Participating interest
A lasting capital interest in another company in order to be connected with it, to serve one's own activities (deelneming). Valued at net asset value or cost (art. 2:389 DCC).
What does participating interest mean?
A lasting capital interest in another company in order to be connected with it, to serve one's own activities (deelneming). Valued at net asset value or cost (art. 2:389 DCC).
A participating interest is a lasting capital interest aimed at a connection with another company. The nature of the influence helps determine the valuation; not every shareholding is a group company. The result and equity of the participating interest can affect the annual accounts.
How does it work?
A participating interest exists if the legal entity, alone or with subsidiaries, provides capital for its own account to another legal entity in order to be lastingly connected with it, to serve its own activities (art. 2:24c(1) DCC). A participating interest is presumed at one fifth or more of issued capital. The purpose counts: a 25% holding kept as an investment is not a participating interest but a security.
The valuation depends on the influence. With significant influence over business and financial policy, presumed from 20% of the voting rights, net asset value applies (art. 2:389(1) and (2) DCC): the share in the equity of the participating interest, calculated under the entity's own policies. For profit of the participating interest that the legal entity cannot distribute without restriction, it maintains a statutory reserve (paragraph 6). Without significant influence, acquisition cost or current value applies (RJ 214).
Example
On 1 January 2025 a BV buys a 40% interest for € 150.000 in Installatie BV, which has equity of € 300.000. Net asset value: 40% × 300.000 = € 120.000; the excess of € 30.000 is goodwill (art. 2:389(7) DCC). Installatie BV makes a profit of € 50.000 in 2025 and pays € 20.000 of dividend. Share in the result: 40% × 50.000 = € 20.000. Dividend received: 40% × 20.000 = € 8.000, deducted from the participating interest. At the end of 2025 the participating interest is carried at net asset value of 120.000 + 20.000 − 8.000 = € 132.000. The € 30.000 of acquired goodwill appears separately on the balance sheet, reduced by amortisation for 2025; it is not in the € 132.000. Statutory reserve for participating interests: 20.000 − 8.000 = € 12.000.
In the annual accounts
Financial fixed assets; detailed notes depend on size and influence.
Difference from a subsidiary
A participating interest is a capital interest with a lasting purpose. A subsidiary is a legal entity in which the parent can exercise more than half of the voting rights, or can appoint or dismiss more than half of the directors or supervisory directors (art. 2:24a(1) DCC). Subsidiaries in the group enter the consolidated annual accounts line by line; a minority participating interest remains one item.
Common mistakes
- Calling every holding of securities a participating interest
- Leaving intra-group items in at consolidation
What should you watch for?
- Request the annual accounts of the participating interest before you prepare your own.
- If the participating interest has negative equity, you value it at nil. A provision is needed to the extent that you are liable for its debts (RJ 214).
- Medium-sized and large legal entities state the name, place of residence and interest of every company in which they provide at least one fifth of the capital (art. 2:379(1) DCC); this does not apply to small legal entities (art. 2:396(5) DCC).
Legal basis and source
art. 2:24c and 2:389 DCC
Frequently asked questions
Is every shareholding of 5% or more a participating interest?
No. The 5% threshold belongs to the participation exemption in corporate income tax (art. 13(2) Wet Vpb 1969). For the annual accounts what matters is a lasting connection serving the entity's own activities, with a statutory presumption from 20% of issued capital.
May a participating interest be carried at cost on the balance sheet?
Yes, if there is no significant influence; current value is then also permitted (RJk B3.109). If there is significant influence, net asset value is the rule and you may deviate from it only for well-founded reasons stated in the notes (art. 2:389(9) DCC).
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Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
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