Minimum capital is not a requirement for a Dutch L.L.C (B.V.), not meaning that a minimum amount of capital is always the best strategy.
The optimal finance structure for your Dutch business will first depend on the operational needs of your business. Although the operating cash flow can be advanced to the current account, this is generally not tax-effective, as it forces the lender to recognize interest from income when the corresponding interest expense at the level of the Dutch company does not create a tax benefit until the moment the Dutch company becomes profitable.
The solvability of a Dutch company is a deciding factor in the marketplace. The parties with whom the Dutch company will do business (banks, suppliers, clients, and partners) will prefer a counterparty furnished with high equity. Please note that only the amount paid in capital will be recorded in the Trade Register, as accessible by the public.
Once the permissible amount of loan financing from an operational perspective is determined, it may be considered to look into an optimal tax strategy for financing the business.
In general, there are three different ways to finance transactions and investments:
Each of these three forms of financing has its fiscal implications. Companies also have reasons - fiscally driven or not - to prefer one form of financing, which could be a limitation of liability, maximum flexibility, or profit-dependent remuneration.
In general, loan financing, from a Dutch tax perspective, is more beneficial than equity financing because under normal circumstances:
When the foreign lender is a qualifying substantial shareholder in the Dutch company or directly or indirectly related to such a party, the interest may become subject to Dutch corporate or personal income tax. We note that in most cases, tax treaties prevent the Netherlands from exercising this right on taxation.
The second and third points are less relevant for Dutch resident company shareholders. A Dutch resident company is subject to tax for interest received against the same rate as the company that pays the interest. The dividend withholding tax rate is 0% if the Dutch parent can claim the participation exemption.
For foreign shareholders, financing with loans is, in most cases, more favorable than financing with equity. Under certain circumstances, however, the equity financing of a Dutch company can still be a preferred option for foreign shareholders. This could occur in the following situations:
When a Dutch company is funded with loans, certain limitations apply. The most important limitations of loan financing are:
Net equity financing requires a legal entity with capital divided into shares, like a Dutch B.V., a branch can also be funded with equity, but this will, in most cases, mirror the funding of the foreign head office. For Dutch tax purposes, the equity of a Dutch branch is determined through the allocation of assets and liabilities.
Capital contributions into a B.V., for example, in exchange for new shares or as share premium by the meaning of cash, in kind, or equity allocation to a Dutch branch, are not subject to Dutch capital registration tax.
The return on equity in the form of dividends may attract a 15% Dutch dividend tax at source. Due to applicable tax treaties (many countries concluded bilateral agreements to prevent double taxation,) the dividend tax is reduced to even nil. An overview of the Dutch treaty rates is included in the Dutch Tax Treaty Database. The E.U Parent-Subsidiary Directive conditionally forbids the levy of withholding taxes on dividend payments to major E.U corporate shareholders. Various anti-abuse provisions apply.