Liabilities (vreemd vermogen)

What does vreemd vermogen mean?

Vreemd vermogen (liabilities, or debt capital) is financing by creditors and comprises current and non-current liabilities. It is the counterpart of financing by owners.

A loan can be partly current if it is repayable within a year. Provisions have their own statutory classification and are not simply an ordinary loan.

How does it work?

Vreemd vermogen is what appears on the liabilities side next to equity. In the layout of art. 2:364(4) DCC these are the provisions, the liabilities and the accruals and deferred income. Liabilities are owed to another party; provisions partly cover uncertain obligations and partly own expenditure that is spread over several years (art. 2:374(1) DCC). The liabilities are shown by type (art. 2:375(1) DCC).

For each group you state which amount has a remaining term of more than one year, with the interest rate, and for the total what runs for longer than five years (art. 2:375(2) DCC). Security is stated (paragraph 3), as is subordination (paragraph 4) and the repayment in the following financial year on long-term loans (paragraph 6).

Example

A BV has a mortgage loan of € 80.000 with € 15.000 repayment per year, € 22.000 accounts payable, € 9.000 VAT and payroll tax payable and a warranty provision of € 6.000. Vreemd vermogen: 80.000 + 22.000 + 9.000 + 6.000 = € 117.000. Current: the repayment of € 15.000 plus 22.000 + 9.000 = € 46.000. Non-current: 80.000 − 15.000 = € 65.000, of which after five years 80.000 − 5 × 15.000 = € 5.000 is still outstanding; that is the part running longer than five years.

In the annual accounts

Not a separate line item: the sum of provisions, liabilities and accruals and deferred income on the liabilities side of the balance sheet. The detail of the liabilities differs per size class.

Difference from equity

Debts must be settled regardless of the result, and on loans interest is added. Equity does not have to be repaid and shares in profit and loss. A subordinated loan from the DGA remains vreemd vermogen on the balance sheet.

Common mistakes

• Presenting all loans as non-current
• Adding provisions to loans without explanation

What to watch for

• Split each loan at the balance sheet date into the part repayable within twelve months and the rest; see repayment next year on the balance sheet.
• Check whether a bank overdraft is included under the liabilities.
• Micro entities show the liabilities as one line with the split into up to and longer than one year (art. 2:395a(4) DCC). Small entities state the total longer than one year and the security, without the interest rate (art. 2:396(3) DCC). Medium-sized and large entities give everything of art. 2:375.

Legal basis and source

art. 2:375 DCC

• Dutch Civil Code, Book 2, article 375 (in Dutch)

Read more