Company formation in the Netherlands
Jul 5, 2022
Lots of foreign people in the Netherlands want to set up a business. And why not? There are very attractive markets here for anything ranging from commodities to specialized services, there are some interesting tax benefits to be had, and the best part: starting up is easy and affordable. If you know where to start, of course.
Where do I start?
The Netherlands has a number of different company formation types. These are the main ones:
BV (or Besloten Vennootschap)
NV (or Naamloze Vennootschap)
Stichting
Eenmanszaak
VOF (Vennootschap onder Firma)
Vereniging
CV (or Commanditaire Vennootschap)
Maatschap
Vereniging
Of these company formation types, there are realistically only 2 options for a starting entrepreneur in the Netherlands. The sole proprietorship (“Eenmanszaak” or “EZ” in short) or the Limited Liability Company (“Besloten Vennootschap” or “BV” for short). The VOF is essentially a collaboration between two EZs. The NV is the publicly traded variant of the BV, only reserved for big corporate organizations. The Stichting is the Dutch version of the English foundation. The other variants are specific company formation types for tax stituations. We will not go in to further detail there. In this article we will explain the main differences between the EZ and the BV for company formation in the Netherlands.
The pros and cons of the EZ company formation type are:
+ Easy and cheap to set up.
+ Sizable Income Tax advantages, attractive up to € 110,000 per year.
- Personal liability for the founder.- Hard to scale up.
- Has no shares, so cannot involve investors.
- No use of legal and tax benefits of a holding company.
- No possibility to obtain a 30% ruling.
In short: If you’re working as a freelancer with little or no assets, without a 30% ruling, and don’t plan to hire personnel or office space and earn less than €100,000.00 per year: you're better off with this one.
The Pros and Cons of the BV company formation type are:
+ No personal liability for the founder (s).
+ Possibility to attract investors by issuing shares.
+ Pooling of assets in your personal BV, creating the possibility to draw loans or mortgages.
+ Receive dividends and sale price of shares tax free under the so called “participation exemption”.
+ Possibility to obtain the 30% ruling if you meet the 30% ruling requirements
- Slight up front setup costs.
- Some additional accounting requirements (annual accounts, corporate tax).
- You’re required to pay yourself the minimum director’s salary, depending on cash flow.
In short: If you’re planning to set up and expand a business, involving assets, personnel, third party investments and potential liabilities, you want to obtain a 30% ruling, or if you’re even thinking of talking with investors: the BV is the only way to go.
How do I set up an EZ in the Netherlands?
Setting up an EZ is easy: it requires a registration at the Dutch Chamber of Commerce. You will get a registration number, and a VAT number from the Dutch Tax Authorities. You can start working immediately, though there are a couple of things you need to bear in mind:
Setting up an EZ is easy, but changing the EZ into a BV later on is more difficult. Depending on the stage of your EZ business, the change can end up costing thousands of euros in compulsory notary and tax advice work. Make sure you do your company formation correct at the beginning!
The administrative burden on the EZ is light, but existent. Be sure you are aware of your obligations under Dutch Income Tax and VAT regulations. It is strongly advisable to hire an accountant or bookkeeper to handle this for you, as the Dutch authorities still communicate mostly in Dutch and penalties for sloppiness can be stingy.
There are considerable income tax advantages to be had from the EZ. Look for the “Zelfstandigenaftrek” , “Startersaftrek” and “MKB Winstvrijstelling”. This can add up to € 10,000 - € 15,000 per year (!). Make sure you comply with the rules that apply here. In short: spend at least 1225 hours per year in your EZ, have 3 or more clients, promote your business, use correct freelance agreements.
Check out the test here (only in Dutch).Check out what legal documents you need. Starting as a freelancer? You need some basic documents. Are you processing personal data of your clients? Make sure you have all your documents in place.
How do I set up a BV in the Netherlands?
BV company formation in the Netherlands is easy as well. You only need a Dutch notary to incorporate it for you. This involves an upfront investment. Upon incorporation, the notary will register the BV at the Chamber of Commerce for you. You will then get a registration number and a VAT number from the Dutch Tax Authorities. There are a couple of things to bear in mind:
You will need to get a corporate bank account, separate from your personal bank account. Due to stringent KYC regulations, some Dutch banks may take a long time to accept you. But there is no requirement that your bank be a Dutch bank. You can also go for N26, Revolut or Wise.com.
Upon incorporation, you need to pay up your nominal share capital. This is the amount into which your shares are divided. If you have 120 shares of € 1 each, your nominal share capital is € 120. You need to pay this to the company bank account under Dutch law.
You have a number of obligations under Dutch Tax law. Unless you are an accounting nerd and fluent in Dutch, you really should hire a local accountant or bookkeeper to handle this for you. You can get one starting from €125,00. This will save you a lot of time, hassle and possibly fines.
If you set up your business halfway through a year, make sure you choose a continuous first book year. This means you only have to file your first annual accounts after the first full calendar year has passed, and not after the first fractioned book year.
You need a couple of contracts when you operate a BV. Most notably: a director’s employment agreement, a currency accounts agreement, a management agreement (if you have a holding structure) and a shareholder’s agreement (if there are multiple shareholders).
Setting up a BV is the moment to decide whether you’re going to be serious about entrepreneuring, or sticking to just one business. If you’re going to be serious, you need to think about incorporating a personal holding above your BV. You will then receive dividends and the sale price of shares in your holding tax free. If you don’t have a holding, you receive these in person, fully taxed as income. A holding also serves as a further separation of risk: put your valuable assets and IP in your holding, and lease them for use in the operating BV. Incorporating a holding later is costly as this requires a share transfer.
Can’t wait to get started with your company formation?
General Dutch Tax rules
The Netherlands has a good tax and legal climate for international entrepreneurs. But there are some rules you need to keep in mind.
Make sure you are employed or employable in the Netherlands. Having an EU/EEA or Swiss nationality helps here. Otherwise, you need to obtain a visa as a non-EU business owner.
Make sure you have a registered address in the Netherlands, or plan on having one shortly. You can register your company at your home address, but only if that address has a lease contract or ownership title in your name. Otherwise, you need to find an actual office space (not a virtual office) to register your company at.
Be sure you understand the Dutch tax and accounting obligations that await you after your company formation. VAT applies everywhere, but it is neutral in a business to business relationship. That means: you charge VAT but you can ask it back from the authorities. If you deal with consumers, you can only charge it and not get it back. VAT is a consumer tax, after all. VAT needs to be filed and paid quarterly. At the end of each quarter, you get one month to take care of business. If you don’t manage the deadline, you get penalties. The Dutch BV is subject to corporate tax (VPB) over the company’s profits. Be sure you don’t miss these terms and deadlines.
As a founder and director of a BV you are going on its payroll. This means you will pay yourself a salary and be taxed accordingly for Income Tax. Income Tax is considerably higher (progressive up to 49.50%) than Dividend Dax (26,25%). This is why business people prefer to pay as little salary as possible, and pay the rest as dividends. The inverse is true for the Dutch Tax authorities. They don’t want you to pay dividends unless you have paid a large amount of salary to yourself first. This is called the minimum director’s salary. In 2023 this amount is set to € 48,000 per year. It is normal that you cannot meet this requirement in the first few years. You can ask dispensation for this from the Tax Authorities, if you can persuade them with a cashflow prognosis. Don’t do this. This request can be denied and this puts unnecessary paperwork on your plate. Instead, just pay yourself no salary throughout the year, then at the end pay yourself a bonus salary if any liquidity remains after expenses. This is normal practice and accepted by the Tax Authorities.
You have a number of advantages operating a BV. You can take out loans or mortgages from your BV (once you get the cashflow going of course), as long as you pay a normal business interest to your BV. You can skip the interest rules if you make a current accounts agreement with your BV. Then you can loan up to € 17,500 for free!
You can use cost deduction rules, rules for business lease-car or telephone and more. Ask your accountant or bookkeeper!
Recap
Make a choice for your company formation in the Netherlands: EZ or BV. If you choose EZ, make sure you don’t have to change to a BV in the foreseeable future. This is a waste of money. If you choose a BV, think hard about incorporating a holding company above it. Doing this later requires additional costs of a share transfer. Again, a waste of money. Good luck in your business adventures! Do you have any questions after reading this? Don’t hesitate to reach out.
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