A holding structure is easy to set up, expensive to maintain, so when do you set up a holding structure?
A holding structure – what is that?
Often the phrase one BV is no BV is stated by some who thinks they know it all. When you have a company that is ran only because of the person owning the shares in the company, then one BV is perfect.
The purpose of a holding structure is to eventually sell the working company. If you sell the working company, the profit can be received tax free by the holding company. So what is a holding structure. A holding structure is a BV company set up by a private person. Then the what we refer to as holding BV sets up a working BV. The holding company holds the shares of the working company. The working company is the company that is actually running the business.
A holding structure – what does it do?
The holding BV needs to be a very passive BV. Passive in the sense of not attracting liabilities to anything else than the shareholder. The only activity is holding the shares of the working BV. More experiences or seasoned entrepreneurs hold shares also in other companies with this holding company. Or they invest with the holding company, but very passively. Should the working BV makes a profit, the working BV can pay via dividend the profit into the holding company.
The holding BV holds then the profits made. Should anything happen to the working BV from going bankrupt to being sold, the proceeds are then not lost, but save in the holding BV.
The holding BV can decide to pay this to the ultimate shareholder via dividend or salary, depending on the setup and desires.
When to set up a holding structure?
If you build up the working company as a company that can be ready in the near future to be either sold to another shareholder, or management buyout by the employees, then the profit made on the share value is taxed in Box 2. Currently the tax rate in Box 2 is 26,5%.
If the shares are held by the holding bv, the profit of the sale of the shares is not taxed. Only if the proceeds are paid out by the holding company to the ultimate shareholder, the proceeds are taxed.
When to set up a holding structure is in the event your business is open to be sold or for a management buyout.
Why is the profit made by selling the shares in the working company not taxed in the holding company?
The answer is simple, you are the entrepreneur, you invested, took the risk and made the proceeds. Maybe you would like to reinvest the proceeds in a new project. Than it would be a pity you first need to pay tax and can only invest the net amount. Hence the so called participation exemption has been introduced. That implies no tax is due till the proceeds are paid out via dividend or salary to the ultimate shareholder.
Do you need a holding structure?
The answer of that question is basically in our explanation above. If you create a business that is open to be sold in the future, maybe yes. Before you enthusiastically set up this structure, mind you, regardless if the holding BV is active or passive, the annual accounting obligations need to be met. So the holding BV does costs accounting fees. Our experience is that clients become annoyed with these costs, as the BV is not doing anything. Still you need to run a bookkeeping, create an annual report, publish the report, have a shareholders meeting and file a corporate income tax return.
We at tax-is-exciting are excited to have a talk with you before you start what would be the best set up. If you have no idea how your business will develop, maybe even starting as a so called one man company would be an option. Then if it develops well, you can transfer the one man company to a BV company. If it is clear from the start you can easily sell your business, we recommend a holding structure. If it is not clear and only later you find out there is potential to sell the company, still, under conditions, a holding structure can be set up, but then it is an expensive and time consuming effort. Therefore we suggest to, as good as possible, predict if you need a holding structure or not.
Sorry for the dashes in the middle of the word tax-is-exciting. Apparently Google has a dirty mind and sees only a three letter word that we refer to when we practice to reproduce ourselves. Anything related to that word is spam, hence this devout solution.