A Dutch BV cannot simply transfer profits to its shareholders because the shareholders want a dividend.

When a Dutch BV want to start distributing dividends, the company needs to consider whether the distribution is legally possible and financially responsible. For foreign shareholders, this can be surprising. The Dutch BV may have positive retained earnings in the accounts, but that does not automatically mean that a dividend can be paid without further steps.

A dividend distribution from a Dutch BV normally requires attention to the shareholder decision, the available reserves, the board approval, the balance test and the distribution test.

This article explains the formal process for distributing dividends.

For the tax side of dividend payments to foreign shareholders, see our related article on Dutch dividend withholding tax, the exemption and anti-abuse rules.

Why distributing dividends requires a process

A Dutch BV is a separate legal entity. Its profits do not automatically belong to the shareholder as cash that can be withdrawn at will.

The general meeting of shareholders may decide how profits are allocated. The shareholders may decide to distribute profits, or they may decide not to distribute profits and instead add them to the company’s reserves. Business.gov.nl notes that a BV can distribute part of its profit to shareholders as dividend, but the dividend-paying company must also deal with dividend tax where relevant.

For a Dutch BV, the legal distribution process matters because creditors must be protected. A dividend should not leave the BV unable to pay its debts.

The shareholder resolution

Distributing dividends usually starts with a shareholder resolution.

The shareholders decide whether profits or reserves should be distributed. The articles of association may contain specific rules on profit allocation, distributions, reserves or approval requirements. A shareholders’ agreement may also contain relevant arrangements.

For a foreign-owned Dutch BV, the shareholder resolution is often prepared at group level. That is fine, but it should still match the Dutch legal process.

The file should normally show:

• which shareholder approved the distribution;
• the amount of the proposed distribution;
• whether the distribution comes from current-year profit or reserves;
• the date of the resolution;
• whether the articles of association allow the distribution;
• whether any statutory or article-based reserves must be maintained.

The shareholder decision alone is not enough. For a Dutch BV, the board approval is also important.

The balance test

The balance test is the first financial gate for distributing dividends.

In practical terms, the BV must check whether its equity exceeds the reserves that must be maintained under Dutch law or the articles of association. If the BV does not have freely distributable equity, the distribution should not be made.

For many straightforward BVs, the balance test may be simple. But it should still be considered.

Relevant questions include:

• What is the latest equity position?
• Are there statutory reserves?
• Do the articles of association require specific reserves?
• Are annual accounts available?
• Are there losses after the balance sheet date?
• Are intercompany balances recoverable?
• Are there tax liabilities or other obligations that affect the distributable position?

For foreign shareholders, the balance test should not be treated as a formality. The Dutch BV’s statutory accounting position may differ from the group reporting position. The group may see profit in a consolidation package, while the Dutch legal entity may have a different distributable reserve position.

The distribution test

The distribution test is the second gate for distributing dividends.

The board must assess whether the BV can continue to pay its debts after the distribution. Business.gov.nl describes this as a payment test or uitkeringstoets: the board assesses whether the BV will still be able to meet its financial obligations for approximately one year after the payment. If the company can do so, the board formally approves the withdrawal; if not, the board is not authorised to continue.

This is not only a balance sheet question. It is also a liquidity and solvency question.

The board should consider whether the BV can meet its debts as they fall due after the dividend has been paid.

Relevant points include:

• cash available after the distribution;
• expected VAT payments;
• corporate income tax liabilities;
• payroll obligations;
• supplier payments;
• bank covenants or financing arrangements;
• future operating costs;
• expected income;
• intercompany receivables and payables;
• known claims or contingent liabilities.

A BV may have positive equity but insufficient liquidity. That can make a proposed distribution unsafe.

Board approval

The board approval is central to the Dutch BV distributing dividends.

The board must decide whether it can approve the distribution after applying the distribution test. If the board knows, or should reasonably foresee, that the BV will be unable to continue paying its debts after the distribution, it should not approve the payment.

This matters because director liability may arise if a distribution is approved irresponsibly. Business.gov.nl warns that if the board allows the withdrawal even though it is not authorised to continue, directors can be held personally liable.

For foreign-owned Dutch BVs, this point is important. The directors of the Dutch entity should not approve a dividend simply because the foreign parent requests cash. The Dutch board must consider the Dutch company’s own position.

Documentation matters

The dividend file should be clear.

A good file will usually include:

• the latest financial information;
• the shareholder resolution;
• evidence of the balance test;
• evidence of the board’s distribution test;
• board approval;
• calculation of the dividend amount;
• dividend withholding tax analysis;
• dividend tax return or exemption documentation where relevant;
• payment evidence;
• accounting entries;
• correspondence with the shareholder.

This is not about creating unnecessary paperwork. It is about making the decision understandable later.

A dividend payment may later be reviewed in the context of annual accounts, tax compliance, a sale, liquidation or a creditor issue. The file should show why the distribution was considered acceptable at the time.

Relationship with annual accounts

Distributing dividends is closely connected to the Dutch annual accounts process.

The annual accounts may show whether profit or reserves are available. They may also show whether statutory reserves exist and whether prior-year results have been adopted. If the annual accounts position is not up to date, the dividend analysis may become harder.

For a foreign shareholder, this is a common practical issue. The group wants to extract cash from the Dutch BV, but the Dutch accounting file is not yet clean. Intercompany balances may be unclear, VAT balances may not reconcile, or annual accounts may still be outstanding.

In those situations, it is better to clean the position before paying the dividend.

Relationship with intercompany balances

Dividend distributions should also be considered alongside intercompany balances.

A foreign-owned Dutch BV may already have balances with group companies. Before paying a dividend, the company should understand:

• whether the parent company already owes money to the BV;
• whether the BV owes money to the parent company;
• whether balances are loans, current accounts, recharges or trade balances;
• whether interest or other charges are due;
• whether the dividend payment will be set off against an intercompany receivable or paid in cash.

A dividend should not be used to hide an unclear intercompany position. If the BV’s group balances are not understood, the distribution file will be weak.

Common mistakes

Common mistakes include:

• assuming positive cash means a dividend can be paid;
• assuming group profit equals Dutch distributable profit;
• forgetting statutory or article-based reserves;
• failing to document the board approval;
• treating the distribution test as a tick-box exercise;
• ignoring tax liabilities after the distribution;
• paying a dividend before the annual accounts position is clear;
• failing to analyse Dutch dividend withholding tax;
• recording the payment as a dividend without a proper shareholder resolution;
• using dividends to deal with unclear intercompany balances.

Most of these mistakes are avoidable if the Dutch BV has a controlled accounting and decision-making process.

Practical checklist for foreign shareholders

Before a Dutch BV distributes dividends to a foreign shareholder, check:

• Has the shareholder approved the distribution?
• Do the articles of association allow the distribution?
• Are there freely distributable reserves?
• Have statutory and article-based reserves been considered?
• Has the board performed the distribution test?
• Can the BV meet its debts after the distribution?
• Are VAT, corporate income tax and payroll obligations known?
• Are intercompany balances understood?
• Is the annual accounts position up to date?
• Has Dutch dividend withholding tax been analysed?
• Has the decision been documented?
• Has the payment been recorded correctly in the accounting records?

How Kanso Accounting helps

Kanso Accounting supports foreign-owned Dutch BVs and international finance teams with Dutch accounting, VAT compliance, annual accounts and filing support.

For dividend distributions, this can include:

• reviewing the accounting position before a proposed distribution;
• checking whether the annual accounts and reserves position are clear;
• identifying relevant VAT, corporate income tax and intercompany issues;
• preparing the accounting entries for the distribution;
• supporting the documentation of the distribution file;
• coordinating with tax advisers or legal advisers where needed;
• helping the foreign shareholder understand the Dutch process.

The objective is not to turn every dividend into a large project. The objective is to make sure the Dutch BV does not distribute cash without understanding the legal, accounting and tax position.

Practical takeaway

A dividend distribution from a Dutch BV is not just a payment instruction.

The shareholders may decide to distribute profits, but the BV must also consider whether the distribution is legally and financially possible. The balance test and the distribution test are central to that process.

For foreign shareholders, the key question is simple:

Can the Dutch BV support the dividend decision from its own Dutch accounting records and financial position?

If the answer is unclear, the distribution should be reviewed before the payment is made.