Golden Handshake

Under Dutch labour laws, if your employment is terminated by Cantonal court or settlement agreement between you and your (former) employer, there is a good chance that you will be granted a severance payment, or ‘Golden Handshake’. The employer pays the employee a golden handshake in settlement for earningsthat have been, or will be lost.

It is then up to you what you do with this sum. You have three options under Dutch law:
• You accept cash payment, and must immediately pay income tax;
• You use the money to purchase an annuity for your retirement; or
• You apply the money to establishing a (limited liability company with standing rights).

Whatever you decide, each option has tax consequences. Lex is specialised in arrangements for financial settlement of claims under employment law. We are pleased to advise you as to how to apply your golden handshake for the best fiscal result for your situation.

Cash payment, immediate taxation

You can have your golden handshake immediately credited to your checking account. This has 2 disadvantages:
• Your payment is taxed against the progressive income tax rate, with a maximum rate of 52%.
• Under capital gains tax law, you will pay 1.2% annually per person of the value of this capital.

Cash payment is a suitable option when you wish to be immediately able to spend all or some of the money, or when the sum is not substantial.

Purchase of an annuity

You can use your golden handshake to purchase an annuity from a life insurance provider or pension fund. This option is attractive if you wish to have the severance pay paid out periodically at some point in the future, for example for early retirement, or as a supplementary pension. Establish a ‘Stamrecht BV’ you can alternatively opt to establish a ‘Stamrecht BV’ – a limited company with standing rights to make periodic payments from a fiscal reserve fund for retirement. In this case, your former employer credits the golden handshake directly to the bank account of your BV (limited company). At some point in time, you will be paid an ‘annuity’ by the company you own.

As a rule, establishing a ‘Stamrecht BV’ gives you more flexibility than the annuity purchased from an insurance company or pension fund. The ‘Stamrecht BV’ is financially attractive for severance packages upwards of about 50,000. However, it all depends on your personal situation.
• You have exclusive say as to how the capital is applied. This is not the case when you deposit the golden handshake with an insurance company.
• The ‘Stamrecht BV’ entails using the severance package to set up your own privately-owned company. This enables you to create an investment portfolio that is entirely under your own control, as managing director and sole shareholder.
• You may decide to loan money to private individuals from your ‘Stamrecht BV’. For example, to finance purchase or improvement of a house.

The advantage of the ‘Stamrecht BV’ is that in principle, you are not liable to a tax claim from the Dutch tax authorities. The entire gross sum of your severance package can be used to earn more money. New regulations have been in force since 1 January 2006. These regulations stipulate that in certain cases, 26% tax is charged on the severance pay deposited to the ‘Stamrecht BV’.

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