Here, they explain the two main methods to start a business in the Netherlands.
If you are planning to start your own business in the Netherlands, then you need to decide which legal form you will use.
Most new entrepreneurs choose between the sole proprietorship (eenmanszaak) or the limited liability company (B.V.) for their legal business form.
Therefore, in this article we will provide you with general information regarding these two options.
A sole proprietorship is a transparent entity, which means that it is linked to the owner. The owner is privately liable for the company’s obligations.
There is no distinction between your business and personal assets for the liability regarding your professional and private obligations.
In an eenmanszaak, the owner is, after deduction of all costs, taxed for the profit of the company. The sole proprietor needs to declare the profit in his Dutch annual personal income tax return. The business administration forms the basis for the income tax return.
As a sole proprietor, you are entitled to the general small companies’ discount of 14 percent of your gross profit. The applicable tax credits of up to 9.403 euros may also be claimed. The self-employed tax deduction is 7.280 euros and the tax deduction for startup businesses is 2.123 euros (applicable for the first three years).
The most important requirement to be able to claim the tax credits is that you have worked at least 1.225 hours for your business in the calendar year. This includes direct working hours but also hours you spend on traveling, market research, administration, education and more.
Another option is to work as a Dutch limited liability company, known as a Besloten Vennootschap (B.V.) in the Netherlands.
The liability and taxability of operating this way is different from operating as a sole proprietor.
The B.V. is treated as a separate legal entity and has to meet additional requirements, such as filing monthly payroll tax returns, quarterly VAT returns, an annual corporate income tax return and filing the annuals at the Chamber of Commerce.
This also means higher costs of advice to operate through a B.V. The extra costs are approximately 3.000 euros on an annual basis.
The private limited liability company limits your personal liabilities. The B.V. must have a share capital, however, since 2012, there is no longer a minimum capital requirement.
After all company costs are deducted (including wages) the net profit will be taxed.
The corporation tax in the Netherlands is 20 percent up to a profit of 200.000 euros, and 25 percent on profits exceeding 200.000 euros.
The net profit after taxation can be paid out as dividends to shareholders. The dividend tax, which the company is obliged to withhold, is 15 percent.
Additionally, the dividend is taxed in Box 2, with another 10 percent tax, when the shareholder files his personal income tax return. The total tax burden on distributed dividends is therefore approximately 40 percent.
The shareholder of a B.V. who holds five percent or more of the shares is obliged to receive a minimum salary if he performs work for the company. The company must withhold payroll tax on the salary.
This compulsory wage needs to be determined on the basis of the usual wage rules, which means that the salary is based on the sort of work performed by the shareholder, and must be at least 45.000 euros gross on an annual basis.
If you have a sole proprietorship and you decide that it’s time to continue the business in the form of a B.V., you should be aware that, in principle, you are selling your business to a legal entity, thus realising a taxable gain on goodwill and hidden reserves.
The income tax act allows for a conversion from an eenmanszaak to B.V. without the above-mentioned adverse tax consequences. The B.V. will take on the potential tax claims.
Please note that this conversion needs careful planning; it is therefore wise to seek expert advice.
Looking for guidance on setting up a company in the Netherlands? Contact Patricia van der Hut, a partner at Broadstreet, providing specialist tax and accountacy services to expats.
Previously under the name Finsens, the tax, accountancy and payroll divisions were renamed Broadstreet in 2016.