“Your BV as a generous donor”
Currently, corporate tax, the tax that your BV must pay on its profits, has a scheme under which donations to charities can be deducted. This can be up to 50% of the profit with a maximum of € 100,000. These must then be ‘pure gifts’, or gifts without compensation. If there is, it is a matter of sponsorship or advertising. Such costs are and remain deductible for corporate tax. You can read more about these matters in my article “Your BV as a generous donor”.
Donate from the BV or privately?
Are you the sole shareholder and sole director of a BV? Then you probably have the option to donate from the BV or, possibly after a dividend payment, to donate from privately. A consideration here is that the tax benefit of a donation from the BV may be greater than with a donation from privately. In 2023, the benefit from a donation from the BV will be a minimum of 40.8% and a maximum of 45.8%. For a private donation, the rounded benefit is a maximum of 37%.
Maximum of the periodic donation to € 250,000
Large private donations are most often made through a periodic donation. Then the donations can be fully deducted from your income. You then commit to making multiple donations to the same charity over a longer period of time. Since this year, a maximum of € 250,000 per year applies (regardless of whether you are part of a tax partnership). The Cabinet saw donations above this amount as extremely high and considered it socially undesirable to reduce tax revenues.
This measure poses a problem for people who want to make a large donation from the BV. Sometimes someone wants to donate a company or part of it to charity. The proceeds from that company then directly benefit that charity. People in that company work for a good cause. A beautiful thought.
Donating a business
What is the problem that can arise in such a situation? An example:
A wealthy director-majority shareholder (dga) is the sole shareholder of a Holding BV. This BV is a shareholder of a BV with a business. The director or director is inspired by a good cause and wants to donate the BV and the company to that good cause. Suppose that BV is worth 5 million. The donation is then seen as a dividend payment from Holding BV to the director/majority shareholder. A rate of 26.9% applies in 2023 (box 2). Or a tax of rounded € 1,350,000. Should the money for this tax payment come from the BV? Then a dividend of rounded € 1,850,000 is required. Does the director want to make this extra expense, in addition to the donation from the company? Can the director and director make this additional expense?
Previously, the DGA could largely avoid the additional tax through a complicated structure with a periodic donation. This is no longer possible due to the cap of €250,000 per year.
Big givers take a step back
Will this situation lead to fewer large donations? The SBF has looked at this. The conclusion: “This first inventory shows that the demonstrable social damage is already many times greater than the potential yield of the measure in the form of additional tax revenue.”
According to the SBF, large donations are actually decreasing. And more than just the amount of the lower tax benefit. The uncertainty about the donation deduction also causes plans to be postponed. And big donors feel they are being portrayed as tax evaders and fraudsters.
The legislator’s answer
The 2024 Tax Plan contains a measure that gifts from a BV are no longer seen as profit distribution. In the example mentioned above, the DGA no longer has to pay the box 2 tax of 26.9% (2023 rate). That removes a blockage.
But part of the 2024 Tax Plan is also that the donation deduction for corporate tax will be abolished. That will not stop the CEO in the example, but perhaps smaller donations made from BVs? The government specifically cites the complexity of the gift scheme as a reason for its abolition. And the arrangement is certainly complicated. But doesn’t that apply to many more tax schemes?
Donate from the BV in 2024
In any case, if the Tax Plan is adopted, donating to charities from the BV will look fundamentally different from 2024. Large donors no longer have the blockade of the box 2 tax. And smaller donors will look to see if their donations can take on more of the character of sponsorship and advertising. Or they look at the income tax gift scheme for a private donation.
Note 1:
For convenience, I talk about ‘charities’. By this I mean a Public Benefit Organization, abbreviated ANBI. These are institutions that are recognized as charities by the Tax Authorities. It is therefore not only about whether you think an institution is doing good work, but also whether the institution complies with the regulations. You can check whether an institution is an ANBI on the Tax Authorities’ website. This institution will then not have to pay gift tax and will receive the entire amount that you donate or leave behind.
Note 2:
And for even more convenience, I talk about ‘the BV’, which stands for private company. By this I also mean other bodies or entities that are subject to corporate tax, such as the public limited company.