Liquidation reserve reformed: get your money faster, but at a higher rates
June 2025 - SME entrepreneurs who set aside tax-advantaged money in a liquidation reserve through their company face an important choice. From 1 July 2025, a new regulation will come into force that allows them to distribute these reserves faster, but at a slightly higher tax burden.
Get your money faster via the liquidation reserve
Since 2014, SME companies can annually reserve part of their profits in a so-called liquidation reserve. This is a kind of savings pot that allows you to pay yourself a dividend later on in a tax-efficient way. You will pay an additional 10 per cent corporate tax when setting up that reserve, but in return you will enjoy a reduced withholding tax upon distribution. If you wait until your company is liquidated or discontinued, no withholding tax will even be due at all.
Until now, there was a five-year waiting period: those who distributed their liquidation reserve after that period paid only 5 per cent withholding tax. That resulted in a total tax burden of 13.64 per cent. For early distribution within those five years, the rate rose to 20 per cent.
What will change from 1 July 2025?
In implementation of the federal coalition agreement, the rules for the liquidation reserve and the so-called VVPR bis regime (another favourable tax regime for dividends) will be harmonised. Specifically, the waiting period for both systems will be shortened to three years. This means that from 1 July 2025, you can distribute liquidation reserves after only three years instead of five.
But there is a downside: the withholding tax will rise from 5 to 6.5 per cent. That brings the total tax burden to 15 per cent - the same rate as under the VVPR bis system.
Option for existing reserves
The reform does not only apply to newly created liquidation reserves. Existing reserves are also eligible for accelerated distribution, provided they are at least three years old on 1 July 2025. You will then be given a choice:
Either stick with the old system and wait five years, paying 5 per cent withholding tax.
Or you opt for the new system and pay out at 6.5 per cent after only three years.
An example: your company established a liquidation reserve in 2020. From 1 July 2025, these are three years old and you may therefore distribute them at 6.5 per cent. But if you wait another six months until 1 January 2026 - when the five-year period is full - you will pay only 5 per cent. A difference of 1.36 per cent tax, which can be significant on larger amounts.
Calculation example
Your company created a €10,000 reserve in 2019. On creation, your company paid 10 per cent tax (1,000 euros). Upon distribution after five years, you pay 5 per cent withholding tax on the gross amount of 10,000 euros (500 euros). You will then be left with 9,500 euros, while it has cost your company a total of 11,000 euros. The total tax burden: 13.64 per cent.
With a distribution after three years at 6.5 per cent, you are left with a net €9,350. The tax burden then rises to 15 per cent.
Does distributing faster make sense then?
The answer depends on your specific situation. If you need the money urgently, then the new scheme is interesting: you can get your money faster, and the rate remains more favourable than the ordinary dividend tax rate of 30 per cent. However, if you do not need the money immediately, it pays to wait until the five years have expired. This will save you 1.36 per cent tax.
An additional note: you must always distribute the oldest liquidation reserve first. So you cannot choose to distribute the one from 2021 earlier than the one from 2020, if the latter has not yet been paid out.
Conditions for dividend distribution after 1 July 2025
If you want to distribute a liquidation reserve from 1 July 2025 under the new system, an additional general meeting is required. The ordinary annual general meeting usually takes place before 30 June. So you may not declare the dividend for an accelerated distribution at that meeting, as the old - and higher - 20 per cent rate will apply, even if the payment is made after 1 July. This is because the date of allotment determines the rate.
New regime for future reserves
For liquidation reserves created from 1 January 2026, only the new regime applies: a three-year waiting period and a withholding tax of 6.5 per cent. The old regime with a five-year wait and 5 per cent tax will then disappear completely.
Conclusion: check with your accountant
The liquidation reserve reform offers you more flexibility as an SME entrepreneur, but also requires strategic thinking. If you want to get money out of your company faster, the new regime from July 2025 offers a more attractive alternative than before. But those who have a little more patience will be able to make tax-advantaged distributions.
