2018-09-18

Dutch company formation services | An extended first financial year

Extended financial year BV in Netherlands.jpgWhat is an “Accounting period” or “Financial year”?
An accounting period is the period over which the accounting books for a Dutch limited liability company (‘BV’), or any other type of legal entity, shall be prepared. Generally, the accounting period consists of 12 months. Under Dutch GAAP and IFRS it is also allowed to have a 52-53 week financial year, with periods of both 52 and 53 weeks as accounting period.

Most companies in the Netherlands choose to have the accounting period ending as per 31 December. Though also other end dates are possible. As a subsidiary of a foreign group it can be practical to have the financial year run parallel with the other group entities which are for example closing as per 31 March. In case of seasonal activities, it can also be convenient to have the financial year ending in a slow period.

What is a fiscal year?
In the Netherlands the accounting period is also used to determine the fiscal year, i.e. the applicable period for the corporate income tax and personal income tax.

What is an “Extended first financial year”?
At incorporation the end of the first financial year, the end of the financial year will be recorded in the final statements of the deed of incorporation. The accounting period shall be minimally one day and maximally up to 2 years minus one day. The end date from the deed of incorporation will be used by the Dutch tax authorities.

In case of liquidation, the last fiscal year may be extended for corporate income tax purposes by means of shareholders resolution before the end of the accounting period. Thus, avoiding the requirement to file a corporate income tax return for a short period.

What are the pro’s and cons of an extended financial year?
An extended financial year has the advantage that the accounting and tax expenses shall be reduced as the preparation of a financial report and corporate income tax return filing can be spared. The financial figures of an extended financial year are likely to be more positive as most starting companies initially only incur expenses and no income. Although it may not be the main reason, corporate income tax payment will also be deferred.

At incorporation of a new group company, difference in end date of financial years within a group may create difficulties when requesting a fiscal unity. This because the end of the financial year shall be equal for all participating companies. There will also be more uncertainty on the fiscal regime as the applicable tax rates may be amended during the financial year as rates for corporate income tax will always be applied over a full year.

RBron - 11:23:15 @ Accounting Services | Netherlands