• Changes to Dutch corporate law : introduction of Flex BV

    Posted on juni 14, 2012 by in News

    On Tuesday 12 June 2012 the Upper House (Eerste Kamer) of the Dutch Parliament has passed the proposed Bill for the simplification and flexibilisation of BV-law (Wet vereenvoudiging en flexibilisering BV-recht) together with the accompanying implementation act (invoeringswet). The Ministry of Safety and Justice has notified that the Bill becomes effective as of 1 October 2012.

    Corporate law aspects

    The Bill will simplify the law governing Dutch private companies with limited liability (besloten vennootschappen met beperkte aansprakelijkheid; BVs) as laid down in Book 2 of the Dutch Civil Code. The amendments fit in with the needs of the current practice and will give more flexibility and freedom to tailor the articles of association in accordance to the wishes of the shareholders of a BV. The most important changes are:

    • The requirement of a minimum paid up share capital of EUR 18,000 will be abolished and the nominal value of shares may be denominated in another currency then Euro.
    • The rules on capital and creditors’ protection will become more flexible (such as the rules with respect to share buybacks, financial assistance and distributions to shareholders as well as the abolishment of the required auditor’s statement in respect of various transactions between the BV and its shareholder(s)).
    • The division of voting rights between individual shareholders will be more flexible and furthermore it will be possible to create by the articles of association non-voting shares and/or shares without profit rights.
    • The mandatory obligation to include a transfer restriction clause for the transfer of shares in the articles of association will be abolished. Moreover, if a BV opts to have a share transfer restriction clause in its articles of association, it will be possible to include a tailored provision on how the price for such shares should be determined.
    • The possibilities to adopt shareholders resolutions outside a meting will be broadened.
    • It will become possible that each shareholder will directly appoint and dismiss one or more directors.
    • The rules with respect to the distribution of profit and reserves to the shareholders will be less strict. Pursuant to the new rules such distribution shall require the approval of the board of managing directors. The board of managing directors shall refuse such approval, in case it knows or reasonably should know that the BV will be unable to pay its due and payable debts upon such distribution.

    The Bill for the simplification and flexibilisation of BV-law will not oblige to an amendment of the articles of association of existing BV. However, it is advisable to have the articles of association reviewed to check whether there are any provisions that might need amendment as a result of the new legislation. Such, to prevent inter alia any interpretation issues. Furthermore, it may be desirable to amend the articles of association to make use of all the new possibilities that are offered by the new legislation. We will be happy to advise you in this respect.

    Tax aspects

    According to the Minister there will be limited tax consequences following the new rules of theFlex BV. It is noted however that existing Dutch tax law and the concepts used therein are designed for the traditional forms of legal entity and it is uncertain how the existing rules may affect the Flex BV.

    Fiscal unity : In order to form a fiscal unity for corporate income tax purposes, the parent company must be the legal and economic owner of at least 95% of the shares in the nominal paid-up share capital of the relevant subsidiaries. With a Flex BV it will be possible for a parent company to be the economic and legal owner of the shares in a subsidiary, without holding the voting rights. Consequently, the rules regarding fiscal unity will have to be amended to require that the parent company also holds 95% of the voting rights in the relevant subsidiaries.

    Participation exemption : Under the well known rules of the participation exemption dividends and capital gains from qualifying subsidiaries in which at least 5% of the nominal paid up share capital is held are tax exempt. The question is how the introduction of shares without voting rights and shares without a right to participate in the profits will affect the applicability of the participation exemption

    Refund of dividend withholding tax : In the event of an improper dividend distribution that has to be repaid there is no statutory right to obtain a refund of dividend withholding tax. In the explanatory memorandum submitted to the upper house the Minister has confirmed that, for the purposes of levying dividend withholding tax, the mandatory repayment of dividends under the proposed will not be taken into account.

    Substantial interest – ESOP and foreign tax liability : When an individual, whether or not together with a related other individual, holds at least 5% of the outstanding share capital of a company, the individual is considered to hold a so-called substantial interest. The income (including capital gains) from a substantial interest is, after the deduction of costs, taxed for income tax purposes in box 2 at a rate of 25%. A substantial interest also exists if a (non)resident taxpayer holds at least 5% of the outstanding capital of a particular class of shares. Under the Flex BV rules, non-voting shares or shares with limited voting rights or profit-sharing rights will have to be regarded as separate classes of shares, and a holding of 5% of such shares will therefore constitute a substantial interest.

    For employees who participate in an ESOP through which non-voting shares are acquired, this may result that they are taxed in box 2 (at a rate of 25%) instead of in box 3 (at a rate of 1.2%). According to the Minister adjustments to tax laws shall only be taken if the rules prove in practice to be problematic. There were no commitments in this regard.

    The existence or non-existence of a substantial interest is relevant for other Dutch tax provisions as well, such as the foreign tax liability of non resident corporate entities under which non resident corporate entities could become subject to Dutch corporate income tax on dividends and capital gains from a substantial interest in a Dutch (holding) company.

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