Ending your business and the fiscal retirement reserve

The fiscal retirement reserve (fiscale oudedagsreserve, FOR) was a scheme for business owners under the income tax system. Each year, you could set aside a part of your profits for your retirement. You did not pay tax on this amount at the time. The FOR existed on paper: you did not actually have to set the money aside. However, you do need to do something with the reserve when you close your business. With a good plan, you can avoid paying unexpectedly high amounts of tax.

Make a plan before you stop

It depends on your situation which option will work best for you. Look at the bigger picture. Consider your age, your current and future income, your liquidity, and whether you need the money immediately. The FOR can be financially beneficial, but only if you take the right steps. So, discuss your plans with an accountant, financial adviser, or pension expert. 

What options do you have?

1. Convert the FOR into an annuity

With an annuity, you set money aside for later. You can choose between an accumulating annuity and a paying annuity. You can do this with a bank, insurer, or investment firm.

Accumulating annuity

With an accumulating annuity, you pay your FOR into a product that does not yet pay out. The money is locked in until you reach a certain age. You do not pay tax on the FOR now. The tax is deferred until later, for example, until you reach the state pension age (AOW). This is often a good option if you have not yet retired and do not need the money for the time being. In this way, you build up part of your pension and spread your tax liability over several years.

Paying annuity

With a paying annuity, you convert the amount into a product that pays out immediately or within a short period. You receive regular payments, for example monthly or quarterly. You pay tax on these payments. Once you receive your pension, your income is usually lower, so you pay less tax on the benefits. This option is often suitable if you are (almost) at state pension age when you stop working.

Available funds

For both options, you need liquidity. Liquidity means you have enough immediately available funds to make the payment. For instance, the balance in your bank account or savings that you can withdraw straight away. Have you invested your FOR in stock, machinery, or other fixed assets? Then you have assets, but no liquidity. In that case, you cannot pay into an annuity.

2. Settling directly with the Netherlands Tax Administration

You can also choose to do nothing. In that case, you will automatically settle with the Netherlands Tax Administration. The FOR will be counted in full as profit. This may put you in a higher tax bracket. This option is simple, but often less beneficial financially. But settling directly may be suitable if you lack liquidity or if you want to wind up the FOR without further obligations.

3. Making use of the business discontinuation relief

If you end your business, you may be able to claim the business discontinuation relief. This deduction reduces your profit and thus the tax on your FOR. The deduction applies once and has a maximum limit. The business discontinuation relief reduces your tax but does not eliminate it entirely. It is primarily a way to ease the tax burden, not to avoid it.