Within the next two years, many Dutch companies will either change hands or disappear altogether. A survey held by ABN AMRO MeesPierson among over 400 directors/major shareholders showed that almost two in ten are ready to part with their company by early 2019. Half of these companies will be sold or passed on to the next generation. Others will be wound up. Many of the companies about to transition to new leadership or end their activities are family businesses.
Peter Pleijsant, tax expert at ABN AMRO MeesPierson’s Asset Management and Investment Advice Knowledge Centre, explains. "In the Netherlands there are around 70,000 directors/major shareholders aged 55 and over. At their age, it is only natural that they should be thinking about transitioning their business. After all, it’s a process that takes many years. Six to eight years of preparation are no exception. Sometimes it can be done more quickly, however. Now that most companies have emerged from the economic crisis, the time is often right for a change of leadership. Moreover, it may be good timing from a tax point of view to pass on the company now. There’s no telling what will change under the upcoming Dutch government."
A mainstay of the Dutch economy
Pleijsant sees opportunities for family businesses that choose to continue. "Family businesses are a mainstay of the Dutch economy. It bodes well for our country that the next generation believes in these companies and wants to carry on with them, preventing jobs from being lost. On the other hand, a director/major shareholder may also decide to wind up the company, for example because demand for its specific product has waned. This means job losses, which is of course a pity. But if the prospects are poor, closure may be the best option."
Directors/major shareholders who sell their company often use the exit proceeds to supplement their pension (23%) or to finance their home, a car and/or a holiday (also 23%). Two in ten decide to invest the proceeds. Gifting sums to children/grandchildren (14%) or charities (11%) is another alternative often seen.
Tax breaks for company transitions
Pleijsant points out that in many cases, there is no pot of gold at the end of the transitioning process. "The company is often wholly or partially gifted to the next generation," he says. "In the latter case, the beneficiary pays less than the fair value for the company. Under certain conditions, parties may also be eligible for attractive tax breaks. This frequently applies in transitions to the next generation. Sometimes, the successor does not have the financial means to fully finance the takeover, and gifting the entire takeover sum is not possible. In such cases, the current director/major shareholder is allowed to offer a discount. This is another situation where tax breaks may apply."