The holding BV in the Netherlands: a short guide
Sep 28, 2022
When setting up a company in the Netherlands, you will be asked the question : do you wish to set up a regular BV, a holding BV or a holding BV structure? It is useful to get the vernacular straight first. The BV is the Dutch version of the American and British Limited Liability Company. A holding is a BV just as well, with some additional sidenotes (see below). A holding BV structure is a combination of a holding BV as a parent company, holding the shares of a regular BV company.
The Dutch holding BV
A holding BV is a regular Dutch BV company, except it has a statutory goal to perform passive holding activities. These holding activities can refer to all types of assets, such as shares, intellectual property or real estate. The holding company is then used to collect the fruits of those assets (for example dividends, license fees, rent) and distribute them in accordance with the wishes of its director(s). Such activities can also be performed by a regular BV company (also called an “operating BV”), but the main difference is that the holding BV is not commercially active. Holding companies do not engage in transactions with third parties, only with affiliated parent, subsidiary or other group companies. As a result of this, a holding BV is usually not awarded a VAT number by the Dutch tax authorities after its incorporation. This is usually a good arrangement, as a VAT number would only impose the burden of VAT returns and administration while none is ever reclaimed or repaid due to its passive activities. But beware this also means that, while business expenses can be billed to a holding BV, any VAT paid over it cannot be reclaimed if it has no VAT number.
Benefits of a holding BV
The holding BV is renowned for being a vehicle for financial structuring and tax planning for big corporations. Yet it is also extensively used by small and medium enterprises in the Netherlands (SME). See for an example of a structure much used by Dutch entrepreneurs below.
Here 2 founders have set up their new Dutch BV company, using a personal holding to hold their respective shareholdings in the operating BV (C). Why set up such a structure? There are a number of reasons for this. From a legal perspective, a holding BV can create liability protection by separating valuable assets, such as real estate or IP, from the more risky business of the operating BV. These assets can then be used by the operating BV (C) by way of a license or lease agreement, in return for which a license fee or rent is paid.
Another big advantage of a holding BV lies in its tax advantages. In the above example any profits on shares in C, held by A and B, fall under the so called participation exemption (“Deelnemingsvrijstelling”). The participation exemption requires that the holding BV holds an interest of at least 5% and ticks one of two boxes below:
(i) The consolidated assets of the subsidiary consist of less than 50% of low-taxed free passive investments.
(ii) The objective for investing in the subsidiary is to obtain a return that is higher than what may be expected from regular asset management.
This is the case here. This means that dividends or a purchase price on shares in C are exempt from dividend taxation. If A and B held their shares in C as a natural person, not via a holding BV, dividends or a purchase price on their shares would be taxed immediately at 26,9 % (2023).
A holding structure may also make use of the fiscal unity facility. This means that two interlinked BVs or holdings can be considered one single tax subject for profit taxes. This means losses in one BV can be offset with profits in another BV. The finer details of the Dutch fiscal unity are explained in another article.
Structuring a personal holding BV
When setting up a holding BV structure as in the above example, the question arises whom to appoint as directors of the BV. In personal holding companies A and B it is straightforward : there is only one 100% shareholder, who will be appointed as sole director. In the personal holdings A and B the minimum director’s salary rules apply. However in operating BV (C) you have 2 options: you can either appoint the 2 founders as a director or appoint their personal holdings A and B as directors. It is customary to go for option 2 here. The appointment of both personal holdings as directors lowers the payroll burden in operating BV (C), because they are not employees. Instead their holding companies A and B work under a management agreement (which is not an employment relationship) for which flat management fees are paid out and no income taxation takes place. Unlike what many people think, appointing a personal holding BV as director does not shield the director himself from any director’s liability. If such liability exists, the sole fact that the director performed his/her activities via a holding BV does not save him/her from such liability.
When to setup a Dutch holding BV
If you setup a new company in the Netherlands, this is the point to consider setting up a holding BV to create a BV + holding structure. As a rule of thumb, contractors and freelancers are better off not using a BV + holding structure and just setup one regular BV. The tax and legal benefits of a holding BV usually not apply to them, or not in full. In all other cases, a serious entrepreneur is better off setting up a BV + holding structure immediately. This way they can make use of the advantages from the get-go. The alternative is a restructuring at a later point, but this requires a share transfer which is inherently more costly and time consuming. If you wish to learn more about this or want to proceed to setting up a Dutch holding BV or structure, don’t hesitate to reach out to us.