STARTING A BUSINESS IN THE NETHERLANDS
Starting a business is always an exciting moment, especially when you set up a company in a country where you neither understand the rules nor the language.
Setting up a business in a foreign country can be difficult. Broadstreet is happy to help and explains the basic rules and requirements here, which gives you sufficient knowledge to make your first steps on the Dutch market as an entrepreneur.
TYPE OF BUSINESSES IN THE NETHERLANDS
You can opt for different types of legal structures when setting up a business in the Netherlands. Your decision depends on several facts such as expected turnover, type of activities, risks etc. It is important to discuss the pros and cons of every business structure with your advisor to make sure that the structure you choose, is the one most suitable for your situation.
Sole proprietor (Eenmanszaak)
The most straightforward way of starting your own business is through a sole proprietor. The only requirement is that you need to register the business at the Chamber of Commerce.
Partnership (Vennootschap Onder Firma)
A partnership can be best compared to a collaboration of two or more sole proprietors.
Limited partnership (Commanditaire Vennootschap)
A limited partnership is a collaboration of sole proprietors and investors. The investors don’t have an active role in the company and are not personally liable.
Legal entity with limited liability (Besloten Vennootschap)
In Dutch a B.V., can only be incorporated by a notary. The B.V. has its own liability, therefore the director shareholder is, in principle, not liable.
Using the B.V. changes the way your revenues will be declared for tax purposes. Your own salary, which you will need to take out is taxed with income taxes in box 1, and remaining profits can be paid out as dividends (taxed in box 2). Administratively, a B.V. is bit costlier to run. There are two important factors that can make a B.V. worthwhile:
- Limitation of your personal liabilities
- A tax benefit when profits are high (over appr. € 150,000 p.a.)
Would you like advice on which type of business would be the best in your situation? Broadstreet can explain all the pros and cons of the various types of businesses in the Netherlands. Broadstreet can assist in the incorporation of a Besloten Vennootschap and help you determine the best way to incorporate.
REGISTERING YOUR BUSINESS IN THE NETHERLANDS
When you register with the Chamber of Commerce (KvK) in the Netherlands, you will receive a registration number. Usually, the Chamber of Commerce will also notify the tax office in order for you to receive a VAT number. However, it is also possible to ask for a VAT number directly with the tax office, instead of through the Chamber of Commerce.
Once registered with the Chamber of Commerce, the tax office will automatically register your business. You will receive the confirmation of the registration with the tax office, together with a username and a password. You need the username and password to log-in to the secured portal of the website of the tax office, meant for entrepreneurs. Through this portal, you can submit the VAT returns.
In case you have a consultant taking care of your tax filings, they will not need your personal log in details; most firms have their own software program and have a direct link with the tax office to submit returns on behalf of their clients.
If you need help with registering your business, please contact us. Our specialists are more than willing to answer your questions with regards to registering your business in the Netherlands.
BASIC PRINCIPLES OF BOOKKEEPING
Many small companies use Excel for their administration, as you are not required to use an accountant or a specific bookkeeping program. However, it is very important that your bookkeeping is up-to-date.
Bookkeeping needs to be done on an accrual basis, not on a cash basis.
Expenses you incur for your business activities, can be offset against your turnover. Some expenses are excluded from deduction such as:
- Cost for personal hygiene (hairdresser, massage);
- Penalties (speeding tickets, parking tickets etc);
- Office space in your home (only in very exceptional cases allowed).
The invoices you issue to your clients have to hold of a number of details such as:
- The date
- Sequence number of the invoice
- Your full business name and address
- Your client’s full name and address
- Your VAT number
- The amount of the invoice exclusive of VAT
- Applicable VAT rate and VAT amount
- Amount inclusive of VAT
VAT IN THE NETHERLANDS
When starting a business in the Netherlands, or supplying your goods or services to Dutch customers, you will be faced with the Dutch ‘Value Added Tax’, known as VAT and BTW in Dutch. As a new business in the Netherlands, you must register for VAT purposes. VAT is based upon EU directives, which means that the principles and structure of the tax is the same for all EU countries.
The VAT is known as a general consumption tax and is applied to basically all goods and services in the Netherlands. Essentially the VAT is a so-called consumer tax, but it is to be charged to each invoice issued and received by your company.
There are three different rates of VAT; 0%, 6% (9% starting from 2019) and 21%. There is a very extensive list of goods and services for the different categories. Below, we listed the most common ones:
0% rate applies to:
- International public transportation;
- Export of goods;
- Import of goods.
6% rate (9% starting from 2019) applies to:
- Services for bike repairs;
- Services of hairdressers;
- Public transportation;
- Taxi rides;
The 21% rate applies to:
- Any other service or sold goods.
Some services are exempt of VAT. For instance, the services of composers, writers and journalists.
VAT Transfer regulations
In case you render consultancy and advisory services to clients located outside the Netherlands, special rules may be applicable. In case you render services to a company located outside the EU/EER, no VAT is due. In case you render services to a company located outside the Netherlands, but inside the EU/EER, you can transfer the VAT obligation to your client.
This is only possible if your client has a VAT number in the country of residence. The client’s VAT number needs to be listed on your invoice as well. On your invoice you mention: “VAT transferred to the customer”.
For these types of services, you need to submit a separate VAT return (ICP return) in which you declare the VAT number of your client.
VAT return filing deadlines
Generally, you have to do your VAT returns quarterly. The returns have to be submitted, regardless of the amount of activities. So even in case you didn’t send out invoices yet, the return will still have to be filed. The filing deadlines are:
Q1 -> filing deadline April 30;
Q2 -> filing deadline July 31;
Q3 -> filing deadline October 31;
Q4 -> filing deadline January 31.
These deadlines are not only for filing the return, but also the payments, if due, have to take place before this date. Missing the deadline will result in a penalty. Not only a penalty for late filing, but also a penalty for late payment. It is not possible to extend the deadline for filing VAT returns.
Need help declaring your income to the tax office?
Filing for VAT returns is known as a timely task and many people despise the hard work that goes into the preparation. Broadstreet is happy to assist you with preparation and filing of the VAT returns, as well as with other corporate tax related matters for entrepreneurs new to the Netherlands.
TAX IMPLICATIONS IN THE NETHERLANDS
Determination taxable profit
Once you have determined your business profit, you probably wonder: How much taxes do I have to pay?
There is a difference between the gross business profit and the taxable profit. As an entrepreneur, you are entitled to several tax advantages. These advantages reduce the taxable profit.
1. Investment deduction
Any asset you purchase for the company with a value of more than € 450 is considered to be an investment. In general, investments must be depreciated in 5 years. The annual depreciation is an expense for the company, not the purchase price.
If you invest for more than € 2,300 per calendar year in your company, you are entitled to the investment deduction. The investment deduction consists of a deduction of 28% of the total sum of investments made in a year. If the total sum of investments in a year exceeds € 56,642, the investment deduction decreases. It may therefore be interesting to expedite or postpone your investments to the next calendar year to take full advantage of the investment deduction.
2. Deductions depending on minimum time spent
Entrepreneurs not operating through a B.V., who spend more than 1225 hours per annum on their business, are entitled to the self-employment deduction and the retirement reservation.
In order to come to 1225 hours, all hours are included; not only the billable hours, but also the hours spent on travel, acquisition, research. It is therefore important to keep track of your hours made for the company.
The 1225 hours apply to the calendar year and will not be recalculated pro rata should you start your business in the cause of the year.
3. Self-employment deduction
The self-employment deduction amounts to € 7,280 but will not be more than your gross profit. In case your gross profit is less than € 7,280, the remaining deduction will be carried forward to the next year.
For the first 3 years of your business, the self-employment deduction is increased to € 9,403 in total. For these 3 years, the deduction can be offset against your gross profit, regardless of the amount of your profit.
4. Retirement reservation
You can deduct 9.44% of your company profit for retirement savings, but no more than € 8,775 per annum. You do not actually have to put this money into a retirement fund, but upon closure of the company the tax office requires you to transfer the full amount of retirement savings into a pension plan. If you do not want to or you are unable to pay the funds into a pension plan, the full amount will be added to your taxable profit. The pension reservation can never be higher than the equity the business has.
5. Small companies discount
There is also a discount for small companies. After considering all the above listed deductions, the remaining profit is reduced with 14%, to come to a taxable profit.