Summer is just around the corner, and many entrepreneurs and director-shareholders (DGA’s) are planning their well-deserved holidays. While relaxation is important, it is crucial to be well-informed about the financial and tax implications of vacation periods. In this blog, we provide insights into the opportunities, possibilities, and pitfalls that a DGA may encounter.
Deductible expenses during vacation
A frequently asked question is which expenses are deductible during vacation. The tax authorities make a clear distinction between business and private expenses. If the trip has a business character, the costs can be deductible under certain conditions. Think of a business trip where meetings or conferences are central. However, combining a vacation with business activities can be complex.
Example and case law:
A DGA travels to Rome under the guise of a study trip, while he is actually on vacation. The tax authorities can assess this against the so-called “Cessna case” (ECLI:NL:HR:1983). In this case, it was determined that costs are only deductible if they have a business motive and are proportional to the business benefit. The tax authorities may marginally assess the height of the business expenses, and if personal satisfaction is the main focus, the costs are considered private.
Company Car
Using a company car during vacation can have tax consequences. Private use must take into account an additional tax liability. This applies if the car is used privately for more than 500 kilometers per year. Additionally, costs for private use, such as fuel and tolls, are not deductible.
Example and case law:
A DGA combines a business visit to a client in Austria with a skiing holiday with his family. The Arnhem-Leeuwarden Court ruled that these trips should be considered private trips (October 15, 2013, ECLI:NL:GHARL:2013:7935), and this judgment was upheld by the Supreme Court (June 6, 2014, ECLI:NL:HR:2014:1311). Only if a trip is purely business-related are the costs deductible
Workation: Working from a vacation address
A growing trend is the ‘workation,’ where work and vacation are combined. For a DGA, this can involve various fiscal and legal considerations. For instance, working long-term from abroad can raise questions about tax residency, social security, and the obligation to register with the municipality.
Example and points of attention:
A DGA decides to work from his holiday home in Spain for three months. He needs to consider:
- Tax residency: His tax residency may change if he stays abroad for an extended period.
- Social security: The rules of social security can change if he works abroad for a long time.
- Tax treaties: With long-term residence, the DGA may have to deal with rules from tax treaties that determine which country may levy tax on his income.
Renting out the private home during vacation
More and more DGAs choose to rent out their private homes, or part of them, during their absence. Platforms like AirBnB make this easy, but tax rules also apply here. Income from renting can be taxable as business profit or result from other activities. Additionally, the deemed rental value of the owner-occupied home can be increased by 70% of the rental income, depending on the circumstances.
Example and case law:
A DGA rents out his home via AirBnB during his vacation. According to the Amsterdam Court of Appeal (ECLI:NL:GHAMS:2024:1325) and the Den Bosch Court of Appeal (ECLI:NL:GHSHE:2016:4603), the rental income is taxable. If the home is largely used privately, it falls under the rules of box 3, whereby part of the rental income is included in the tax.
Reclaiming foreign VAT
Another interesting aspect for DGAs traveling abroad is the possibility of reclaiming paid foreign VAT. This can be done under certain conditions and within a specific timeframe. It is important to assess whether the costs and efforts for reimbursement are proportionate to the amount to be reclaimed.
Example and regulations:
A DGA travels to Germany for a business conference and incurs costs for which German VAT is paid. According to Dutch VAT law, he can reclaim this VAT, provided he does so before October 1 of the following year. It is essential to consider whether the administrative burden outweighs the amount to be reclaimed.
Holiday home and tax
Owning a holiday home, whether in the Netherlands or abroad, brings tax obligations. A holiday home usually falls under box 3, where actual or deemed returns are taxed. Recent case law has led to adjustments in the regulations, which can affect the tax burden.
Example and case law:
A holiday home in box 3 is taxed based on a deemed return. However, the Supreme Court ruled on June 6, 2024, that this system is contrary to the European Convention on Human Rights if the deemed return is higher than the actual return (ECLI:NL:HR:2024:857). This means that the actual return may be used, including unrealized capital gains.
Additionally, there are specific rules for holiday homes held in a BV. Here, rental income is taxable and costs are deductible, but there are also depreciation restrictions.
Conclusion
For a DGA, it is crucial to be well-informed about the fiscal and legal implications of vacation periods. Whether it concerns the deductibility of costs, the use of a company car, working from a holiday address, or renting out the private home, each situation has its own rules and pitfalls. By being aware of these, unnecessary costs and complications can be avoided, and the available opportunities can be optimally utilized.
Do you have questions about your specific situation? Our experts are ready to advise and support you, so you can enjoy your vacation with peace of mind.
