tax assessments.
If The Netherlands is allowed to tax liquidation proceeds, it will depend on the applicable tax treaty whether the dividend article in the tax treaty or the article on sale/transfer of shares is applicable. Tax treaties may affect the applicable tax rates on liquidation dividends. Although the income tax rate is officially 26,9%, tax treaties may lower the tax rate to maximum rates as stipulated in the treaty, i.e., 0%, 5%, 10% or 15% for non-residents.
However, those rates only apply if the liquidation proceeds are classified as dividends. In some treaties, the liquidation proceeds are classified as the sale/transfer of shares and, as such, taxed in the country of residency of the shareholder. Or the country of the BV if a clause related to protective tax assessment exists.
In conclusion, liquidating a BV and the subsequent taxation of liquidation proceeds takes time and needs to be planned well. The tax liability on the liquidation proceeds depends on calculating the taxable base and subsequent application of the tax treaty. Although tax treaties are similar, they are not identical, affecting tax liability when liquidating the BV or selling the BV shares.
ExpatTaxes would be happy to help you navigate these technical tax issues.