Is a gratuitous surety really a good idea?

A gratuitous guarantee may seem attractive for persuading a lender, but from a tax perspective, it is often not a good idea. If you, as a director-major shareholder (DGA) or interested party, provide a gratuitous guarantee for the debts of your BV, the Tax Authorities may deem that guarantee non-commercial . The consequence: if things go wrong and you are held liable, your loss is, in principle, not deductible. A written guarantee agreement with a commercial, risk-related fee is usually wiser than a gratuitous guarantee.

What exactly is a suretyship?

In a suretyship, a person—the surety—commits to a creditor to satisfy the debt of another if that other person fails to pay. In practice, banks or lenders often request this: the lender wants security against a loan. A suretyship is a frequently used example of this.

It is not easy to convince a random third party to act as guarantor for the debts of your BV — unless it concerns an interested party, such as the director-major shareholder himself. However, it is precisely then that a tax concern arises: a guarantee between a shareholder and his own company is viewed critically by the tax authorities.

Why a gratuitous guarantee can be non-business-like for tax purposes

The Tax and Customs Administration may classify a gratuitous guarantee as non-commercial . The reasoning behind this is that an independent third party would never provide a free guarantee for a company's credit. According to the Tax and Customs Administration, anyone who does so nonetheless is not acting as a commercial guarantor, but rather in their role as a shareholder (a so-called shareholder act).

The practical consequences are significant. With a business guarantee, any potential loss can, under certain conditions, be deducted as a negative result from other activities in Box 1. In the case of a non-business-related , that loss is in principle not deductible. You then bear the full risk, without a tax safety net.

The test: would an independent third party do this as well?

The core of the assessment is always the same question: would an independent third party have entered into this guarantee under the same conditions, for remuneration that is not profit-dependent? If such remuneration cannot be determined without the guarantor effectively running a shareholder risk, this points towards a non-arm's length guarantee. Therefore, constantly put yourself in the shoes of an independent third party if you wish to avoid a non-arm's length classification.

On whom does the burden of proof rest?

Important to know: it is the inspector who must demonstrate that the guarantee is non-arm's length. The Tax and Customs Administration must therefore substantiate that an independent third party would not have entered into the guarantee under the same conditions. The fact that a guarantee is gratuitous naturally makes this proof much easier for the tax authorities.

In case law, multiple circumstances often played a role simultaneously. Consider a private limited company (BV) with negative results and negative equity, a bank willing to finance only under far-reaching conditions, and the absence of a written agreement. Given such a combination, the conclusion is quickly reached that an independent third party would never have agreed—and that the guarantor was therefore acting as a shareholder. In those cases, the loss was not deductible as a negative result from other activities.

Always draw up a written guarantee agreement

The first lesson is clear: record the guarantee in writing. An independent third party rarely settles for a mere verbal agreement, and the absence of a written agreement works to your disadvantage as soon as the tax authorities dispute the arm's length nature.

A second important step is including a surety commission or other appropriate fee. This fee must align with the actual situation and the risk you face as guarantor:

• A healthy private limited company with positive equity and good results: a lower remuneration is generally well-justified, because the risk is more limited.
• Private limited company with weak figures or negative equity: the risk is greater, so a higher fee is appropriate given what an independent third party would negotiate.

Additionally, specify for which debts the guarantee applies, up to what maximum amount, for what term, and under what conditions you can be held liable. The more concrete and businesslike the agreements, the smaller the risk of them being classified as non-businesslike. We list the key considerations in our blog on drafting a guarantee agreement. A good guarantee accompanying a loan agreement addresses these points in a single document.

Is a suretyship always inadvisable, then?

No. If a lender pushes for a guarantee, that can actually be wise to secure the financing. It remains an economic assessment that you, as the interested party, make yourself. Just bear in mind that the tax authorities watch closely as soon as it concerns a guarantee between you and your own company.

The rule of thumb: do not agree to something “free of charge” where a business fee is appropriate. A well-considered guarantee not only protects your tax position but also forces you to think carefully in advance about the actual risk you are taking. Those who want to know more about collateral surrounding business financing can read on under our financing and collateral.

Frequently asked questions about the gratuitous surety

What does a non-commercial guarantee mean?

A guarantee is non-commercial if you have entered into it in your role as a shareholder and not as a business guarantor. This is particularly relevant if no non-profit-related remuneration can be determined for which an independent third party would have accepted the same guarantee. A gratuitous guarantee between a director-major shareholder and his own private limited company constitutes a key indication of this.

Is a loss on a guarantee deductible?

In the case of a business guarantee, a loss may be deductible under certain conditions as a negative result from other activities in Box 1. If the guarantee is deemed non-business-related, the loss is in principle not deductible. The precise tax consequences depend on your situation; always have this reviewed by a tax or legal specialist.

Who must prove that a guarantee is non-commercial?

The burden of proof lies with the Tax and Customs Administration. The inspector must demonstrate that an independent third party would not have entered into the guarantee under the same conditions. A written agreement with an arm's-length fee makes it more difficult for the tax authorities to prove that non-arm's-length nature.

What compensation is associated with a business guarantee?

There is no fixed rate. The fee (guarantee commission) must correspond to the risk: for a financially healthy BV, the fee may be lower; for weak figures, it may be higher. The decisive factor is what an independent third party would charge in comparable circumstances.

Do I need a written guarantee agreement?

Highly recommended. A written agreement sets out the terms, the maximum amount, the duration, and the remuneration. This reinforces the business character and prevents disputes with both the lender and the tax authorities.

Need help with your guarantee?

At MKB Juristen, we draft a written guarantee agreement for you that suits your company's financial situation. We include fees and clear agreements to avoid any commercial misclassification as much as possible, ensuring you face no surprises. Would you like to know if a (free) guarantee is advisable in your case? Schedule a no-obligation intake and we will be happy to discuss the options with you.