Business in Netherlands
Legal Entities in The Netherlands
The Netherlands has adapted the civil law system. Dutch law distinguishes two types of entities: Entities that have limited and those that have unlimited liability for the owner. The choice for the legal form under which to operate has both tax and legal implications. Tax and legal advice is strongly recommended before starting a business in The Netherlands. Business in Holland is pleased to introduce qualified advisors to our clients. We will briefly mention the types of entities available in the Netherlands. The Private Limited Liability Company is most used by foreign entrepreneurs; we will address this company in more detail and will provide information on the procedure and information required for incorporation.
Unlimited Liability entities:
These kinds of entities are those whereby the owner (or owners) is personally liable for any debt incurred by the entity. This type is just mentioned here but not discussed any further here. because it is in general not suitable for foreign entrepreneurs doing business in the Netherlands. We will be happy to go into detail on these kinds of entities upon request.
- Eenmanszaak: sole trader or sole proprietorship
- Vennootschap onder Firma: general partnership
- Commanditaire Vennootschap: limited partnership
- Maatschap: group practice of professionals such as lawyers, doctors, architects.
Limited Liability entities:
This kind of entity involves the incorporation of a distinct legal entity that stands separate from its founders I owners. The company is considered, by Dutch law. to be a legal person that is held itself (so not its founders, owners or directors) responsible for any company debts and obligations. Unless for exceptional circumstances. the owner (or owners) of the company cannot be held liable for any debt incurred by the company. Six entities fall under this category, the first to hereinafter discuss are most commonly advised to foreign entrepreneurs wanting to do business in the Netherlands:
- Besloten Vennootschap met beperkte aanspakelijkheid (“B\f'): Private Limited Liability Company;
- Naamloze Vennootschap ("N\f‘). Limited Liability Company or Public Company;
- Stichting: Foundation ;
- Fonds voor Gemene Rekeningi Mutual Insurance
After a short description of the characteristics of each legal entity detailed information will be provided on the procedure to incorporate a Limited Liability Company as that is most commonly used.
Private Limited Liability Company (“BV"):
A legal person, as considered by Dutch law, whose owners are not held responsible for any of the company's ﬁnancial obligations. The company's capital is divided into shares which are held by the shareholders. The company can issue registered shares only. Transfer of shares may be subject to restrictions. The use of shares is dictated by the Articles of Association which are stipulated during the formation of the company. The entity must possess at least eur 18.000 in cash or kind in order to be incorporated. A BV is subject to corporate income tax; all proﬁt generated by the company. For certain holding activities exemptions may apply. Creditors can only pursue the assets of the BV itself. The company director and its Shareholders are not liable for company debt.
Limited Liability Company ("NV"):
Limited company is a business structure that is best suited for larger businesses. An NV functions in the same manner as a BV. but with a few exceptions. Most characteristic are that the minimum capital requirement is eur 45.000 and that the shares of an NV may be transferred freely. issued to bearer as well as traded in the stock market Liability is similar to that of the BV.
A foundation is a legal entity and may run a business‘ As the foundation has no shareholders or members it cannot distribute profits. Foundations are commonly used for fund raising and charity.
A cooperative is a special type of association‘ Like an association, it requires at least 2 members to form and has no shareholders. Its objective is to act as a material needs provider for its members. There is no minimum capital required for the formation of a cooperative, and its proﬁts can be divided among its members.
A mutual insurance is an association that is essentially an insurance company. By virtue of its association status, the company has no shareholders and is owned entirely by its members‘ A cooperative and a mutual insurance are each a legal person; therefore, their members are not personally liable for the actions of the company and cannot be sued for any of its obligations.
Civil law notary:
The notary is a key person in all actions involving a legal entity in The Netherlands. He I she is appointed by the Crown and impartial by law. although paid by parties. He Is he needs to be satisﬁed that actions taken by parties are documented and registered in accordance with Dutch law.
Besloten vennootschap met beperkte aansprakelijkheid (“BV”):
This private limited liability company is a legal entity, as defined by Dutch law. with its capital divided in shares. The company may be formed by a single shareholder. Shares can be issued in registered form only. There is no limited on the number of shareholders, shareholders can be individuals and entities. Shares can be paid for in cash or in kind.
The minimum capital is € 18.000; this minimum capital required will be abolished per October 1. 2012. The rights attached to the shares are dictated by the Articles of Association which are stipulated during the incorporation of the company and may be changed by shareholder resolution.
The company director can be an individual or another entity. Directors can be shareholders and vice versa. The shareholders do not represent the company; the company is represented by its director(s). The directors can only become liable for the company debts and other obligations in the event of fraud or wilful misconduct. In order to have more control over the company the shareholders may include a provision in the articles of association that certain management decisions require prior shareholder approval. The articles may also include a provision that the directors can only represent the company acting jointly.
The notary will draft the articles of association based on the requirements of the intended owners. The notary will do a check on the good standing of the intended shareholders and directors. The Notary requires information on the identity of the shareholderslfounders, by law he has to determine the Ultimate Beneﬁcial Owners (UBO) of the company. Prior to factual incorporation the company must hold a bank account (or other assets) of at least € 18.000,- in order to be formed. The notary will require a bank declaration or auditor statement that the minimum capital of € 18.000 is available to the company.
Upon incorporation the notary will register the company at the Chamber of Commerce. The extract of this registration is required to register the company with the tax authorities and other relevant authorities.
In the event of non-Dutch resident directors the notary will send the relevant registration forms to the director for execution. The signature of the director needs to be legalised with apostille. Resident directors need to sign in presence of the notary.
A BV will need to register its annual report in a condensed format the Chamber of Commerce where it is available to the public.
A BV that meets two out of three of the following conditions is not required to have its accounts audited. Less than 50 employees, total assets less than € 4.4 million and turnover not exceeding € 8.8 million.
A BV is subject to corporate income tax. All income is subject to tax at the regular corporate income tax rates, only certain holding activities are exempt from tax. The current corporate income tax rate is 20% over the first € 200,000 in profit and 25% over any excess. The Netherlands do riot levy any capital tax, dividend withholding tax is 15% although under international treaties and EU regulations lower rates or exemptions may apply. Value Added Tax is charged at 19%, as of October 1. 2012 the rate will be increased to 21 %. The directors and employees are subject to personal income tax on their salary. grants and bonuses at a sliding scale.
Non-Dutch directors and senior employees who transfer to The Netherlands and who hold specific qualifications that are considered scarce in The Netherlands and are vital for the company may be granted a special regime for personal income tax. They may be exempt from personal income tax on the ﬁrst 30% of their gross income (so called" 30% ruling).
Information to be provided to allow the notary to prepare the draft Articles of Association for a Private Limited Liability Company (“BV"):
- Name of the company, please provide three alternatives;
- Seat of the company, the city in which it will have its principal place of business;
- Number of directors, copy passport of the directors;
- Representation powers vested in the directors: solely authorised or include any limitations and if so which;
- Please list, if any, the director resolutions that will require prior shareholder approval;
- Purpose of the company;
- Details on the direct founder(s), first shareholder(s) of the company;
- What initial capital will be made available, current minimum € 18.000;
- Shares will be issued with a par value of € 1.000; other par value preferred?
Information to be provided on the intended director if not a Dutch resident Dutch national:
- Dutch resident non-Dutch national:
- Copy passport including. if applicable. residence permit and working permit. All legalised;
- Director will appear at the notary to sign documents to accept the position and for registration thereof at the relevant authorities and registrars;
- Non Dutch resident non Dutch national:
- Copy passport plus proof of residence. legalised with apostille;
- The notary will send relevant documents to accept the position and for registration thereof at the relevant authorities and registrars for execution to the director; the directors signatures on these documents will require legalisation with apostille.
Proof of residence:
As proof of residence the notary will accept a declaration by the foreign person authorised under local law to legalise documents. accompanied by the document(s) on which this authorised person has based his / her declaration.
Information on incorporators / ﬁrst shareholders:
The foreign legal or natural person that wishes to establish a business in the Netherlands in the form of a NV or a BV is required to provide the following information to the notary appointed to handle the formal part of incorporating such an entity.
- legalized copy of the passport or identity card of the founder (if this is a natural person) and alternatively of the director of the founding foreign legal entity if this is the case.
- if a foreign legal entity is the founder; proof of the existence of such foreign legal entity in such a way that the authorities of the country of origin. or those who in the native legal system of this founder are capable of constituting such proof, clearly declare that said legal entity exists under the laws of its mother country. as well as who is capable of legally representing said legal entity. Of course, if the director is also a legal entity and not a natural person. the above applies until ﬁnally we arrive at a natural person who is entitled to legally represent said entity.
Information on Ultimate Beneficial Owners:
An Ultimate Beneﬁcial Owner is any individual that holds directly or indirectly 20% or more of the voting rights and I or of the economical rights to the shares in the Dutch company. The notary needs to be provided with a statement. including copies of documents on which this statement is based. issued by an authorised attorney under local law conﬁrming the ownership and the structure between the Dutch company and any and all UBO's as deﬁned herein above. This statement may also conﬁrm that no such UBO's exist or that the ultimate parent company is quoted on a regulated stock exchange.
Legalisation with apostille:
All documents mentioned hereinabove will require legalisation including. if applicable, confirmation of representation powers of the signatories. by an attorney admitted to the court plus apostille, or by the Dutch Embassy or Consulate