What is a holding company? Here at Share Council it’s a common question that deserves more explanation. We often come across this item when setting up employee participation structures. A holding is not obligatory for employee participation, but it may come in handy. Briefly put, a holding entails that one BV holds shares in one or more other BV’s. These other BV’s are called daughters or work-BV’s. All the holding does is hold these shares. All activity of the company takes place in the daughters. These are the companies the employees work for.
Setting up multiple BV’s seems a bit much. However, practice has shown that it has many advantages. In this blog I will list and explain these advantages.
Lowering the income tax burden
Each year the BV is obligated to pay the Director and major shareholder (DMS) a salary of at least €48.000,-. This number is set by the Tax Authorities. You can petition to lower this salary if you are unable to pay this due to a too low revenue.
If you receive income from wages, you will have to pay a 52% income tax maximum. If the holding makes a profit, the salary of the DMS is paid first. All profits above €48.000,- can be paid as dividend. Over this, you only pay 25% taxes. If you choose not to pay this money out, it will remain in the holding untaxed. You could use this money to invest in your company.
A holding is very useful for protecting the value of products and the organisation. You could keep surplus capital from a daughter in your holding. This way you use the holding as a money box. Intellectual property (such as ownership of software or patents) and real estate (such as your office building) can also be kept in the holding. If there is any risk for the daughter, these things are safe, because they are in another company. Creditors of the daughter can not recover from these things.
Selling a daughter is cheaper if you have a holding, because of the participation exemption. If a natural person (the DMS) were to sell the shares, they would have to pay 25% income tax over the profits. If the shares are sold by the holding, no taxes have to be paid because of the participation exemption.
Functions of the holding
A holding can also serve as an investor, a place to keep your pension assets or a management company. You can invest the operating capital of the daughter using the holding. If you use the holding as a place to keep your pension assets, the holding will pay the DMS monthly once they retire. In case the holding is used as a management company, the holding will be director of the daughter. This has fiscal and legal advantages.
You can apply for a fiscal unity if the holding holds more than 95 % of the shares of the daughter. With fiscal unity the Tax Authorities pretend that there is only one company. This enables you to set losses off against each other. So if the holding makes a profit, but the daughter posts a loss, you only need to pay taxes on the profits minus the losses of these companies together. This way you pay less taxes in total. However, this does have one disadvantage: every company can be held accountable for the total tax debt of all the companies in the fiscal unity.
What do you need for a holding?
For starters, you need to set up two companies at the notary’s office. Secondly, you need an employment contract between you and the holding. Under the provisions of this contract you will be employed by the holding and receive a salary. This contract is also important for your bookkeeping. Furthermore, it is important to enter into a management agreement with yourself as DMS, the holding and the daughter. This agreement is to make sure that you are authorised to perform management tasks on behalf of the holding. This agreement also stipulates the management salary you receive from the daughter. This salary will be sent to the holding, who pays this as a salary to the DMS.
Then there are two types of current account agreements that will come in handy. Often the DMS advances an amount for the daughter/holding or vice versa. A current account agreement is used to set down that all monetary claims that the DMS has on the holding/daughter and vice versa will be settled automatically. This mostly comes in handy for the Tax Authorities. If you do not enter into this agreement, these payments can be regarded as business loans on which interest should be accrued. With a current account agreement you can work without interest, as long as the balance does not exceed the limit of €17.500,-. If this limit is exceeded, business interest must be charged. The level of this interest is also laid down in the current account agreement. The holding and the daughter should also enter into a current account agreement.
Lastly, you should enter into a shareholders agreement if there is more than one shareholder. This agreement stipulates numerous things that are not arranged by law or in the articles of association. For instance, how shareholders go their separate ways and what happens to the shares if a dispute arises between the shareholders. This prevents longlasting and expensive proceedings.
How can our platform help you?
Share Council’s participation platform ensures that, after setting up the structure and selecting the contracts, there is no need to think about administration. Everything is arranged and maintained for you in the background. We have a range of payment plans available, so no matter what your budget is or how much time you have to spend on participation, we have a plan that will work for you.
To find out more about holdings, participation plans and how this can benefit your situation? Book a demo with our CEO.