Multiple reasons can come up why someone would incorporate a BV. In this article only 3 reasons to use a BV company for your business.
3 reasons to use a BV company for your business
In the Netherlands the most common used type of company is the so called one man company. Also referred to as ZZP or freelance company. A transparent company that is not a legal entity. The other option is a limited liability company, in the Netherlands named a BV company. This article is about the BV company.
3 reasons to use a BV company for your business: reason 1
From our perspective the most logical reason to start a BV company is when you start a company with partners. Despite the good intentions at the start of the adventure, moods can change. Some for the better, some for the worse. For both versions the BV company is the best solution.
The simple version is where all partners receive a salary and the left over profit is either reinvested or paid as dividend. The advanced version is where the partners participate via their holding BV company and each partner is paid a management fee. The advantage of this, among many, is that each partner can decide in his or her holding BV what salary is paid, what company vehicle is driven, etc.
The moment a partner joins the BV company, you have the opportunity in exchange of the investment to transfers a part of the shares of the company to the investor. Or if you want to combine multiple companies, to get a larger organization, the share exchange makes it easier.
3 reasons to use a BV company for your business: reason 2
Your business is doing well or you predict your business will do well. In a transparent one man company the full result is taxed. In the BV company, after the correct minimum salary is taken, the left over profit is taxed, but less. The corporate income tax is 19,5% over the first EUR 200.000 profit (2024) whereas with the one man company where no salary is taken, this profit is quickly taxed at 49,5% income tax (2024).
Obviously you can pay yourself a dividend with the left over profit. But, without giving investment advice, you could also opt to make some investments for your old age, or the rainy day. Indeed, the investments are pre tax. This means, the moment you take the profit out you still pay dividend withholding tax. But the upside is that you can invest with pre taxed money, read: more money to invest.
3 reasons to use the BV company for your business: reason 3
The BV company is a legal entity, a vehicle. That enables you to have the BV company own property. Own intellectual property. Not only can the BV company own your company car, but it could also own a participation in a related business. The transparent one man company does not offer this opportunity, as it is transparent.
The participation exemption is one of the beauties of our tax system. The moment your BV company purchases shares in another legal entity, Dutch or foreign, the investment shows on the balance for the purchase value. The day you transfer the shares of this participation and you make a gain, this gain is under the participation exemption. In other words, no corporate income tax to be paid over the gain. The mirror side is that a loss is also under the participation exemption.
Tax is exciting
We think tax is exciting. The BV company is a rather formal type of company. Sometimes formal can bring body to the business. Maybe you wonder why the subject limited liability is not mentioned. That I mention in the other article: 3 reasons not to use a BV for your business.
