If you convert your sole trader business to a limited company (BV), you change from a sole trader into a director-shareholder (DGA). That may sound like a small step, but quite a lot changes from a legal and tax perspective. One question that frequently arises is: do I, as a director-shareholder, need to enter into an employment contract with my own limited company, and if so, what exactly are my obligations?
From sole trader to director-shareholder: a different position
As a sole trader, you are the business itself. You work at your own expense and risk, pay income tax, and have no employer. After the conversion of your sole trader business to a limited company, the situation changes. The BV is an independent legal entity, and you are employed by that BV — even though you are simultaneously its sole shareholder.
This dual role — employee and owner — makes the position of a director-shareholder unique. You formally have an employer (the BV), yet you determine policy yourself. This has consequences for the way in which you receive your income and which rules apply.
Is an employment contract mandatory as a director-shareholder?
Strictly speaking, you are not in every case legally required to enter into an employment contract. In practice, however, it is strongly advisable to record the employment relationship between you and your BV in writing. This provides clarity to HM Revenue & Customs (the Dutch Tax Authority), prevents disputes, and forms part of a clean, well-organised business operation.
Moreover, the Tax Authority expects you, as a director-shareholder, to receive what is known as a customary salary. This customary salary is a fiscal requirement and is separate from the question of whether you have a formal employment contract. Nevertheless, a written agreement helps to document the arrangements surrounding this salary clearly.
The customary salary: what does it entail?
The customary salary scheme stipulates that you must pay yourself at least a certain salary as a director-shareholder. In 2026, this amounts to at least the highest of the following figures:
- The salary that is customary for the most comparable employment;
- The highest salary of the other employees within your BV or associated companies;
- €56,000 per year (the statutory minimum for 2024 — please check the current figure for your year).
This customary salary must be processed through your BV’s payroll administration. Payroll taxes are payable on it, just as they are for an ordinary employee. A sound administration ensures that these are remitted correctly and on time.
What should a director-shareholder employment contract include?
An employment contract between you and your BV need not be complicated, but it must contain the essential points. These include:
- The agreed salary (aligned with the customary salary scheme);
- The number of hours you work for the BV;
- Any expense allowances or secondary employment conditions;
- Arrangements regarding holiday entitlement and holiday pay;
- A pension scheme, if you wish to include one;
- A non-compete clause or confidentiality clause, where applicable.
Bear in mind that the contract must be on commercial terms. The Tax Authority will assess whether the arrangements correspond to what an employer and an independent employee would agree. If you set your salary too low or disproportionately high, this may lead to corrections.
Plan een vrijblijvend gesprek en ontdek wat we voor je kunnen betekenen.
Plan een gesprekPayroll taxes and payroll administration as a director-shareholder
After the conversion, your BV is obliged to file payroll tax returns. This means that your BV must declare and remit wage tax and employee insurance contributions every month or every quarter. Please note: as a director-shareholder, you are in many cases exempt from the mandatory employee insurance schemes (unemployment benefit, sickness benefit, and incapacity benefit), because there is no traditional authority relationship in the conventional sense. This has consequences for your social security position, which is an important consideration in your broader financial planning.
A correct payroll administration is therefore indispensable. Errors in it can lead to additional assessments or penalties from the Tax Authority. An adviser specialising in tax advice can help you set this up properly.
Practical tips for the employment relationship as a director-shareholder
- Draw up the employment contract at the time the BV is incorporated, not retrospectively;
- Have the customary salary reviewed annually against the current standards of the Tax Authority;
- Always document special remuneration or bonuses in writing by means of a shareholders’ resolution;
- Ensure that your BV files its payroll tax returns on time to avoid penalties;
- Consider taking out income protection insurance, as the social security position of a director-shareholder is more limited than that of an ordinary employee.
Why Belastingadviseur Eindhoven
The transition from a sole trader business to a limited company brings with it more administrative and fiscal obligations than many business owners anticipate beforehand. The employment relationship as a director-shareholder is a prime example: it may appear straightforward, but the details surrounding the customary salary, payroll taxes, and social security require careful attention.
At Belastingadviseur Eindhoven, we assist business owners in Eindhoven and the Brabant region at every step of this process. From drafting the employment contract to managing the payroll administration — we take care of everything so that you can focus on running your business. Feel free to contact us without obligation and discover what we can do for you.
Frequently asked questions
Am I required as a director-shareholder to enter into an employment contract with my BV?
There is no strict statutory obligation, but in practice it is strongly advisable. A written employment contract provides clarity to the Tax Authority and sets out the arrangements regarding salary and terms of employment. Seek advice on this from a specialist who is familiar with your situation.
What is the customary salary and how much is it in 2026?
The customary salary is the minimum salary that the Tax Authority requires director-shareholders to pay themselves. It amounts to at least the highest of the salary for a comparable role, the highest salary within the BV, or the statutory minimum amount. Consult a tax adviser for the current figure and how it applies to your situation.
Is a director-shareholder entitled to unemployment benefit or other social security benefits?
In most cases, a director-shareholder is exempt from the mandatory employee insurance schemes such as unemployment and incapacity benefit, because no genuine authority relationship is recognised. This means that in the event of incapacity for work or unemployment, you cannot automatically claim these benefits. It is advisable to insure against this risk separately and to seek advice on the matter.
We are happy to think along with you. For advice tailored to your situation we would gladly sit down with you. No rights can be derived from the content of this page and it may contain inaccuracies.
