The Dutch limited liability company (“besloten vennootschap”, or “B.V.”). A few characteristics of the legal alternative for an “eenmanszaak” below.
At the notary’s
A legal entity in the Netherlands - such as a B.V. - is incorporated once your civil notary has executed the incorporation deed. Prior to the execution, you will principally need to present yourself in person at his/hers offices for ID purposes (this is expected to change in the nearby future). Once you have been identified, the notary can use a proxy or power of attorney to proceed. The notary will take care of the registration of your company with the Chamber of Commerce.
The notarial deed will be originally drafted and executed in Dutch (notary offices do offer translation services). Prices for the incorporation may vary from approximately EUR 450 – EUR 1,000 per deed, depending on the location, the expertise of the notary and of course the complexity of your tailor made wishes, if any.
With the deed amongst others the Articles of Association as well the total amount of shares (capital) are defined. In addition many other “ground rules” can be set out - directly from the start. Most notaries do work with template incorporation deeds in case you do not wish particular adjustments.
Capital, Shares & Board
Characteristic for a B.V. is that the entity has paid-up capital, which has been divided into shares of a certain amount (also the nominal or par value). The nominal value of the shares (in e.g. Euros) must be at least worth 1 Eurocents. In the past there was a minimum amount applicable (before 2012 even EUR 18,000 for a B.V.). Now corporate legislation is more flexible as regards incorporations. The total amount must be paid in cash or in kind (e.g. by contributing your “eenmanszaak” in exchange for the share transfer, reach out to us in case you wish to do so).
In the Articles of Association also specific restrictions can be arranged with respect to e.g. voting rights, profit or transferability. Principally at least once a year the shareholders have a General Meeting.
Board of directors
The board of directors is responsible for managing the daily business of the entity. Directors are appointed (and eliminated) by the shareholders. In the Articles it is stated who is authorized to represent the company from the start. As in common law countries, two tier boards are possible in the Netherlands as well (with a supervisory board). This is however more common for the larger companies.
Corporate income taxes (“CIT”) are charged against two rates. Profits, to the extent that they are taxable, will be taxed against 16,5% up to the first EUR 200,000. The excess (thus profits > EUR 200,000) will be taxed against 25% (2020 numbers). Generally before taxation, most business like expenses will be deductible. There are however some restrictions and limitations applicable. It is expected that the CIT rates will be reduced in the upcoming years. Principally, dividend distributions will be taxable in Box 2 (income taxes) as well. This also means that there is a certain tax turning point - between being taxed as an “eenmanszaak” or in a B.V. Our advisors can assist you with these considerations.
Management & Holding structure
Many starting business end up with a so-called management or a holding structure. This means that the ultimate beneficial owner (“UBO”) – the shareholder / individual - owns the majority or 100% of the shares in a holding company as a parent company (which is by the way a regular B.V. but with a different description of its activities). Then, on its turn, the holding company holds the shares in the working company (the subsidiary).
This set-up is primarily for tax reasons. A holding structure provides for (income) tax deferment in case the shares in the working company will be sold in the future. The so-called participation exemption prevents for economic double taxation. Profit distributions (dividends) between qualifying participating group entities are exempt from CIT. The parent company must own at least 5% of the nominal capital. If so, all benefits derived may be exempt (think of dividends, profits and losses on a sale of the subsidiary company). Also a holding company provides for the possibility to separate shareholder and business motives.
A holding structure also doubles your set-up and maintenance costs and may invoke negative tax consequences if not arranged properly. As such it is not always recommended to start directly with a double entity structure. Contact us if you have any questions in this regard. We are happy to assist.