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The besloten vennootschap (or abbreviated as: BV) is a Dutch legal form with limited liability. This legal form is very suitable for most entrepreneurs as various benefits are offered by the government to entrepreneurs that own the BV. This knowledge base article will outline the most important advantages of incorporating your business as a BV over other commonly used Dutch legal forms.
In general, there are a number of advantages in the Dutch legal system over other Dutch legal forms. The most important are:
The main advantage that the BV brings is limited liability. Because the BV has legal personality, the BV itself is responsible for fulfilling its obligations and is liable for any damages. As a director, in principle, you are not liable for these matters. The BV has its own, separated capital, and if the BV cannot pay debts itself, this is unfortunate, The private assets of the director remain safe.
In a BV it is possible to protect valuable property with a special construction. Think of intellectual property and goodwill for this, a holding company must be established, in which all valuable property of the working company is placed. If the working company goes bankrupt, everything in the holding company is safe. Creditors cannot recover anything from it.
The incorporation of a BV is carried out by a civil-law notary. The notary has a legal obligation to investigate the intentions of the founder(s). Because the incorporation must meet many requirements, it is a reliable company. As a result, the BV has a good reputation both nationally and internationally. The annual filing of financial statements also contributes to this, of course.
It is attractive for investors to invest in a BV. The investor acquires shares for the amount of his investment. This makes the investor part owner of the BV and shares in the profits, but he is not liable for any debts.
The tax rate for the BV is lower than the rate for other Dutch legal forms such as the sole proprietorship (‘eenmanszaak’) and VOF. If you make a lot of profit, then you are better off with a BV as a legal form. In 2023 you pay on the first €200,000 made as profit a tax rate of 19%. And on all tax that is made above €200,000 a tax rate of 25,8%.
With a BV, you can sell (part of) the shares very cheap in a holding structure. When the holding company owns at least 5% of the shares of the “working BV”, the participation exemption applies. This tax rule ensures that the sale of shares is untaxed. The profits are thus released in their entirety to the holding company. From there you can easily invest or distribute it to yourself.
Do not want to distribute all profits taxed to yourself but invest them in your company? This is easily possible with the BV. You only pay corporate income tax on the profits made. You can use the rest to reinvest. Do you have multiple companies and a personal holding company? Then you can easily use profits from BV A to pay for BV B’s start-up costs without having to first distribute them taxed as dividends.
With a BV, you can set up the perfect structure that allows you to get the most out of the company from a fiscal and legal perspective. If you have several activities, you can easily separate them over several BV’s. By spreading the risk, you can limit the possible damage in case of liability or bankruptcy. In terms of taxation, you can set up the structure favorably via a holding company to use the fiscal unity for corporate income tax and VAT.
There are a lot of risks involved in hiring permanent staff. Continued payment in case of illness, disability or even bankruptcy can have significant financial consequences for the company and the entrepreneur. However, you are limited in the risk with a limited liability company. In the worst case, the private limited company goes bankrupt, but you are not personally liable for the debts.
The BV lends itself perfectly to making preparations for a possible business succession. Fiscally, the company can be transferred to your successor(s). The most common structure for business succession is the holding structure. This allows the sale to take place untaxed due to the participation exemption for the seller. Also, upon the death of the ‘DGA’, the shares can be transferred to the heirs without (direct) settlement by applying tax facilities.
As an entrepreneur, it is sometimes difficult to get a mortgage loan from a bank. Often you have to show figures from several years ago. A mortgage loan from the BV can possibly offer a solution. You can grant yourself a mortgage from the BV under favorable conditions. By meeting the legal requirements, you are also entitled to mortgage interest deduction. In short, you no longer pay interest to the bank but to your own private limited company. The money actually rotates from pocket to pocket.
The BV has a good image both internationally and nationally. However, many of these advantages require a holding structure. Are you in search of more information about setting up a BV or holding structure? Or would you like to incorporate your own BV? Schedule a free consultation with one of our advisors!
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