A holding company is the top-tier company within a group of enterprises. You can spread risks by using a holding company structure.
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The holding companyA holding company is also called a parent company, financial holding company, or management company. Its legal structure is usually a private limited company (bv). The holding company is part of a holding company structure. This is a combination of several related bvs. A holding company structure consists of these 2 parts:
The operating companyThis 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 holding companyThis is the bv that houses important assets such as money or real estate. The holding company also has shares in the operating company. The holding company is also known as the parent company.
The holding company structureIn practice, entrepreneurs often apply the structure with a holding and operating company like this:
- Two bvs are established;
- One bv is used as an operating company;
- The other bv is used as a holding company (management bv);
- The entrepreneur privately owns the shares of the holding company;
- The holding company owns the shares of the operating company.
Advantages of a holding companyIn addition to spreading risk, a holding company structure has these 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.
- A holding company structure can transfer or sell parts with more ease than a ‘single’ bv.
- If there are several bvs, a holding company is practical because it does not have to apply the customary salary scheme (in Dutch) within each bv.
- If the holding company owns at least 95% of the shares of the operating company, the bvs can form a fiscal unity (in Dutch) and reduce taxes by offsetting turnover and costs.