Share Premium vs Share Capital- Capital Funding in Dutch Company

A shareholder in a Dutch Company (BV) can fund the company with two possible options, and they are share premium and share capital. What are their pros and cons? Are they different? Let’s find out.

In relation to a Dutch limited liability company (BV), share premium and share capital is a part of a company’s capital (equity), and both are subjected to a neutral tax system. Share capital is raised by collecting funds from investors/shareholders, and in return, the company issues shares to the investors/shareholders. The shareholders either pay in cash on in kind.

Share premium is basically the difference between the face value of the shares and the actual amount received by the company by issuing those shares. Both of them eventually contribute to the company’s capital or equity.

As per Dutch GAAP (RJ 240.403), a company’s financial transaction with its shareholders in relation to the equity will be considered as directly linked to the company’s equity and will be dealt with accordingly. Therefore, the law will consider both share premium and share capital as parts of equity (capital). Moreover, these terms do not affect a company’s statement of comprehensive income/profit & loss statement.

As per Dutch Accounting standards, if a company collects fund by issuing shares, it will be considered as its equity. Similarly, if a company collects funds from its current shareholders without actually issuing or disbursing (or even rights to call or receive) new shares, then it is considered as share capital premium (Dutch Accounting Standard RJ 240.221). Moreover, any amount collected under the head “share premium” will be represented separately in the Equity section in financial statements-Statement of Financial Position/Balance Sheet. (article 2: 373, subsection 1 Dutch Civil Code).

Increase in Equity

According to the Dutch laws, if a company wants to raise the share capital, it needs to execute a deed with the help of notary under Dutch civil law. Notary will act as a neutral party and will need shareholder’s resolution (which must include power of attorney) and the company’s power of attorney as well.  Generally, a notary drafts a power of attorney, resolution, and notarial deed.

However, if the shareholder is a foreign entity/individual, the notary will also need a legalized resolution. At the same time, an apostille is also needed in some cases (it acts as a statement of authority). However, this step can be skipped if the Dutch notary identifies the signee.  After shares’ execution, the notary will register the newly issued capital with the Dutch Trade Register. Once the deed is executed, the shareholder will pay the company for the shares purchased.

Similarly, if a company wants to receive share premium, the following things are required:

  • Shareholder’s resolution.
  • Agreement of Share premium contribution between the company and the shareholder.

However, this agreement is not recorded with the shareholders’ register or the Dutch Trade Register. After the completion of the shareholder’s resolution and share premium contribution agreement, the shareholder will pay the premium to the company. This agreement doesn’t have any formalities, and the process can be carried out in one day.

If a shareholder wants to repeat the process of share premium contribution multiple times, it is better to make a separate agreement. Under this agreement, both parties (company and shareholder) will agree on contributions to share premium up to a specified maximum limit. This way, both parties will not have to make a new agreement every time. Also, the agreement provides flexibility in case it is difficult to assess the need for capital at the time of the agreement.

Redemption of Share Premium and Share Capital

Under specific conditions, shareholders can redeem share capital or share premium without paying any Dutch withholding tax on dividends. A company can repay the share premium to its shareholders without any taxation if the following conditions are met:

  1. The company has already distributed its profits.
  2. The company is not expecting any gains/profits in the coming 2 years.

This situation mostly occurs if a company goes through liquidation. Moreover, if it is difficult to comply with abovementioned conditions, shareholders can still redeem their share premium without paying withholding tax on dividends. For that, the share premium will be converted into share capital with the help of a notary deed.

The share premium will be redeemed without any formalities or the tax-neutral way in case a company is liquidated. If a company continues its operations, the execution of share capital in tax neutral way is possible by decreasing the shares’ nominal value. However, a notarial deed is required to realize this decrease in nominal value.

If shares’ nominal value decreases by 50 per cent, the company can distribute an amount equal to 50 per cent of the initial share capital to its shareholders.


Share premium and share capital, from taxation and accounting perspective, are considered as the components of a company’s equity and are treated accordingly. So, it is better to go for an option that can be executed or applied easily and quickly.

A contribution to share premium is more favourable because it requires less paperwork, less time and legal expenses. Moreover, investing in a company’s capital or redemption of that capital is subjected to withholding tax on dividends. Therefore, getting services of a tax advisor is highly recommended.

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