Premises on the balance sheet, danger or opportunity?
- Gé Sletterink
- 22 June 2023
- Edited 26 February 2024
- 3 min
- Managing and growing
If you need business premises (a building or property), you can buy or rent. When you buy a premises, this usually appears on the company's balance sheet. This has tax advantages. And you can use the surplus value as working capital for your business. But are you going to end your business? Then you run the risk of having to settle with the Netherlands Tax Administration over the increase in value of the property. Find out what to watch out for if your building is part of your business accounts.
Business or private
There are 2 ways to buy a business premises: privately or as a business. You decide this when you buy it and cannot simply change it later on. Keep in mind that you do not always have a free choice between business or private. The following rules apply to this labelling (giving your premises the correct tax label):
- A premises you buy as an investment and do not use yourself falls under your private assets.
- A premises that you use only for your business must be a business asset. The value of the property then appears on the balance sheet. It is then part of your business administration.
- Do you use the building for both private and business purposes? Then see if you can split it up structurally. This is the case if the private and business parts of the building have their own entrance and sanitary facilities (kitchen and toilet). You should then also split it up in your accounts. The value of the business premises is a business asset and appears on the company balance sheet. The value of the private part of the premises remains private. And is then part of your personal administration.
- Are you unable to split the premises structurally? And is it used for a mix of private and business purposes? Then you can choose whether the entire property remains private or appears on the balance sheet as a business asset.
Property on the balance sheet
Is your premises listed on your balance sheet? Then the costs of the property are business costs. Think of paid mortgage interest, maintenance and improvement costs, and depreciation costs. Depreciation rules (in Dutch) apply to the depreciation of business premises. Since 2024, you may depreciate up to the Valuation of Immovable Property Act value (WOZ waarde) of the property. With split premises, you only put the costs of the business part of the premises on the balance sheet.
Settlement when ending your business
Depreciation lowers the fiscal value of your business premises. This value is shown on the balance sheet. The actual value may be (much) higher. The difference is called ‘hidden reserve’ and cannot be found in the accounts. When you close down your business, the hidden reserve is part of the discontinuation profit (stakingswinst). You add that to your other income in the year of ending the business. You pay tax on this in box 1 of income tax.
You can postpone this taxation. To do this, you sometimes must take action a few years before ending your business. Contact your tax consultant or accountant for more information.
Settlement when selling a property
Do you sell a property that is on your company’s balance sheet and continue to operate? If your premises yield more than the value on the balance sheet, you will make a book profit. You add this book profit to your other income in the year of sale. You pay tax on this in box 1 of your income tax. Are you planning to buy another property for your business within 3 years? A reinvestment reserve (in Dutch) allows you to postpone taxation on the sales profit for income tax purposes.
Free up working capital
Have you owned a property for some time? If so, you are likely to have a sizable hidden reserve. In other words, money is tied up in bricks and mortar. When you sell the property, you free up working capital for your business. You have to pay tax on the book profit. You can possibly rent the premises back from the new owner (sale and leaseback) or find other (rental) premises. A rental property for your business does not appear on your balance sheet. The rental costs are business expenses for your business.
A private property
With a private property, you cannot deduct costs such as mortgage interest, maintenance, and improvements from tax. Nor can you write off the value. The Valuation of Immovable Property Act value (WOZ waarde) of the property counts for you as capital in box 3 of the income tax. Any increase in value on sale is untaxed. Any loss is not deductible.
Do you make the premises available to a company owned by yourself, your tax partner, a minor child of yours, or your tax partner? This is known as terbeschikkingstelling in Dutch. Then the rental income and any increase in value if you ever sell the property will fall into box 1 of income tax.
Do you have more investment properties that you actively manage yourself? Then the tax administration will see you as a professional landlord and tax your results in box 1 of income tax.
Options for a private limited company
Do you operate a bv (private limited company)? If you stop the activities of your business, the bv can continue to exist. There is then no settlement moment with the Tax Administration over any increase in value. When the business premises is sold, the sale proceeds of the premises count in the annual profit. On this, the bv pays corporate income tax. The bv can also form a reinvestment reserve that postpones taxation on the sale profit.
Ask for advice
Are you going to decide on your (new) premises? Get advice on your specific situation from your tax consultant or accountant. Then you will have insight into the financial consequences.