Booking salary payments to yourself
Recording the payment of salary to yourself can at times be confusion. In order to know how to book your paid salary, it is first important to determine the legal form of your company. Would your company be an Eenmanszaak or a VoF, then your paid salary will be considered a private withdrawal. Both the Eenmanszaak and the VoF are fiscally transparent when it comes to the company and the private person. Because of this fiscal transparency, it is not important for your financial records to track your private withdrawals. Although it can be recommended to keep an overview of your financial tools, for fiscal transparant companies it is not mandatory to record private withdrawals according to the Belastingdienst.
What is fiscal transparency?
Fiscal transparency between you as a private person and your company means that you as a private person have to pay joined taxes on the profit of your company, together with your own private income. When a company is not fiscally transparent, it will have to pay separate taxes on both the private person and the company.
When taxes are separated, you will need to pay corporate taxes over your company’s profit, and income tax on your private income.
Wages do not affect the business administration for most business owners
For a fiscally transparent business, it is not necessary to register your private withdrawals for the Belastingdienst. Therefore, the payment of salary does not need to be registered.
In the end, the reduction of your company’s profit when paying out your salary will increase your private income by the same amount. Since your private income and the profits of your company are added together for income tax calculations, it is not necessary to distinguish the two.
NB: This applies to all private expenses. Business bank accounts may be used for private expenses and vice versa. Accountability to the Belastingdienst in regard to private expenses is generally not necessary. The only time you may have to justify your expenses is when they become business expenses. Note that private expenses may not be recorded as business expenses. This is because business expenses reduce your profit and therefore reduce your income tax. Because of this, it is important to keep receipts, as they function as proof of your expenses. The basis of the administration of an Eenmanszaak is the receipts, not the bank account.
Keeping records of private expenses within a BV
A BV is a good example of a legal form that is not fiscally transparant. Companies that are not fiscally transparent are obliged to keep track of any form of private withdrawals. A BV pays corporate tax over its profit, not income tax. The corporation tax can be reduced by paying wages to the DGA (director and major shareholders) and other employees, which then reduces the company’s profit. Income tax will be paid on the wages of private individuals. Since income tax is generally higher than corporate tax, it is important to keep good records of what you, as a DGA, pay yourself in salary. Other private expenses not covered by salary will also need to be declared. Money withdrawn from a non-fiscally transparent company will always have to be taxed. For private withdrawals, this sometimes involves income tax and other times dividend tax.
NB: Since any private deposit or withdrawal must be accounted for by the Belastingdienst, it is advisable to set up a business bank account when working with a non-fiscally transparent company. With this business account, you will only carry out business transactions. Although the basis of financial administration in an Eenmanszaak or VoF is the receipt, the sole basis for a company such as a BV is based on the bank account. Nevertheless, keeping receipts is still important for a BV as well. After all, as a BV you have to be able to prove that it is a business transaction. Both receipts and bank transactions are important for a good financial administration.