If you want to convert your sole trader business into a private limited company (ltd) via silent contribution, you can make use of a fiscal retrospective period. This means that the ltd takes over the profits and losses from an earlier point in time, as though it had already existed for longer. Useful, but there are conditions and points to be aware of that you need to understand thoroughly before making a decision.
What is the retrospective period with silent contribution?
When converting a sole trader business into a private limited company via silent contribution, you may apply fiscal retrospective effect under certain conditions. This means that the ltd is deemed to have already been active from an earlier point in time, typically 1 January of the current year. The profit you have already made during that period shifts fiscally to the ltd, so that you do not have to settle it as a sole trader under box 1.
This is a considerable advantage. Suppose you decide to make the switch halfway through the year: without retrospective effect, you would simply pay income tax as a sole trader on the first half of the year. With retrospective effect, that period is taken over by the ltd after all.
How long may the retrospective period be?
The Tax Authority applies a maximum retrospective period of nine months as its starting point. This means that the date of contribution may in principle be no more than nine months after the desired opening balance date. In practice, this means you must have arranged the notarial deed and other formalities well before the end of the year if you wish to backdate to 1 January.
Should that deadline be exceeded, the right to retrospective effect lapses and you must account for the profit over the intervening period as a private sole trader in the normal way. Acting in good time is therefore crucial.
What are the fiscal consequences during the retrospective period?
From a fiscal perspective, the period between the desired start date and the date of the notarial deed is treated as though the ltd already existed. This has a number of concrete consequences:
- The profit you made during that period falls under the corporation tax of the ltd and not under your income tax as a sole trader.
- Costs, turnover, and results are attributed to the ltd, even though it did not yet exist in a legal sense.
- You as the business owner remain personally liable for what occurred during the intervening period, until the ltd has been formally incorporated.
- The opening balance sheet of the ltd is drawn up as at the desired start date, not as at the date of incorporation.
It is advisable to keep your administration accurate from the desired start date onwards, so that no dispute arises later with the Tax Authority regarding which income and costs may be attributed to the ltd.
Plan een vrijblijvend gesprek en ontdek wat we voor je kunnen betekenen.
Plan een gesprekThe letter of intent and the application to the Tax Authority
In order to make use of the retrospective effect, you must submit a formal application to the Tax Authority. This application is accompanied by a letter of intent, in which you state that you wish to contribute the sole trader business into a yet-to-be-incorporated ltd. On this basis, the Tax Authority issues a ruling, following which the retrospective effect is formally established.
Please note: approval is not automatic. The Tax Authority assesses whether you meet all the conditions for silent contribution. These include the requirement that the business is genuinely continued and that there are no special circumstances standing in the way of the retrospective effect.
Practical tips for a smooth retrospective contribution
If you want to make the most of the retrospective period, bear the following in mind:
- Submit your application to the Tax Authority in good time, preferably early in the year if you want retrospective effect from 1 January.
- Ensure your administration is watertight from the desired start date.
- Check that all assets and liabilities you wish to contribute are correctly valued on the opening balance sheet.
- Consult a tax adviser regarding which assets and liabilities you are transferring to the ltd.
- Do not forget that during the retrospective period you remain personally liable for business obligations.
- Plan the notarial incorporation of the ltd well within the nine-month deadline.
What if you also have staff or expatriate employees?
Do you have people in employment or do you work with foreign employees? If so, there are additional points to consider regarding employment law and international tax rules when converting. For expats working in Eindhoven or the surrounding region, there is also specific tax advice for expats available, which takes into account arrangements such as the 30% ruling.
Why Belastingadviseur Eindhoven
The fiscal retrospective effect with silent contribution offers excellent opportunities, but also requires precise timing and proper preparation. A small misstep in the procedure can result in losing the retrospective effect and unexpectedly having to pay tax over the intervening period.
At Belastingadviseur Eindhoven, we understand that decisions of this kind have a significant impact on your business and financial situation. We help entrepreneurs in Eindhoven and the Brabant region to work through this process step by step: from the letter of intent to the opening balance sheet and the eventual incorporation of the ltd. Would you like to know what the best approach is for your situation? Feel free to contact us without obligation. We are happy to think things through with you.
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.
