Holding structure BV company, what is this about? This is about the future of your business you need to determine now already.
Holding structure BV company
A holding structure is one BV company that holds the shares of another BV company. A BV company is the equivalent of the limited liability company, the Ltd company. Such a holding structure sounds complex, doesn’t it? We agree. The question is, do you need one?
Advantage of a holding structure BV company
The advantage of a holding structure is especially in the following scenario. The holding BV holds shares of a working BV. These share can be sold for a substantial profit. This profit is received by the holding company, tax free! Yes, you read correctly, tax free.
You have a holding BV that holds the shares, all of them or at least more than 5%, in the work BV. The work BV is doing well and someone else, or your partners what to purchase the shares you have in this BV. You paid yourself EUR 10.000 for the shares and you are now offered EUR 50.000 for these shares.
You accept the offer and receive EUR 50.000 in the bank account of the holding BV. Indeed tax free. Is it truly tax free? Not really. Most human beings want to celebrate the deal with gift to themselves for which they need money. The holding BV either pays a dividend from this money, with max 26,5% dividend tax. Or the Holding BV pays a salary bonus, with max 49,5% wage tax. To touch the money, tax is to be paid.
Not having a holding structure makes the EUR 50.000 profit directly taxable. Taxed is EUR 50.000 minus EUR 10.000 capital is EUR 40.000 times 26,5% dividend withholding tax (2021). Then again, you can spend as you like the after tax amount.
When do you set up a holding structure?
A holding structure you set up before the value of the purchased shares have increased. In the above example it is not possible to set up the holding 1 day or month before the sale. That is too late. You need to have set up the structure before the investment starts to increase in value. Hence my remark in the opening paragraph, you need to determine now already your future.
When is the profit actually tax free?
The EUR 50.000 in the above example is truly tax free when you reinvest the money in shares of the next company. Or make another investment. That is the purpose of the holding structure, to be able to reinvest the proceeds of one investment in the next investment within the bv of the holding. Taxation will not eat the investment activity.
Will you ever sell your company?
To answer the question if you need a holding structure, we need to ask if you have or will have a BV company? If yes, will you sell your company. If the company is very much you. Clients purchase your service or product because it is you. Or you are the only inspiration of the company that creates the revenue. Then you cannot sell the company. The answer is no.
Will you reinvest the money?
The true advantage of the holding structure is when the proceeds of one sale are invested in the next project. If you sell your company, will you reinvest? Most people will not. They want to pay off the mortgage and purchase a nice car. But what will happen if you have the holding structure with cash and you are a human being?
Holding BV made EUR 50.000 profit on the sale of the shares. You loan money from the holding BV for a holiday, you deserved that. Or the sports care, you deserved that.
Then you have a EUR 50.000 loan to the BV that you cannot pay back. Nor can you pay the wage tax or dividend tax. Now you have a true problem.
Holding structure and accounting costs
The holding structure implies that you need to file tax returns for both the working BV and the holding BV. The accounting costs are more or less identical. Maybe a little less for the holding BV as the holding has nearly no bookkeeping.
After the first year you probably are already annoyed by the accounting costs for a company in which nothing has happened. This will over the year only result in more annoyance. And if you in the end make the profit, but you pay that directly to yourself as a dividend or salary. You paid all those years accounting costs for no purpose.
Tax is exciting
We think tax is exciting. We are not always excited about holding structures. There are true situations in which it goes without saying that a holding structure should be in place. However, there are many more situations in which no structure is much better.
If there is no intention to reinvest. No intention to sell the shares of the BV company. If there is no possibility to sell the company, a holding BV company is costly to have and in our opinion not necessary. Keep it simple with one BV company. Should you be able to sell after all the company for a substantial profit, the payment of the tax instantly reliefs you from more obligations.