If you have a single private limited company (B.V.), everything is held within it. In addition to your actual business (your commercial activities), any business premises, a self-administered pension scheme and surplus cash are therefore also part of the B.V. This provides clarity, but there are also risks. Many directors and major shareholders therefore opt for multiple private limited companies within a holding structure.
If everything is held within a single private limited company, creditors can, in the event of financial difficulties, seek to recover their claims from the company’s entire assets. You then run the risk of losing everything you have built up and being left with nothing. A holding structure can often help you avoid this.
In a holding structure, several private limited companies are linked to one another. You hold the shares in the holding company, which in turn holds the shares in, for example, an intermediate holding company, which in turn holds the shares in the operating company, and so on. Usually, valuable assets, such as business premises and/or vehicles, are placed in one private limited company, whilst high-risk activities are placed in another.
The more extensive the operations, the more private limited companies are generally set up. However, a holding structure already exists where there is a single holding company with a single operating company beneath it.
Advantages of a holding structure
Risk diversification is one of the key advantages of a holding structure. For example, if the operating B.V. (the B.V. in which business activities take place) goes into liquidation, any other B.V.s are generally not affected.
Please note! This may be different in cases of mismanagement, as the other private limited companies may then be held liable as directors.
The holding company structure has at least two other significant advantages.
- Tax savings can be achieved by distributing profits. After all, the corporation tax rate is 20% on profits up to €200,000 and 25% on amounts above that. Profits from the operating company can be transferred tax-free to the holding company under the participation exemption. These profits are then taxed only at the level of the operating company and not at the level of the holding company. There are plans to apply the 20% rate to profits up to €250,000 from 2018 and to profits up to €350,000 from 2021 (these plans are set out in the room brie(f) regarding self-administered pensions).
- The sale or transfer of parts of the business can be carried out more easily with a holding company structure.
Fiscal unit
In a holding structure, each private limited company (B.V.) is, in principle, a separate taxpayer; however, subject to certain conditions, the various B.V.s may form a single tax unit for the purposes of corporation tax. They are then treated as a single taxpayer. A key advantage is that profits and losses can be offset against one another. A significant disadvantage is that each private limited company is jointly and severally liable for the total tax liability of the fiscal unit.
There are other advantages and disadvantages to a fiscal unity. Please ensure you are fully informed about these by our advisers.
Expert guidance
Creating and maintaining an optimal holding structure requires expert guidance. There are various tax incentives that allow you to (re)structure your business without incurring tax liabilities. Moreover, it is not only your current requirements that matter, but also your future plans. It is also advisable to regularly review your existing (holding) structure, particularly when embarking on new activities or entering into a business partnership.