Holding structure or no holding structure, that is the question. Not frequently asked, more an announcement. A proud announcement, but I wonder why sometimes.
Holding structure or no holding structure
A holding structure implies you incorporate a BV company. That BV company incorporates another BV company, the working BV. The thought behind this structure is that you create a company in the working BV. The working BV is then open for liability, bankruptcy and what have you.
Each year when you end the year with a positive result, the result is than paid via a dividend in the Holding company. That transaction is within the participation exemption, hence you pay no dividend withholding tax.
The moment the working BV goes bankrupt, or is sold, or taken over, your proceeds are save in the Holding BV. That is the thought of the structure, a good thought.
Holding structure and announcement
We are announced by a client or new client they incorporate via an online non expensive notary the structure. Happy as they are we are presented the structure.
We inquire if the working company will attract partners or investors? Partners and investors would like to have shares in the working company in return for their input or money. If the shares are traded, the participation exemption with the Holding BV makes this a tax free event. No, there will not be partners or investors.
Wil you then have a company in the working BV that is subject to possible liability? No, we cannot be held liable. The agreements we enter into makes us not liable.
Do you expect to go bankrupt? No, we cannot go bankrupt, as we create software. Little investment, large turnover, nearly no costs.
Why then the holding structure?
Often the answer of that question is the advice of friends or an old article. So what is our problem with this structure? Based on experience we know that our future invoice will be the issue.
The holding BV is not doing anything accept receiving dividend from the working company. The bookkeeping of 2 hours per year max will not break the bank. However, an annual report needs to be created. Based on that report the shareholders meeting is held. Upon accepting the annual report the corporate tax return can be filed. Plus the annual report needs to be published with the Chamber of Commerce.
Whether a lot happened in the bookkeeping or not a lot, the work and process to be done is not affected by that. Neither are the costs.
Paying the first year the costs is already not very nice, but this will continue for many years.
Hence our question: why the holding BV?
We would like to have the employees participate. Good reason.
We would like to sell the working company and not being taxed on the proceeds instantly. Good reason.
Sell the working company and collect the proceeds tax free in the Holding BV
A solid reason for a holding structure. We fully agree. The thought is that an entrepreneur sells the one company, collects the proceeds. Before any tax is collected the full amount can be reinvested in starting the new company.
However, what we see happening a lot is that the cash in the holding BV is burning in the hand. Via a current account agreement, which is actually more a phrase used in the annual report, than actually an agreement, the money is taken out.
Now the holding BV becomes a millstone. The money is flowing away. The profit reserve of the holding BV is still full present. And to liquidate the BV, to move country, or sell the shares, the tax over the profit reserve is to be paid. The moment there is no more money, no tax can be paid.
Tax is exciting
We think tax is exciting. And if you are excited for any reason, to set up a holding structure. You would like to become a client of us, have a tax talk about this set up before you do anything. Maybe the holding structure is indeed a good solution. Maybe not, maybe there is an alternative.
We approach this question from a legal point, practical point, also taking into account your expected sort term future, the next five years.
