BV holding structure
A Dutch private limited (BV) company can be structured in roughly two ways:
- A BV with a natural person or company as the shareholder.
- A BV holding structure consisting of a holding company that owns (part) of the shares in another bv, the operating BV.
The Dutch BV holding structure can save you money and provide a safer way to do business. A holding structure consists of at least two companies: the operating company where the business activity takes place and a personal holding company that holds shares in the operating company. From a legal perspective there is only one type of BV. ‘Holding BV’ and ‘Operating BV’ are no legal terms.
How does the setup of a simple holding structure work?
Two Dutch BV Companies are incorporated at the notary. The Operating BV company is used for the company’s operations. The other BV company is a personal holding company with, in most cases, very little activity. The business owner owns the shares of the Holding BV. The Holding BV owns the shares of the Operating BV. In case not one but two equal shareholders (A & B) starting up one ‘active’ company, the most common scenario is as follows: One operating BV with real business activity is incorporated at the notary. Above the operating company, two Holding BV’s are incorporated. Both holdings own 50% of the Working BV. Holding BV 1 is owned 100% by shareholder A, Holding BV 2 is owned 100% by shareholder B.
Why a Dutch BV holding structure?
There are two main reasons why entrepreneurs choose to structure their business as a Dutch holding structure: less tax and less risk. First, there can be tax advantages to a holding structure. The most important one is the participation exemption (in Dutch: deelnemingsvrijstelling). For example, profits made from the sale of the company that are transferred to your holding BV will not be subjected to profit tax. Secondly, you have less risk when you operate from a Dutch holding company structure. The holding company functions as an extra layer between you, personally, and the business’ activity. Your BV’s can be structured in such a way that it will protect the company’s equity. Your can build up pension provisions or profits that will be shielded from your business’ risks.
When is a Dutch BV holding structure suited for my company?
Most Dutch tax advisors will tell you that “one BV is no BV”. In most cases the setting up of a holding structure is more advantageous than a simple bv with the business owner as the personal shareholder. There are certain situations in which we would always recommend a holding structure. For example if you are operating in a more risky industry. A holding bv puts up an extra shield between you personally and the business’ activity. Another good reason to consider a holding structure is when there is a good chance that you will sell your company in the future. The profit you will make from selling your business can be transferred to your holding company tax free. This is called the ‘deelnemingsvrijstelling’ (see below).
Practical advantages of a Dutch holding structure
- You sell (a part of) your shares in the operating bv. The profit you make in this sale will be transferred to your holding bv. A holding bv is exempt from tax on a realized profit on the sale of shares in the operating company. You could use these resources in the holding bv to reinvest in a business or to provide a pension for your old age. If you have not set up a holding structure but you are personally holding shares in the operating company, you will have to pay corporate income tax on the profit.
- If your holding BV has a stake in multiple BV companies you do not have to pay out a salary from each of the stakes. This will save you in your income tax and administrative burden and fees.
- In case the holding bv has at least 95% of the shares of the operating bv, these bv companies can apply at the tax authorities to be considered a fiscal unit. This ensures that you can easily settle costs between both companies and thus gain an advantage in your tax return. The holding BV (parent company) and operating company (subsidiary) are then treated as a single taxpayer. So you will only have to do one tax filing for two bv companies.
- By placing profit reserves and shares (and for example: real estate, a company car or pensions savings) in a separate Holding BV, you protect losing your accumulated gains in case of bankruptcy of the operating company.
Deelnemingsvrijstelling (participation exemption)
Both the operating bv and the holding bv have to pay taxes on their income. However, no tax will be charged twice on the same profit. This is due to a measure called the participation exemption: dividends/profits from the operating company can be paid to the holding company without a dividend tax and corporate income tax charge. The most important condition for making use of this measure is that the holding company holds at least 5% of the shares in the operating company.
In a fiscal entity, the results of the subsidiary (s) are attributed to the parent company. The subsidiary does not cease to exist, not even for tax purposes, but is no longer independently obliged to submit a corporate income tax return. An advantage of a fiscal unity is that you can offset the losses of one company against the profits of another company that is included in the same fiscal unity.
In order to form a fiscal unity, the parent company must:
- own a minimum of 95% of the shares in the subsidiary
- be entitled to at least 95% of the profit and at least 95% of the assets of the subsidiary
- have at least 95% voting rights in the subsidiary
- be a BV, NV, mutual insurance company, cooperative, foundation, or association that acts as a housing corporation, or has a foreign legal form that is comparable
The subsidiary must:
- be a BV or NV, or have a similar foreign legal form
In addition, the parent and subsidiary must:
- use the same financial years and profit determination
- be actually located in the Netherlands
Legal contracts for the Dutch BV holding structure
The BV holding structure is one of the most common legal structures. Typically the structure consists of one or more holding BV's that hold the shares in one or more operating BV's. This has several advantages both from a tax and risk angle. There are a few contracts to make sure that everything runs smoothly in your Dutch holding structure.
The shares of a holding is owned by the owner who is usually a natural person. That holding in turn owns one or more operating BV entities. A holding structure with one owner (ultimate beneficiary owner or UBO) usually requires:
- a management contract between holding BV and operating BV,
- an employment contact between the director-major shareholder (usually the UBO) and the holding BV,
- a current-account agreement between the holding BV and the operating BV
- a current-account agreement between the holding BV and the director-major shareholder,
- optionally one or more employment contracts for employees in the operating BV.
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