Enthusiastic entrepreneurs contact us for a BV set up with a Holding company and a working company. The question then is, is that wise?
A Holding BV holds the shares of the working BV. The purpose of the Holding BV is either to take the proceeds of the working BV out of the danger of possible bankruptcy or liabilities. The Holding BV can also receive tax free the proceeds of the sale of the shares of the working BV. Indeed, tax free.
But still, is it worth while to keep a Holding BV?
Holding BV – accounting fees
The enthusiastic entrepreneur often starts to complain soon after the structure is in place that the accounting fees are considerable. The general response is that the Holding BV is not doing anything, so why are the accounting costs necessary.
In the Netherlands we do not know dormant companies, so the corporate income tax return needs to be filed and the annual report needs to be published. Besides this fact, the Dutch tax office does not accept incorrect tax returns, plus the entrepreneur expects in the end that the Holding BV purpose is correctly administrated. Hence the services of a tax advisor are required and they are not for free.
Holding BV – shield of liability
The Holding BV is often used to pay dividends in from the working BV to keep this value save from possible liabilities of the working BV. However, rules make that if it becomes clear that a dividend payment was made when it could be for seen that the working BV needed to keep equity on the balance for possible liability claims, the dividend transaction was not legal.
Such a dividend transaction the director will be held liable and that can affect the Holding BV company. The dividend payment can be claimed back and that can result in bankruptcy of the Holding BV. If then the director of that Holding BV is held liable for this situation, the director can go bankrupt privately.
The Holding BV as shield of liability might not work.
Holding BV – tax free proceeds sale working BV
The Holding BV can receive the proceeds of the sale of the shares of the working BV tax free. The reason is that then the entrepreneur has a possibility to invest pretax the proceeds in a new business.
If no Holding BV was holding the shares, the entrepreneur was due immediately 25% income tax over the proceeds.
Practice learned that the entrepreneur often creates a very undesired situation by receiving the proceeds tax free and taking up too much money via current account of the Holding company.
Working BV shares are sold for EUR 1.000.000 and this 1 million is received tax free in the Holding BV company. The entrepreneur decides to pay off the mortgage of his house with the bank by taking out a loan with his holding BV for EUR 600.000 and on top of that EUR 200.000 for private spending.
As the Holding BV has EUR 200.000 in the bank, that is not enough to pay the 25% tax over the 1 million. When the tax inspector challenges the loan of the house and the private spending loan, this entrepreneur has a problem.
No Holding BV
Experience has learned us that often the proceeds of the sale of a company are immediately used for private spending by the entrepreneur. Then you can ask yourself: would it not be wiser to skip the Holding BV and accept the 25% income tax immediately instead of first receiving the amount tax free in the Holding BV and then pay the amount as dividend subject to 25% income tax. No Holding BV implies you are free to spend as you like the 75%?
Keeping a Holding BV in the air because you do not know how to pay the tax for many years is not only costly from an accounting costs point of view, but it is also not contributing to peace of mind, as you know you are due tax that you cannot pay.
Holding BV – introduction at a later stage
The moment your BV company turns out to be a huge success and you want to put a Holding BV in between and you have at least three years time to arrange this all. Then there are fiscal solutions to put in between the Holding BV. Still you need to ask yourself if the Holding BV is making the difference for the costs spend on this exercise.
Holding BV – multiple partners
The Holding BV is an immediate good idea when in the working BV you have several shareholders. The famous example is that the one shareholder insist on driving his Mercedes AMG as business vehicle, and the other shareholder prefers the bike. As a bike gets stolen very often, the Mercedes shareholder does not want to pay for these costs. Hence they can decide to put their means of transportation in their own Holding BV company, so their choice is not eating the profit of the other shareholder.
Orange Tax Services
We try to keep it simple. Start your company, maybe start with the so called one man company. If your company is indeed the success you anticipated, then you could consider for commercial reasons to transfer that one man company in a BV company. If then later the success continues you can put in between a Holding BV company.
The BV company we recommend especially when you would like to continue your 30% ruling. But if that is not the case, you can as well start the so called one man company. You can still employ as many employees as you like, as the one man stands for one man holding the capital, but this company can have plenty employees.
If you start the BV company to limit your liability, you should learn that the registers show that the shareholder of a BV often goes privately bankrupt in a one week time after the BV company went bankrupt. So the limited liability might not work. Even though the words BV stand for limited liability.
We will be glad to assist you with setting up the BV company for EUR 1800 ex VAT including notary fees and advise and run the annual tax and accounting obligations for you.