InsightsDecember 23, 2018
Anticipating the reduction in corporate tax rates (VPB)
The current government has plans to lower the VPB (corporate income tax) rates. The VPB has two different rates: profits up to 200k are taxed at 20%. Profits over 200k are taxed at 25%.
In the next few years, these rates will gradually be reduced to 15% and 21.7% in 2021.
To compensate this, the rate in Box 2 (in which the profit distribution to the DGA or director and major shareholder is taxed) will be gradually increased to 26.9% in 2021. However, the total tax burden will become slightly lower. This is now 40% (20% VPB and 25% income tax). In 2021 this will be 37.87%, due to the adjusted rates.
How to respond as a DGA
As mentioned, the distribution of profits will be taxed more heavily in the next few years. If you have the reserves to do so, you can save tax if you pay out before 2020.
The tax on profits will be reduced. If you expect to make certain costs, it might be cheaper to make them now because of the higher VPB rate.