Daft extension
Although obtaining the DAFT permit has become quite straightforward nowadays, our office regularly encounters clients facing challenges when renewing it. These challenges often do not arise because the renewal requirements are particularly stringent but rather due to a lack of clarity about what is specifically required for a renewal.
For the renewal of the DAFT permit, the Immigration and Naturalization Service (IND) imposes two requirements:
- There must be business activity.
- The equity of the enterprise must have been maintained at a minimum of €4,500 throughout the validity period of the residence permit.
Defining Equity
To start, here is a definition of equity from the Dutch Chamber of Commerce website:
“Equity is assets (active items) minus liabilities (passive items).”
While there may be more complex definitions in the accounting world, this straightforward explanation suffices for this topic. Unfortunately, the common oversight is failing to account for the company’s liabilities as well as certain (sometimes not immediately obvious) financial items.
Many of our clients are diligent about avoiding debt to ensure their equity is not impacted by external liabilities. However, there are financial items on the balance sheet that, while not categorized as loans, can still detract from overall equity. To clarify, here are a few examples for better understanding:
Sole Proprietorship:
- Private Withdrawals: When private withdrawals exceed the amount of realized profit, the excess amount is deducted from the company’s equity.
- Tax or Insurance Liabilities (Unpaid): At year-end, there may be unpaid liabilities, such as VAT or certain insurance premiums (e.g., liability insurance). These unpaid obligations reduce the company’s equity.
- Depreciation: Assets owned by the business (e.g., a €2,500 laptop) initially contribute positively to equity. However, annual depreciation (e.g., €500 per year) is deducted from equity over time.
Private Limited Company (BV)
For a BV, similar principles apply, albeit with variations in the terminology. For instance, private withdrawals in a BV are referred to as a current account, but the effect on equity remains the same.
Note that personal deposits into a BV can be recorded in two ways:
- Share Premium Reserve: This is part of the equity and poses no issues.
- Personal Loan to the BV: If recorded as a personal loan, it is treated as a liability and deducted from the equity.
Entrepreneurs with a holding company and operating company structure, or those owning multiple BVs, face an additional consideration. The IND evaluates the total equity of all affiliated companies. For instance, if the operating company has €5,000 in positive equity while the holding company has €10,000 in negative equity (e.g., due to a personal loan), the IND calculates a combined negative equity of €5,000.
Communication with Your Accountant
Our experience shows that clear communication with your accountant is essential. Many accountants are understandably unaware of the nuanced requirements of the DAFT. Decisions necessary for compliance with the DAFT may seem counterintuitive from a purely accounting perspective. Often, financial entries or classifications can be adjusted to avoid negatively affecting the company’s equity. It’s advisable to engage your accountant in these discussions to ensure accurate and strategic financial management.
Questions?
If you have any questions or need further assistance, feel free to contact us at info@arslanlitadvocaten.nl or call us at +31 (0)20 223 2466.
