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Minimum Salary for Managing Partners

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Usual salary for Managing Partners (DGA salary)

To whom does the usual-salary scheme for Managing Partners apply? And how is the level of the usual wages determined? And when can the level of the usual wages be lower than the minimum amounts? And what about if someone works for several companies? The answers to these questions are central to this theme.

Dutch tax regulations state that a managing-director/shareholder (DGA, meaning a shareholder owning at least 5% of the shares, who also acts as an employee/director of the company) must be paid a salary of at least € 46.000.

The customary wage scheme has existed since 1997 and aims to prevent a director-major shareholder (dga) from receiving such a low wage from his own company that he can make improper use of income-related schemes. The scheme applies to everyone who works for a body, usually a private limited company, in which he or his partner has a substantial interest. 

No own partner concept applies. Partner is the person who qualifies as a partner for income tax. For the question of when there is a substantial interest, reference is also made to income tax. A fictitious or a substantial interest taken into account also leads to the application of the customary salary scheme.

The Payroll Tax Act provides that the wages that the dga (substantial interest holder) must enjoy is at least set at the highest of:

  1. 75% of the wages from the most comparable employment relationship;

  2. the highest wages of the other employees of the BV or with the BV affiliated companies;

  3. € 46,000 (for the years 2017, 2018 and 2019, a standard amount of € 45,000 applied).

If the withholding agent makes it plausible that the higher of these three amounts is higher than 75% of the wages from the most comparable employment, the wages will be set at that amount, with a minimum of € 46,000. If 100% of the wage from the most comparable employment is less than € 46,000, the customary wage will be set at the wages from the most comparable employment. The withholding agent must make this plausible.

When determining the amount of the usual wages, the highest wages of an employee who is employed by the body or an associated body also play a role. That employee can be an employee without a substantial interest in the company, but this is not necessary.

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Can the minimum salary for managing partners be avoided?

Yes! Especially by global entrepreneurs.

The Dutch tax authorities introduced this minimum salary requirement so that a Dutch B.V. can’t pay dividends to its DGA before at least € 45.000 of salary is paid to him, the Dutch B.V. can pay dividends to others.

In The Netherlands dividends are taxed at a lower rate than salary. Without this legal threshold, shareholders might not take any salary at all. All profits would be distributed as a dividend to the DGA(at a lower tax rate).

To be clear;  it is not obligated to pay the DGA a salary of € 45.000 or more!

A lower wage can occur, for example, with:

  • passive companies (if a company invests exclusively capital, there is even a chance that the customary salary scheme will not apply at all because the customary salary is less than € 5,000);

  • part-time functions;

  • an employment relationship that only existed for part of the year;

  • persistently loss-making companies.

The argument that a company is in the start-up phase can also be an argument for lower wages.

If the inspector finds that the usual wages are too low, he will have to demonstrate that 75% of the most comparable employment is higher. The inspector must then provide the withholding agent with the criteria by which he has determined that the employment relationship he uses is the most comparable.

The efficiency margin of 25% only applies if the salary exceeds € 46,000 and is intended to prevent proceedings about relatively minor differences compared to the salary from the most comparable employment. In practice, it is usually agreed in advance with the tax authorities how high the usual wage should be in a specific situation.


Important issues

  • Someone who performs work for the body in which he or his partner has a substantial interest must always receive a customary wage.

  • When determining the usual wage, 75% of the wage from the most comparable employment relationship, the wage of the highest-earning employee and € 46,000 must be considered.

  • A reduced usual wage applies to innovative start-ups. The statutory minimum wage may be used under certain conditions.

When your company needs its liquidity to grow you can’t:

1. As we mentioned above the € 46.000 is a threshold to avoid all liquid assets are distributed as dividend. So don’t distribute dividend to the DGA before at least € 45.000 is paid as salary.

2. Don’t build up a significant current account with the Dutch B.V, this implies there are enough liquid assets in the Dutch B.V. The Dutch tax authorities will regard the amount of the current account as salary, on which taxes are due.

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The minimum DGA salary is a threshold, it differs from company to company what has to be paid. No dividend can be distributed before at least € 46.000 is paid as salary to the DGA. We can help with the negotiations with the Dutch tax authorities, the employment contract and all other necessary contracts regarding these issues (for example management contracts and current account contracts).

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