Every business owner should think about using a holding company structure in the Netherlands, regardless of how big or small their organisation is. A Dutch holding company has several benefits, not just for global corporations. A holding corporation is particularly alluring due to its flexibility, protection, and tax benefits. Have you also developed a desire to learn more? All advantages are covered below!
A Dutch holding company is just a regular BV. Simply put, the parent firm within a corporate group is the holding company. The holding company typically owns all of the subsidiary’s shares. It may also be comprised of more than one subsidiary, which is also known as an operating company. A holding firm is unique in that no activities are conducted, and everything is done in the subsidiary(ies).
So, what are the benefits of starting a Dutch holding company?
The advantages of changing from a sole proprietorship to a BV were previously established here. One of the reasons is to avoid personal liability for BV obligations. As a result, the BV is typically the only party accountable for these loans. But that rarely offers much comfort. Even though your private capital is out of the question, bankruptcy can be distressing if the BV has valuable assets listed on its balance sheet. However, you may set it up for yourself much more effectively. Your valuable assets, such as commercial properties, patents, software, and extra liquid assets, might be placed in a separate holding company above your BV. The operating business will be granted the right to use these assets, but the holding company will cease any further operations. By then, you have reduced risks by separating your assets from risky day-to-day operations.
Operating company bankrupt
Suppose that you have decided to establish a BV after deliberating for a considerable amount of time. You chose this legal form after seeking to take the least amount of risk possible with your personal assets, such as your home and vehicle. You learn from a friend that their garage company, a private limited company, has filed for bankruptcy before you create the BV. All of the vehicles have been taken by the curator and he has also lost the sizable garage. You choose to heed his cliched “if only” advice even if you open an electronics store rather than a garage and create a holding company in addition to a BV. Your business’ heyday has passed after 5 years. Debts are growing while revenues remain stagnant. Imagine losing both your software and your business’s location if they had still been in the work BV. In theory, creditors cannot seize holding company assets in the event of bankruptcy of the operational firm.
The participation exemption stops profits from being taxed again at the parent firm after having already been taxed at the subsidiary company. This applies, for instance, to the profit made when the parent company sells shares in the subsidiary or the dividend the parent company gets from the subsidiary. You are exempt from paying tax in the holding company because of the participation exemption. Only if you make a private payment from the holding company does this occur.
As a result, you must make sure that you do business from a holding company if you decide to sell your interest in a company for €1 million after a few years of operation. By doing this, you can avoid paying taxes on the acquisition price and utilise it to fund investments and conduct business from your holding company. Otherwise, you are required to pay an income tax on it right away (25% if your interest is greater than 5%). Therefore, using a holding company is quite beneficial from a financial standpoint. Take note, however, that this structure is only valid if the parent company owns at least 5% of the operating business’s stock.
Compensation for losses
It is reasonable to establish a holding company in the Netherlands if you look forward to starting new businesses. However, not all start-up companies will eventually become profitable. If you have a holding structure with many BVs, you may be able to (under certain circumstances) offset the gain of one BV against the loss of another BV. You can use this compensation structure because a holding can have a number of BVs that work together fiscally. A holding company is therefore particularly appealing to business owners who enjoy taking on new challenges.
You can choose what assets or investments to put in your Dutch holding company if one has been established. It is frequently decided on to separate some valuable components from the BVs and place them in a holding company in order to share risks. These can include cash reserves, brand identities, as well as things like patents. These priceless components are not a part of the estate at the time a BV is liquidated.
Additionally, a Dutch holding company has other tax advantages. For instance, if you have a holding-operating business structure, you typically do not pay dividend tax in the Netherlands. Although a holding may not have been created especially with succession in mind, it nonetheless offers benefits. The functioning businesses could potentially borrow money from one another. In this situation, a well-run BV could, for instance, lend money to a newly founded BV. This can be an intriguing construction, particularly for a startup business that needs time to turn a profit.
A holding company also provides managerial benefits. The management of a holding company can effectively run the entire business once all the shares of the operating firms have been transferred to it.
In spite of these advantages, there are also a few disadvantages. Both the benefits and drawbacks of establishing a holding company in the Netherlands should be taken into account when deciding whether to form a Dutch firm.
Increased workload and expenses
The main drawback of a holding company in the Netherlands is the additional work. You are required to maintain the holding company’s financial records, create annual reports, and submit them to the Chamber of Commerce. Therefore, a holding corporation has operational expenses. You will also need to deal with the formation costs of a holding company, despite it being a one-time endeavour.
In the event that assets from other Dutch BVs are donated to the holding company, these assets must be valued properly. Typically, this is specialized work, which also has associated costs.
Closing the company
What happens once you decide to halt your Dutch BV’s operations? The BV must then be liquidated. Liquidating a BV is slightly more difficult than winding up a sole proprietorship or VOF. For instance, the liquidation needs to be reported to the tax authorities and the Chamber of Commerce and be published in local newspapers.