What are your options if you wish to start a small business in the Netherlands? We go through them one by one in this blog.
The most prevalent legal structure used by independent contractors is the ‘sole proprietorship’ (eenmanszaak). The business is owned only by one person and this individual is in charge of the company. This indicates that a sole proprietorship has no legal personality.
A sole proprietorship is very common because it is simple to establish and inexpensive. All you have to do is go to the Chamber of Commerce and pay €51.95 to have your business registered in the trade register. When you work as a sole proprietor, you are eligible for several tax breaks.
The benefits of being a sole proprietor in the Netherlands include:
- You are not required to have an accountant approve your annual accounts;
- You prepare your own tax return;
- Recruiting employees is not hampered;
- The sole proprietorship’s output is the entrepreneur’s income. Therefore, only income tax is applied on this;
- Any investments may be offset against prior earnings. In turn, this lowers the investment risk.
However, owning a sole proprietorship has a disadvantage. Any debts owed by your business are secured by your personal property. If your business fails as a result of a poor choice, it could have a significant financial impact on you. In the worst case, this might cost you your home and its belongings. It’s a good idea to rewrite your prenuptial agreement as soon as you promise a sole proprietorship.
Can a sole proprietorship in the Netherlands employ workers?
Yes, that is possible. Rather than referring to the number of employees, the term “sole proprietorship” refers to the number of owners. Hence, a little misleading word. But remember that whenever you transition from being self-employed to running a sole proprietorship with employees, you must pay payroll taxes on their wages and maintain a personnel administration. Therefore, you should constantly think about whether it would be better to first seek the assistance of another self-employed person before hiring actual staff.
BV (Dutch Private Company) or sole proprietorship
Do you have the intention to start your own small business in the Netherlands unsure about whether to operate it as a limited company (BV) or as a sole proprietorship? We advise you to make a list of the differences and decide what matters to you the most. For instance, you may find that a BV has higher costs than a sole proprietorship, but that the tax rates are lower for a BV.
However, it often makes a big difference who is held responsible when financial situations are not really going well. You should carefully consider the type of risk you are willing to take on behalf of your company as well as the amount.
How is a sole proprietorship formed?
In the Netherlands, you can start a small business or single proprietorship quite quickly or easily.
Below, we’ve included a step-by-step process to start a small Netherlands business to help you on your journey. Here, we outline each step you must take to start your own sole proprietorship in the Netherlands.
1. Start a new sole proprietorship registration with the Chamber of Commerce.
Your new sole proprietorship is registered with the Chamber of Commerce under a name you decide is appropriate. You can do this by using the Chamber of Commerce website. You select your legal form by clicking on register a new company, and signing in with your DigiD. It is the sole proprietorship in your case. You complete the required fields and schedule a visit to one of the Chamber of Commerce offices located around the Netherlands.
You must pay a one-time registration cost of €50.00 if you want to be listed in the trade register. This sum is paid at the appointment. Paying using a PIN is necessary. No cash is accepted here.
2. Establish a corporate bank account.
While not necessary, it is most definitely advised. Opening a business account for your company. This helps you keep track of your finances more easily and makes it possible for you to observe how your business is doing by keeping your personal and commercial income and expenses apart.
You can open a business account at almost any bank in the Netherlands. You can either do it at the same bank where your private account was opened or at a different bank. Most of the time, opening a business account is simple and takes less than five minutes online.
3. Describe your obligations and liabilities.
As you start your small business in the Netherlands, list your responsibilities and liabilities. As we’ve said, when you as an entrepreneur accumulate debts, your private property is at risk. This is important to remember to avoid making hasty decisions.
4. Tax in the Netherlands
As an entrepreneur, you must deal with various taxes. If you decide to start a sole proprietorship based in the Netherlands, there are two kinds of tax you need to understand: income tax and turnover tax (also known as VAT return). Taxes can be quite exciting for many business owners, but if your administration is in order, there is no reason to worry. You can always hire an accountant to handle it if you find it extremely challenging.
If you are a new business owner, you may also be qualified for a sales tax exemption. This is possible because of the improved KOR (small business scheme). If your annual turnover is less than €20,000, you are qualified to join the KOR. There are advantages and disadvantages to this. One major advantage is that you are no longer required to pay VAT to the tax authorities. One disadvantage is that you can’t get it back.
5. Obtain commercial insurance
In the event of illness, you can rely on the WIA, WW, or Sickness Benefits Act if you have a job that pays. Being a business owner prevents you from being able to do this; you must make all of these arrangements on your own. This is possible with commercial insurance. Take a close look at this and decide for yourself which insurance you need.
Common types of business insurance include commercial liability insurance, legal defence insurance and disability insurance. These shield you from financial obligations, such as those incurred if you fall ill and are unable to work.
6. Administration
Every entrepreneur has to deal with taxes, whether they like it or not. The key to paying the right amount of tax and avoiding penalties is maintaining precise records. It is possible to save this physically in several directories, although doing so is a hassle.
If you handle your administration online, it will go much more smoothly. Using an accounting application or a tool like Excel, you can finish this on your own. It is possible to make invoices and send the necessary information to the tax authorities with only one click.
7. Pension
Starting a business means sacrificing a lot of certainties. Your retirement plan is one of them. Your employer is responsible for managing your pension if you are employed. Entrepreneurs are required to take care of this on their own. You should therefore keep in mind that you will need to save money for retirement. Additionally, you may insure your pension. For this, an annuities insurance policy may be employed.
8. Track down clients and collaborations
You must start generating income now that you have created a sole proprietorship. You must first determine your clients and partners before you can achieve this. Different approaches can be taken to this like running ads on Google or Facebook. However, doing so could result in significant financial loss; therefore, always seek professional advice (take it from someone who has had to pay thousands of euros in tuition.)
It is possible to attract customers using social media. Establishing a company presence on Facebook, Instagram or LinkedIn will help you connect with potential customers.
9. Hiring personnel
Contrary to popular belief, hiring employees is not prohibited for owners of single proprietorships. But that is incorrect. As a sole proprietor, there is no restriction on the number of employees you can hire.
The term “sole proprietorship” refers to the legal arrangement and has nothing to do with the number of employees you have. Do you benefit from having a second helping hand? Then you might consider hiring staff. Consider this carefully as hiring staff requires a lot of planning.
Before you recruit staff, I advise you to collaborate with other independent contractors who charge by the hour. Think about someone who works in sales, virtual assistance, marketing, design or accounting.
What other factors should you consider if you start a sole proprietorship or small business in the Netherlands?
VAT Tax Filing requirements in the Netherlands
You must submit a VAT return and pay the tax authorities the full amount of VAT you have assessed on your services and goods. Almost all business owners submit quarterly VAT filings (turnover tax). On the other hand, you can want to do this every month or every year. This is subject to special limitations. Prior to the deadline, be sure to file your VAT return. If you don’t follow this, you could be fined by the tax authorities.
Income taxes for small businesses in the Netherlands
You must pay income tax on your business profits. People who work for a living must also pay income tax, though the rate varies slightly for business owners. Entrepreneurs are eligible for various deductions when filing their income taxes. — particularly for small business owners. Consider the SME profit tax credit as well as the startup and entrepreneur tax credits.
The income tax is normally paid once a year, immediately following the completion of your taxes. But if you like, you can also make a quarterly advance payment. The annual statement then puts an end to everything.
