There are various possibilities available to you when you want to invest as an individual in a Dutch company. In this blog, we will look at some different possibilities, and the consequences that they can have. We will primarily focus on the possibilities with both profit participation certificates and shares.
Participating with profit participation certificates
A profit participation certificate entitles its owner, the participant, to a company’s profit. This entitlement merely extends to a company’s net profit, and not to its assets. Additionally, a profit participation certificate does not give any right of ownership over the company or its shares. It follows that profit participation shares do not entitle their owners to voting rights and/or control over the company. Since there are many types of profit participation certificates, which do not have to be registered with a notary, many elements of a contract can be determined oneself. Thus, you yourself can control how complex the contract becomes and how the profit participation certificate will be valued. Similarly, no decision is required for the issuance of a profit participation certificate.
Participation through shares
Participation through shares gives the participant rights of ownership over the company. Shares can be issued without voting or profit rights. However, watch out here that both rights are simultaneously withheld: shares cannot, at the same time, include neither voting nor profit rights. Otherwise, however, the issuance, or sale of shares, indeed requires the intermediation of a notary. A disadvantage of participation through shares is that there is little possibility of diverging from standard shares, whereby less flexibility exists when valuing shares.
Participation through an investment portfolio
When a natural person holds an interest in profit participation certificates, and/or shares of less than 5%, in a company with its capital divided into shares, the value of the profit participation certificates and/or shares is taxed against a fictitious return in box 3. The advantage of this is that the value of the profit participation certificates and/or shares can, by simple means, be kept limited, namely through purchase with borrowed money. By purchasing with borrowed money, a debt exists in same box 3 that offsets the value of the profit participation certificates/shares. Through this, there is less, or even no, income taxation due in box 3 on the profit participation certificates and/or shares held. The distribution of profit and dividend are subject to Dutch dividend taxation of 15%. When filing company taxation returns, the 15% dividend taxation can be taken into account. It is possible to simultaneously possess both less than 5% of profit participation certificates, as well as less than 5% of shares, without qualifying as a significant interest holder. This is advantageous, since you therefore remain tax liable in box 3, where it is not taxed separately. The net income in box 3 is therefore equal to gross income in box 3.
Participating through an investment which entails substantial interest
When the interest in profit participation certificates and/or shares amounts to more than 5%, the income arising therefrom is no longer taxed in box 3, but in box 2. It follows that income will be taxed at 25% taxation, due to the significant holding.
You can choose to hold the profit participation certificates and/or shares through a personal holding, through which the 25% box 2 taxation can be postponed. The distributed dividends then namely become exempt from taxation on the basis of the participation exemption. As soon as the dividends received are distributed to the natural person, this is taxed at 25% in box 2.