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Stamrecht BV Set-Up for a Severance Payment to Save Income Tax

195Setting up a stamrecht bv when you receive a severance payment in The Netherlands is meant to postpone and ultimately save income tax. Setting up a stamrecht bv can be complicated when you do not have the necessary knowledge of the pertinent tax and company law.

A stamrecht bv (“annuity company”) is a limited company (“besloten vennootschap” or “bv”) constituted according to Dutch law which has an annuity agreement with the former employee / owner. The company receives the severance payment and promises to make periodical payments in the future. Due to the progressive tax brackets, postponing income tax on a redundancy payment can lead to lower income tax when the severance payment is paid out at times when your income is lower. Since the cost of setting up a stamrecht-bv is fixed, it depends to a large extent on the amount of your severance payment if it is worthwhile to do so.

For setting up a stamrecht bv as a minimum you need the service of a public notary. The assistance of a specialised tax lawyer is recommended. Furthermore there is a large army of more and lesser competent advisors who offer an all-in service to set up a stamrecht bv. Apart from the set-up costs you will have annual expenses for the company register, bank expenses and expenses of an accountant if you cannot or do not want to do the administration of the company.

Now let’s have a closer look at when you would want to set up a stamrecht bv. First the tax savings. Let us assume that you receive a severance payment of 50,000 euro. At the current highest Dutch income tax bracket of 52% the tax saving of receiving periodical payments in times when your income is taxed at the second highest scale of 42% is 10% or 5,000 euro. This savings can be higher when your income at the time of receiving the payments is very low or when you emigrate to a country with a low income tax level.

In addition a stamrecht bv gives you more flexibility than other solutions. You decide where you invest your severance payment in, be it in savings, bonds, stocks, a loan or mortgage to yourself or using the money to set up your own business. And you also decide when you start paying out the annuity, when you stop them again or when you would want to change them.

There are a few upcoming changes in legislation which affect the stamrecht bv. First there is the abolishment of the background check of the owner and the approval from the ministry of justice on July 1, 2011 followed by the abolishment of the minimum capital requirement of 18.000 euro as per January 1, 2012. This will make the constitution of a company in general easier and less expensive (the charges of the ministry of finance are around 100 euro). Another change in legislation which is being discussed for years now but still highly uncertain is the introduction of a flat rate tax system. If this would result in a flat rate of about 35%, setting up a stamrecht bv would be highly attractive when the annuity payments would be received at the time this rate would be effective. On the other hand, the introduction of a flat rate system would probably the end of the stamrecht arrangement as there would be no need to defer taxes.

Now the cost side. The cost of an all-in service package for the set-up of a stamrecht bv ranges from under 1,000 euro to well over 3,000 euro. It will be clear that with the latter fee more than half of the tax savings will be wiped out immediately. So as a general rule a stamrecht bv only makes sense with severance payments of over 50,000 euros or higher when you take an expensive advisor.

Unfortunately the more expensive providers do not necessarily employ more competent advisors. They might just have a more luxurious office and spend a lot on marketing. Also take into account that with the crisis of 2008, this sector has been booming and providers multiplied in recent years.

As to the recurring, annual costs, reckon with at least 100 euro for bank and commercial register (the commercial register has a reduced rate for stamrecht companies) and an additional 400 euros if you want to outsource the administration. If you have a lot of activity in your company e.g. because of an active investment portfolio or entrepreneurial activities, the cost of administration can be considerably higher.