The holding company

What is a holding company?

A holding company is the highest company in a group of companies. A holding company is also called a parent company, financial holding company or management company. A holding company is usually a private limited company (bv).

What is the structure of a holding company?

The holding company is part of a holding company structure. This is a combination of several related bvs. A holding company structure consists of at least these 2 parts:

The holding company

This is the bv that houses important assets, such as money or real estate. The holding company also has shares in the operating company.

The operating company

This is the company where the daily activities take place. The operating company is the 'real' business. The operating company is also referred to as a subsidiary, or daughter company. A holding company structure can contain more than 1 operating company.

The entrepreneur owns the holding company, and the holding company owns the operating company. This way you spread risk. You carry out your business activities with the operating company. Such as making products, carrying out assignments and hiring staff. You place your profit, pension, and other valuable assets in the holding company. This way you will not lose everything if the operating company goes bankrupt.

Setting up a holding company structure

In practice, entrepreneurs often apply the structure with a holding company and operating company in this way:

• You first establish the holding company at a notary's office.
• When it is established, you receive shares in the holding company.
• Then you set up a second bv on behalf of the holding company. This is the operating company.
• The holding company receives shares in the operating company.

You can also set up a holding company from an existing sole proprietorship. You then first convert your sole proprietorship to a bv. Or you first set up a holding company construction and then end your sole proprietorship.

Advantages and disadvantages of a holding company

Besides spreading risk, a holding company structure has other advantages. With a holding company it is usually easier to transfer or sell parts of the business. They are also tax advantages:

• The profit of the operating company can be transferred tax-free to the holding company, because of the participation exemption (in Dutch). Only the operating company has to pay taxes over this profit, not the holding company.
• The holding company can direct or manage the operating company. The holding company receives a management fee for these activities. The holding company is taxed for this after deduction of costs. To avoid double taxation, the holding company does not pay corporate and dividend tax on the profit received.
• If there are several operating companies, a holding company is practical because it does not have to apply the customary salary scheme (in Dutch) within each operating company.
• If the holding company owns at least 95% of the shares of the operating company, the holding company and operating company can form a fiscal unity (in Dutch). Profits and losses of the bvs can then be offset against each other for tax purposes, thus reducing tax costs.

Disadvantages

It is more expensive to set up a holding structure because you have to set up at least 2 bvs. The annual costs for administration and preparing the financial statements are also higher. You must also properly process the payments between the holding company and the operating company in your administration.

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