Dutch holding company
The Dutch holding regime is worldwide renowned and probably still the most popular holding regime there is. A Dutch holding company is widely used due to its flexibility in Dutch corporate law. But of course also due to the excellent Dutch fiscal infrastructure, which includes the Dutch participation exemption regime and the extensive Dutch tax treaty network.
How to incorporate a Dutch holding company?
We have vast experience with setting up and implementing Dutch holding companies. For more information on how we can help, please see our special section on this: Dutch company formation.
Why use a Dutch holding company?
A Dutch holding company normally has the following legal advantages:
- There are activities or assets that need to be kept separate from each other, for instance for liability reasons;
- There are activities or assets that need to be sold in due course in a separate entity. This provides flexibility whereas any capital gains made by the holding upon such sale normally is not taxed under the Dutch participation exemption;
- Normally an operating company should be kept “light” for liability reasons. Therefore, surplus cash should be distributed to the holding company. Distributions to the holding company in the form of dividends normally are not taxed under the Dutch participation exemption.
The Dutch holding regime is perfectly suited to lower the overall tax burden and to make more profit available for reinvestment. The actual benefit depends on the following:
- Difference in applicable withholding tax rates from third countries to the country of origin versus to the Netherlands;
- Whether dividends are reinvested or repatriated to the country of origin;
- Capital gains protection under the relevant tax treaties;
- The percentage of shares held in the Dutch company;
- Any applicable CFC legislation, substance-over-form concept and substantial interest rules in the country of origin.
Usage example in Dutch situation
Earnings accumulated over the years in an operational B.V. are exposed to risks. As a result, the company can lose all its savings and its owners can hence lose their pension. This could be avoided if all earnings are used to e.g. pay salaries or dividends to B.V.’s owners. However, those payments will immediately result in taxation at considerable rates while the owners actually do not need the money in private.
In that case a holding between the owners and the operating company can provide a solution. Profits (after paying corporate income tax) normally can be distributed tax free by the operating company to the holding. Those profits can stay in the holding safely or can be reinvested without being exposed to creditors of the operating company. Only if the holding (sometimes decades later) pays those profit reserves as salary or dividends taxation applies.
Depending on the amounts involved such deferral of taxes can provide over the years for a very substantial tax advantage. Moreover, in principle the assets will not be exposed to operational risks.
Usage example in international structuring
The following graphic shows how a Dutch holding company can lower the total effective tax burden (click to enlarge):
The B.V is the most widely used legal entity for the purpose of a Dutch holding company. However, any Dutch tax resident legal entity that is subject to Dutch corporate income tax is eligible. This means for instance that also the Dutch NV, Dutch cooperative and UK Ltd can be eligible. See our legal forms section for more information on these. Also, see our section on Dutch company formation on how we can provide support with establishing your (holding) company in the Netherlands. For more on how we can help you to structure your Dutch business, see tax structuring.
When to implement a Dutch holding Company?
We recommend to implement a Dutch holding company from the start of activities for the following reasons:
- Implementation later might have adverse tax consequences depending on the facts and circumstances. For instance, the parent company or individual owning the shares in the Dutch holding company’s capital might become subject to Dutch (corporate) income tax for any capital gains realized.
- Implementation later requires expenses in the form of e.g. advisory and notary’s fees that otherwise might have been prevented.
Privacy and legal protection
For privacy of the owners of the holding and legal protection from personal creditors, please see our special page here.
Need more information?
In case you are interested in how a Dutch holding company can be of use for your business, please feel free to contact us.