Is your holding BV a true holding company?
Monday, February 29th, 2016 by Arnold Waal
It is the end of February and by now your BV company should have had its annual report from your accountant. Perfect time to actually open the report and try to understand what is stated in the annual report. If it is not clear to you, ask your accountant to make it clear to you. In the Netherlands the question would be to ask to have the annual report in Jip and Janneke language. Clear language without difficult words. An annual report is not a document that only contains value if complex words are being used.
What is a holding BV?
A holding BV company is a company that holds the shares of other companies, or participations in other BV companies. In the United Kingdom such companies can be dormant companies, in the Netherlands dormant companies do not exist. That implies you need to do the annual accounting, annual report and corporate income tax return.
A BV company is the Dutch equivalent of the limited liability company. A holding company can have many purposes. One of the purposes it to collect tax free the gain made in case of sale of the shares of the working company. A working company is the participation held in which the company is actually being executed. Within the participation exemption the gain made is not taxed, unless it is actually paid out to a natural person.
Another reason is to limited the liability more. A working company is also a BV company and BV stands for limited liability. You are liable for the value of the shares of the company. But in fact you are liable for the full value of the company. If you worked hard and earned a good profit in the working company, the company has a balance full of assets and a high equity amount. The moment the BV is in trouble, the full value of the BV company is liable.
Dividend pay out
Therefore it is important to pay out once in a while a dividend to the holding company, to take out some of the assets from the risk running company. A dividend is a decision made by the shareholders meeting and is only valid when future obligations of the BV are not harmed by this pay out.
The commonly made mistake is that of the current account. The director of the working company either takes out himself more money than his salary or the holding company has no income source and has running cost being paid by the working company. Both scenarios are not desired. If the working company can no longer pay for its debts, the curator will try to get to the end of the line where is the money. That is either the managing director the natural person. The curator is very eager to hold him liable either for bad management. Or hold him liable for the current account debt. A bankruptcy of this person creates the possibility to sell his house for instance. The same is with the holding company, the curator would very much like to get to this company as well. The current account debt is the link. Solve if possible a current account.
Is your holding BV a true holding BV?
Your holding BV should be out of harm in case one of the participations goes bankrupt. If for some reason a current account has been created, have the shareholders meeting decide on a legitimate dividend payment to settle the debt. Or if there is a substantial excess of equity in the working BV, have it paid out via a dividend to the holding company.
So please open the annual report of your holding company. Under participations you find the participations the holding company holds. That is on the left side of the balance or assets side. If you find a name of the participation in other parts of the balance as well, you need to start ask questions why that is and how that situation can be solved.
If the bank balance of the holding company is rather high and the company has substantially less debts, decide about making dividend payment to set aside the liquid asset.
Orange Tax Services
We finished most of the annual reports for 2015. We are critical to current account situations, we address the issue, but sometimes the entrepreneur has reasons for the situation. Nevertheless, paying back the debts or fulfilling formalities is part of the job.