Dutch Stak Structure
Netherlands BV Company
Fully Owned by Dutch Foundation
Advantages of a Dutch Foundation
As a Holding Company
Which type of holding company would be perfect for you?
You can use the Dutch BV, which is the most common private limited company in the Netherlands (no capital requirements, no restriction in terms of type and number of directors and shareholders, and remote formation possible within a few days).
The corporate tax rate is 15% for a taxable income of up to EUR 245,000 (standard corporate tax rate – CIT – is 25%); however, any incoming dividends are tax free, and moreover the BV company can apply for tax free investment status, so that it may be used as an investment fund, with no corporate or withholding tax.
Another option would be to use a Dutch foundation as a holding company; this legal entity will offer you several advantages, namely:
– The foundation is a self-owning entity (until it decides to issue profit certificates, so the owners are fully protected, and in most cases does not even have to be disclosed (in their local tax return, etc.); multinationals like IKEA prefer this setup, in order to prevent hostile takeovers, and put more power at the level of the board of directors. For tax purposes, profit certificate holders are typically treated equally as shareholders. It’s not required to issue profit certificates at formation; this can be done later. Please note that only profit certificates can be issued if there is also a Dutch BV as a subsidiary of the foundation. In effect, the foundation will be the legal owner, while it ‘transfers’ the economic ownership by issuing profits certificates. We call this setup the ‘STAK’ (Stichting Administratiekantoor);
– Profit receipts can be issued to investors or shareholders (like themselves), which allows them to take profits, but without getting any voting rights. In effect, the legal ownership is separated from the economic ownership;
– It does not require tax registration (in the Netherlands) if it is only involved in passive investments (owning real estate, stocks, shares, etc.);
– The foundation requires only one director, which can be a non-resident corporate entity;
– It can voluntarily register for taxes, when it becomes ‘operational’. Even if it becomes operational, it’s not required to register for taxes (or pay taxes) as long at the profits do not exceed 15,000 EUR per year;
– It has no formal UBOs, so when opening a bank account in Netherlands, no UBOs have to be declared (unless profit certificates have been issued, in that case the holders will be considered UBOs if they hold more than 25% of the capital);
– The foundation is considered to be an ideal option as a ‘conduit company’, for re-invoicing (royalties/import/export etc.) Since it will not generate any profits in that case, it does not require any tax registration. (Bear in mind, it will not be possible to utilize tax treaties as well);
– In case of death, or similar events, there will be no taxable event, because the ‘next of kin’ will be appointed as new board members, but there will be no transition of assets (instantly);
– In case of divorce, the assets of the foundation (owner) will be protected. In case profit receipts/certificates are issued, they are considered the same as ‘shares’ and are assets that can be seized;
The Dutch Foundation
The foundation is an entity with legal personality not owned by anyone and may serve a charitable or another, even a commercial, purpose.
A Dutch Foundation is a Dutch legal entity with limited liability but unlike a Dutch limited liability company (a Dutch B.V.) it has no members or share capital.
Not having any shareholders means it offers a degree of anonymity to the ultimate beneficial owner(s) (UBO) of the entity. This means that any party involved in the foundation, apart from the foundation’s board of directors, remain undisclosed. (Note: the source of funds and any underlying parties involved will need to be disclosed to the Dutch Central Bank).
Dutch Law has established that a Dutch foundation will not be subject to corporate income tax or VAT in situations where they are considered to be solely a holding foundation.
As it is considered a ‘legal person’, a foundation can be used as the top entity in a group structure and be recognized as the UBO of the structure.
A foundation may serve a charitable or another, even a commercial, purpose. Commercial activities within the objects clause will, in principle, be taxed with corporate income tax. The Law does not allow distributions to the promoter or directors or anyone except for charitable purposes (please check below our remarks to the Dutch Stak foundation). The director(s), with a minimum of at least one, administer and represent the foundation.
Foundations are commonly used for the following:
Re-invoicing purposes where the original UBO stays anonymous
Privacy and asset protection
Avoidance of inheritance tax and estate planning
Avoiding CFC or transfer pricing legislation
Why to chose the Netherlands
We distinguish between the Netherlands and other jurisdictions. The Netherlands is a high-tech country, has a strategic location and is considered the or one of the main entry ports to Western Europe. It has a clear international business environment. It is a stable country with a good legal system. It has a favourable tax regime, especially for holding, financing and licensing. The Netherlands have an extensive network of bilateral Double tax treaties. It has the participation exemption, exempting profits received from qualifying subsidiaries. Profits, if taxed, are taxed at a corporate income tax rate of 25% (profits below EUR 245,000 are subject to 15%).
There is no withholding tax on outgoing interest and royalties. The dividend withholding tax rate of 15% may be reduced under certain conditions to even zero under a Double tax treaty. The Netherlands also have an extensive network of bilateral investment protection treaties (BIT’s). Dutch BIT’s are a factor one should also take into account when considering setting up an entity in the Netherlands.
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Reasons why to decide for a Dutch foundation
Within the Dutch jurisdiction we distinguish between the Stichting and other instruments. The Stichting instrument is extremely flexible compared with the other – also rather flexible – instruments of Dutch corporate Law, such as the BV, the new Flex BV, the NV, the Dutch co-op and the Dutch Limited partnership.
Secondly, its formation and management costs are usually more reasonable.
Thirdly, it provides equal or even more privacy than the other instruments do and it is very well suited for holding activities, as shown below. It is not subject to any CFC rules. It can be used as an almost ideal instrument of asset protection and tax planning.
As mentioned, only if the foundation is deemed by the Dutch Tax Authorities to have a business, will it be taxed with Dutch corporate income tax.
It is considered a Dutch tax resident under tax treaties. A Dutch tax residence certificate may be issued.
If one combines it with a Dutch BV which is possible as explained below, there is no dividend withholding tax on dividend distributions (no tax treaty required). Tax consolidation is possible between a Dutch foundation and a Dutch BV. Dividends received by any capital gains realised by a Dutch intermediate BV/ Dutch Foundation combination should be exempt from Dutch corporate income tax.
The Dutch Stak foundation
The Stak foundation is a species of foundation holding investments or shares (shares) in a company (BV or any other) as legal owner, while the economic interest in these shares lies with another.
The purpose of the Dutch Stak construction is to separate the economic ownership of the shares from the legal ownership. How does it work? The Stak Foundation needs to become owner of the shares.
The Stak foundation therefore enters into an agreement with the legal owner (s) of such shares, stipulating that the shares will be transferred into the legal ownership of the Stak foundation to administer these shares for the benefit of the transferor and against the simultaneous issuance of – abstract – depository receipts (also called certificates) by the Stak foundation. This is the obligatory agreement. This obligatory agreement has to be followed under Dutch law by a transfer of the legal ownership of the shares, by Dutch notarial deed if the shares are shares in a Dutch BV.
Finally, the administration terms and conditions are also laid down in a deed. There are therefore three deeds. The transactions are then also recorded in the share register of the BV and the register of depository receipts held by the Stak. The details of the depository receipt holders are not made public. The foundation is registered in the Traderegister of the BV as sole owner of the BV shares where the BV has only one shareholder. The Stak foundation has become the legal owner of the shares and will exercise the voting rights while the depository receipt holders will receive the dividends.
Dutch taxation of the Stak foundation
Holding portfolio investments or shares in a holding is not a business activity.
The Stak is deemed transparent for Dutch tax purposes.
The Stak is therefore not subject to Dutch corporate income tax.
Any profits or capital gains will be taxed at the level of the beneficiaries’ country(ies) of residence.
Assuming the depositary receipt holders are not resident and do not trade or conduct a business or have a permanent establishment or permanent representative in the Netherlands and the investment is not located in the Netherlands, there will be no Dutch corporate income tax or other tax liability.
A Dutch foundation is a very flexible instrument. By issuing depositary receipts through a Stak foundation, voting and economic rights become separated.
The Stak foundation becomes an asset protection vehicle, limits disclosure of ownership, functions as an inheritance planning vehicle, amongst others.