The Excessive Borrowing Act in 2023: What Now for Investors?

In the world of real estate investment, there are constant changes and new regulations that can impact your financial strategy. One recent development is the restriction on excessive borrowing from your private limited company (BV), which will take effect in 2023. This change can have significant consequences for entrepreneurs who borrow more than €700,000 from their BV. Let’s delve deeper into what this change entails and how it can affect your financial planning.

Tax on a Substantial Interest (Box 2)

Starting in 2023, the amount above €700,000 that you and your tax partner borrow from your BV will be taxed as income from a substantial interest (Box 2). This means you will have to pay tax on the excess borrowed money.

Debts and Receivables

When determining the loan amount, all debts to your BV are taken into account, with the exception of mortgage debt. It’s important to note that existing mortgage debt will be waived on December 31, 2022, provided there is a mortgage right in favor of the BV.

The debts of multiple BVs are added together, including those of your tax partner and related persons such as blood relatives or relatives in the direct line.

Threshold and Repayment

The threshold for a loan from your BV is set at €700,000. If you borrow more than this threshold in a given year, the surplus will be added to the threshold for that year the following year. Repaying part of the loan lowers the threshold by that amount, with a minimum of €700,000.

Example

Let’s use an example to make it more concrete. Your threshold in 2023 is €700,000, and on December 31, 2023, you have a loan of €800,000. In your 2023 income tax return, you declare €100,000 as income from a substantial interest. This trend will continue in subsequent years, with the surplus above the threshold being taxed.

Loan and Business Conditions

Despite the tax on the surplus, the loan remains in its entirety. This means that the private limited company (BV) must continue to charge interest on the entire loan, on which corporate tax is paid. Other business conditions, such as the interest rate, repayment, and the security provided, remain in effect.

It is important to note that the BV does not have to withhold dividend tax on the portion of the loan that is taxed as income from a substantial interest.

With the restriction on excessive borrowing by BVs from 2023 onward, entrepreneurs are facing new challenges and considerations in their financial strategy. It is essential to be well-informed about these changes and to adjust your financial planning if necessary. Consult a financial advisor to ensure you fully understand how these rules impact your specific situation and to make the best possible decisions for your investment properties and financing.

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