Bolder Launch is an expert at structuring your corporate structure and deciding if your Dutch operations will request a Dutch holding company, or not.
When you start a company in The Netherlands, you might hear of the suggestion to start a local holding entity as well. In fact, Dutch notaries have the saying: ‘one BV, is no BV’. Meaning, that notaries always advise combining your operational entity, with a holding entity. Setting up a local holding company in The Netherlands can be particularly interesting for global entrepreneurs that are resident outside The Netherlands themselves, or have an overseas headquarter.
Sooner or later, 85% of the entrepreneurs who set up a Dutch BV also set up a holding company. The reason is that there are many advantages to using a holding company, as a corporate shareholder of your operational company. The flexibility, protection and tax benefits make a holding company an interesting tool.
What is a holding company?
A holding company is really just a BV (Private Limited Company). The holding company is simply the parent company within a group. This means that the holding usually holds 100% of the shares in the subsidiary; the operating company. There can also be multiple subsidiaries. The unique aspect of a holding company is that no activities take place (at all!). All activities take place in the subsidiary.
What are the benefits?
One of these reasons is to exclude personal liability for debts of the BV. The BV is therefore usually only liable for these debts itself. But often that is little comfort. If the BV has valuable assets on its balance sheet, you can imagine that bankruptcy can hurt, despite the fact that your private assets spring from the dance. Do you think that is part of doing business and taking risks? Wrong! You can arrange it even better for yourself. You can place your valuable assets (including A business property, patents, software, surplus liquid assets) in a separate holding entity, which will be protected if any claim is made against your operational company. Creditors are not able to make any claims against the holding company, since they did not deal with this holding company.
This issue also applies when you register a branch of an overseas company in The Netherlands. Since a branch is technically an extension of your overseas legal entity, any Dutch claims (creditors) could also be made against the overseas entity. This is why many entrepreneurs decide to register a separate legal entity.
The participation exemption prevents profit, which has previously been taxed at the subsidiary, from being taxed at the parent company again. This concerns, for example, the profit that arises when the mother sells the shares in the subsidiary, or the dividend that the parent company receives from the subsidiary.
- You have a BV (operating company) without Holding.
- You sell this BV.
In this scenario, the profit from the sale of your company would be considered taxable income (in the shareholder’s country of residence) and you probably pay 25% income tax on these capital gains/dividends. (in fact, if you are not resident in The Netherlands, a withholding tax of 15% would apply on the payout (which could be reduced based on an EU or Tax Treaty).
The result: you immediately lose a fairly large part of the income from your company.
- You have a holding company.
- This holding company owns the shares of the operating company BV.
In this scenario, the capital gains of the sale of your shares will be received by your Dutch holding company. A holding company does not pay tax on this.
A holding company is in most cases exempt from tax on the realized profit when the shares in the operating company are sold. Result: you can continue to do business with the money in your holding company or use the amount in a tax-favourable way for your retirement provision. This is particularly interesting if you are planning to re-invest in the Dutch or European market, and you don’t which to pay any corporate taxes, before being allowed to do so.
So if you are planning to sell your stakes after a few years of doing business in a company for € 1 million, you have to make sure that you do that from a holding company. This way you do not pay any tax on that purchase price and you can use it to further invest and do business from your holding company. If you do not do this, and if you receive the purchase price in private, you must immediately pay income tax on it (25% if your interest is 5% or more). It is therefore very fiscally advantageous to use a holding company. However, please note that this arrangement only applies if the parent company holds at least 5% of the shares in the operating company.