As an entrepreneur you have to deal with various types of liability. This article clarifies the various types of liability, as well as the fiscal risks you and your business are running. It also discusses precautionary measures which can limit the fiscal risks.
Directors' and officers' liability
Directors' and officers' liability applies in the first place to directors of businesses which:
- are engaged in commercial activities;
- are a legal entity;
- have full legal rights.
In practice it relates primarily to directors of public limited companies (NVs) and private companies with limited liability (BVs).
However, directors' and officers' liability also applies to directors of businesses of an entity without legal personality, or an entity with legal personality which does not have full legal rights. Examples of this are a general partnership (VOF) or a limited partnership (CV).
Directors or officers of associations and foundations which have full legal rights are also covered by this legislation. An association or foundation has full legal rights if it has been established by notarial deed.
If the director of a (subsidiary) company is another (parent) company, the directors of the latter company can also be held liable.
You may also be subject to directors' and officers' liability if you are a director of a foreign legal entity. This is the case if your business is an entity which is not established on the BES islands and you are the director of the permanent establishment on the BES islands, or of the permanent representative resident or established on the BES islands.
When are you liable?
All the directors referred to above can be held liable if their business cannot pay the due taxes and premiums* and it is plausible that this is the consequence of improper management for which they are to blame.
Directors are collectively responsible for the policy of the business. Every director can be held wholly liable if the taxes and premiums remain unpaid for reasons relating to policy.
Directors must actively report to the Belastingdienst that they are unable to fulfil their tax obligations. They can also be held liable if they are to blame for not having reported on time that the taxes and premiums cannot be paid.
* Wage tax, the premium payable on the grounds of the BES General Old-Age Insurance Act [Wet algemene ouderdomsverzekering BES], the premium payable on the grounds of the BES General Widows' and Orphans' Insurance Act [Wet algemene weduwen en wezenverzekering BES], the premium payable on the grounds of the BES Health Insurance Premium Decree [Besluit premie zorgverzekering BES], the premium payable on the grounds of the BES Health Insurance Act [Wet Ziektekostenverzekering BES], the premium payable on the grounds of the BES Accident Insurance Act [Wet Ongevallenverzekering BES], the premium payable on the grounds of the BES Cessantia Act [Cessantiawet BES] and the premium payable on the grounds of the BES Health Insurance Decree [Besluit Zorgverzekering BES], real estate tax, revenue tax, general expenditure tax, transfer tax, gambling tax and excise duties.
If you hire workers, you can be held liable for wage tax and social security contributions and when the party hiring out the workers does not pay these.
The aim of the recipients' liability regulations is to prevent parties hiring out abusing their position in conjunction with deducting wage tax and social security contributions. Hiring out applies if a party makes workers it employs available to another party, which is referred to as the hiring party.
The hiring party can be held liable for wage tax and social security contributions if these are not paid by the party hiring out the workers. Any party hiring on can also be held liable, in addition to the hiring party. This applies to the entire chain of contractors that have hired staff.
The hiring party and the party hiring on can limit the risk of their liability by, for example, asking the party hiring out to issue a declaration relating to payment performance and by fulfilling their administrative obligations. The hiring party can also limit the financial consequences of any liability claim by paying the portion of the invoice amount intended for wage tax and social security contributions directly to the Belastingdienst CN, stating a previously provided reference, or into a separate account.
The aim of the chain liability regulations is to prevent contractors and subcontractors abusing the process of subcontracting work in conjunction with deducting wage tax and social security contributions. Wage tax and social security contributions include wage tax, employee insurance (health, accident, Cessantia (ZV/OV/CES)) and general old-age pension/general widows' and orphans' insurance (AOV/AWW)) premiums.
The chain liability regulation means that a project contractor is liable for the wage tax and social security contributions which its subcontractor has to pay in connection with (an element of) the project. A subcontractor can, in turn, subcontract (an element of) the project that has been subcontracted to it to another party. This creates a chain of (sub)contractors who are all involved in implementing a project. The chain liability regulations make every link in the chain liable for all subsequent links.