Me (Dutch citizen and resident) and my American partner are planning to set up an e-commerce business in the Netherlands. This american partner would like to participate through his US company (S-corp). We would like to make use of a holding structure, but are not entirely sure what our options are. Whether or not we should have a shared holding company etc.
Scenario 1:
- Shared Holding BV – 50% held by S-corp, 50% by Dutch shareholder personally
- Holding BV holds 100% of shares in Operational BV
Pros:
- Saves the setup and admin costs of a personal bv for Dutch and US shareholder), just two entities to set up and manage
Cons:
- Dividends need to be distributed evenly. Let’s say the Dutch shareholder would like to take out more dividend than the American or vice versa, that would be problematic.
- If you ever sell the Operational BV, the profit of that share sale would end up in the Shared Holding. From there you can either keep the profits there or pay them out as dividend. Paying out (a large) dividend to a resident in the Netherlands would result in a large tax bill. It would make more sense that the Dutch shareholder receives this in a personal holding.
- One of the main advantages of a holding structure is that you can postpone taxation and in the meantime use the built-up capital in the holding to invest in another BV, sideproject, invest in stocks, save up for pension etc. A few of those things are typically things you want to decide yourself and not together with a business partner.
Scenario 2:
- Dutch shareholder´s personal holding BV and S-corp participate (50/50) in Operational BV.
- No shared holding BV
Pros:
- Least expensive, just 1 shared entity (excl. the Dutch shareholder’s personal holding bv)
Cons:
- Scenario the US shareholder wants to avoid, since a potential share sale of the operational entity will fall into the S-corp whereas you want to keep it in Europe.
Scenario 3:
- Shared Holding BV – 50% held by S-corp, 50% by Dutch shareholder through personal Holding BV
- Holding BV holds 100% of shares in Operational BV
This is what the US shareholder argued for and a scenario that could work. Both the American (through S-corp) and the Dutch shareholder (through personal holding bv) can send invoices to either Shared Holding or Operational BV. Potential problem is still that dividend payment to both shareholders is difficult, since you want to avoid paying out to the S-corp.
Scenario 4:
- 1 Personal Holding BV for the American shareholder (owned by S-corp) and 1 Personal Holding BV for Dutch shareholder
- Those two holding BV’s own the shares (50/50) in the Operational BV
This alternative scenario would be that you would add an additional personal holding BV for the US shareholder. This would facilitate dividend payments from the Operational BV (share sale or regular dividend payment) to the Shared Holding BV and from there to the US shareholder’s Holding BV and the Dutch shareholder’s Holding BV. This way you can freely distribute dividend while the American will keep everything in Europe. The American shareholder preferred not to have his own personal holding. Day-to-day management of the holding could still be done by the Dutch shareholder (which would also be the only way of obtaining a bank account for the American’s holding.
This approach seems to make most sense. This does involve setting up several more entities but could make more sense in the long-run.
