What are the legal advantages of a holding structure?
One reason is to exclude personal liability for business debts. Only the BV is liable for these debts. But that does not mean you are completely safe using just an operating company. The operating company enters into business contracts, so it is inherently exposed to a (theoretical) risk of bankruptcy. If the operating company contains valuable assets, like for example IP, software or real estate, a bankruptcy would drag down all that with it. That’s just not necessary. If your business owns valuable assets you can place these in your holding company instead. The holding company will give the operating company the right to use these assets, for example through a rental or license agreement. This way, you have separated your risky daily operation from your valuable assets. If and when your business falls over, your valuable assets are safe.
What are the tax advantages of a holding structure?
Dutch tax law features a rule against double taxation on profit, called the participation exemption (“Deelnemingsvrijstelling”). When profits already have been taxed in a subsidiary, they don’t need to be taxed again at the parent company. So when a mother company sells its shares in its subsidiary, or receives dividends from it, those gains are not taxed in the holding company. If the holding company later decides to pay out dividend to its shareholder, dividend tax applies of course. But the holding company can also choose to hold the cash (hence the name), and reinvest the earnings without the tax man taking a cut under the Box 2 regime of 26,25%. So if after a few years of entrepreneurship you sell your stake in a company for a € 1 million, please make sure you do so from a holding company (note: the participation exemption only applies if the parent company holds at least 5% of the shares in the operating company).
How does this relate to the so called DGA Salary?
Under normal circumstances the founder becomes director in the holding company, and the holding company becomes director of the operating company. The founder can then represent the operating company by way of representation via the holding company. This has the benefit that the director doesn’t need to be pay rolled in the operating company. The operating company only pays a flat management fee to the holding company, and the founder pay rolls him/herself there. For this it is required to have certain contracts in place, which we have bundled into one handy package.
For the minimum DGA salary this has no effect. A founder can be appointed director in both the holding company and the operating company without having to pay him/herself the minimum DGA salary twice. As long as the salaries all add up to 1 DGA salary, usually taken on the personal holding level. Check here for more questions and answers about the DGA salary.
Can I use my personal holding for personal financing purposes?
Yes, you can use your holding as a mortgage provider. A mortgage is just a securitized loan, after all, and last time we checked banks didn’t have a monopoly on those. It can be a very attractive option. Not only is the mortgage interest deductible from your gross director’s salary (as long as the property is your primary residence), you can perform a number of additional tricks too. Here goes: draw a high amount of mortgage from your personal holding. This leads to a high mortgage interest. By making the loan subordinated to other creditors and by not establishing a right of mortgage (which technically just makes this a regular loan, not a mortgage), a higher interest rate is justified. This leads to a high deduction from your taxable income, starting with the income that falls in the highest income bracket (49,5%). This reduces your Income Tax bill significantly. Of course you need to pay the interest to your holding, but you can later pay this out as dividend to yourself.
Annual income as a director € 100,000
Mortgage requirement: € 350,000
Interest at the bank (4.5%)
Interest with personal holding (8%)