Setting up your business in the Netherlands
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Set your business in the Netherlands
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Setting up your business company in the Netherlands
Benefits to incorporate a Dutch BV company
1. Increase the reputation of your business
2. Pay less taxes
3. A Dutch BV company is easy to form, control and close down
4. Secure your ownership (money, assets, real estate)
5. Sustainable development of your business
6. Obtain a Dutch residence permit
If a non-EU-resident qualifies as wealthy foreigner in the sense of Dutch immigration law, a residence permit can be obtained for a period of five years. The cumulative conditions are:
- the foreigner has to invest a minimum amount of € 1.250,000, in a Dutch company based in The Netherlands;
- this amount is to be deposited into an account with a Dutch bank or a bank of an EU Member State with a branch in The Netherlands under supervision of the Dutch Central Bank (DNB);
- the investment according to the Dutch National Agency for Entrepreneurs adds value to the Dutch economy;
- the funds invested are not illegally earned;
- a valid travel visa/document for crossing borders;
- sustainable and independent sufficient means of existence;
- not causing a threat to public order;
- not causing a threat to national security.
7. Have unique investment possibilities
Types of Dutch business entities
The three main types of legal entities that can be set up in the Netherlands are:
(Commanditaire Vennootschaap, CV)
A limited partnership is a business run by more than one person. It has two kinds of partners: active and limited. The limited partner tends to be the financial backer for the company, and often enters into a partnership with a sole trader who needs financial backing. The limited partner tends to allow the active partner to make the day-to-day decisions and is only at legally at risk of losing their financial investment if they are not involved in managing the company in any way. Limited partners are not required to register with the Trade Register.
Active partners are liable to third parties and personal assets (including those of a spouse) are not protected from creditors (though a marriage contract can protect spousal assets). It is highly recommended to enter into a partnership agreement when becoming a partner, in order to clarify the duration of the partnership, contribution expectations, profit split, among other things.
For tax purposes, an active partner is usually considered to be a self-employed entrepreneur and is required to pay income tax on their share of profits. A limited partner who has only provided financial backing for the company is not considered a self-employed entrepreneur, and instead has joint entitlement.
Private Limited Liability Company
(Besloten Vennootschaap, BV)
A BV is a private limited liability company and is considered to be a legal entity, which limits the risks to the owner(s). Shareholders are only liable for their own capital contribution. To start a private company (BV), at least €18,000 in paid-in capital (not necessarily cash) is required. Shares are allocated based on the capital, and for tax purposes, any person owning more than five percent of shares has a “substantial interest” in the company and is liable for taxes on capital gains or dividends paid. It is necessary for owners to obtain a background check for fraud or bankruptcy from the Ministry of Justice. BVs are often considered to be the best way for a foreign company to establish a subsidiary in the Netherlands.
Company information and proof of incorporation in a foreign country (if applicable) must be filed annually with the Chamber of Commerce (KvK).
Directors of companies registered outside of the Netherlands are legally liable for the actions of the company until all legal requirements are completed.
Public Limited Liability Company
(Naamloze Vennootschaap, NV)
May be a subsidiary of a foreign company. An NV is owned by shareholders and shares may be traded on the public stock market, though shares are not held in any private person’s name. Therefore, owners may choose to remain unidentified. NVs may only be formed if it has at least €45,000 in paid-in capital. It is not a common type of business structure.
The Dutch Limited Partnership
(Commanditaire Venootschaap) CV
The Netherlands is not generally considered a tax haven or low tax jurisdiction, but the country is well regulated. It is considered an open, top tier jurisdiction which welcomes international business and boasts millenary experience in trade, financial services, and more.
The Netherlands is a highly developed member state of the EU, and a jurisdiction with a standard level of taxation. The rate of corporate tax in Netherlands is 25%.
However, Dutch legislation provides the opportunity of registering and using Netherlands entities with a zero rate of tax using a vehicle known as a Commanditaire Venootschaap (CV), similar in its composition to most limited partnerships in other jurisdictions.
The CV is a limited partnership having no less than two partners. One of the partners is a General Partner, while the other partners have the status of Limited Partners.
The legislation by default provides that the operating body of a CV company is the General Partner. However, there are no restrictions to appoint additional persons to the position of director or manager of a CV company. Nonetheless, the General Partner bears the basic responsibility for the commercial activity and for the financial obligations of a CV company.
Dutch CV as attractive planning tool
Basic C.V. requirements
The C.V. consists of at least two partners:
- A general partner
- One or more limited partners
The relationship between the partners is established by way of a Limited Partnership Agreement that includes their respective percentage of ownership. The partnership agreement will include a restriction on the inclusion of a new limited partner or the removal of an existing partner.
The general partner is entrusted with the representation of the C.V. in regard to its business activities. By contrast, limited partners may not be involved in the active conduct of the C.V.’s business.
The percentage of ownership held by the general partner can be small or large depending on the agreement reached between the parties. Some C.V.’s are structured with the general partner owning a fraction of the C.V.’s assets (for example 0,001%) and the limited partner holding the remaining 99,999%.
Provided the C.V. is deemed to be non-resident it does not need to maintain books or file accounts or tax returns in the Netherlands. Registration of the C.V. in the relevant Chamber of Commerce is required.
Most C.V.s used in international planning for families and companies from countries that place restrictions and impose penalties on the use of no tax or low tax jurisdictions are used for the holding of passive investments, such as a bank or brokerage accounts. In practice, this is achieved as follows:
- Ensuring that the financial institution with which the account is held will accept the C.V. as an account holder.
- Satisfying the institution’s due diligence requirements.
- The appointment by the C.V. of one or more limited attorneys-in-fact to operate the bank account (the beneficial owner can be selected as one of the persons).
- Financial institution statements will be issued in the name of the C.V.
- The annual administration of the C.V. will be the responsibility of the general partner who may undertake responsibility for the C.V.’s administration or contract with a specialist administrator, like Atrium, to administer the C.V.
Company type Commanditaire Venootschaap (CV)
Directors / Officers: Netherlands CV companies require a minimum of 2 Partners, who may be natural persons or corporate bodies from any legal jurisdiction. Each Netherlands CV company must file a Register of its Partners with the Netherlands Trade Register (Kamer Van Koophandel).
Shareholders: The legislation on Netherlands CV companies does not consider a status of shareholders.
Secretary: There is no statutory requirement for a Company Secretary to be appointed.
Authorised share capital: No minimum capital requirements; to be decided on the Partnership Agreement.
Company Names: The name of Netherlands CV company must end with the words Commanditaire Venootschaap, or suffix “CV”. Company names containing restricted words such as “Bank”, “Insurance”, “Trust”, etc. will not be permitted unless an appropriate national operating license has been obtained by the company.
Beneficial Ownership Information: Information with regard to ultimate beneficial ownership must be disclosed to the Registered Agent of a company and is held by the agent on a confidential basis.
Filing of Annual Return: An Annual Return must be submitted every 12 months after the date of registration.
Filing of Financial Statements: Depending on the LP residency for tax purposes.
Corporate Taxation: Corporate Tax rate for Netherlands CV companies with non-resident partners is 0%.
Tax Treaties: CV companies are not regarded as residents for tax purposes in Netherlands, and therefore are not entitled to take advantage of Double Tax treaties concluded by Netherlands with other countries.
Timeframe for Incorporation: 3/5 working days.
Dutch Partnership Income Taxation
The partnerships referred to above, have the mutual characteristic that they do not have legal personality, meaning that they cannot themselves enter into agreements or own assets. The CV can however under Dutch law have an equity separated from their owners.
A CV has per definition partners with limited liability (the Limited Partners), but also partners with unlimited liability (the General Partners).
For the General Partner the CV is always considered tax transparent, meaning that for the levy of income tax the general partner is in essence treated the same way as partners in a Maatschap or VOF: each partner is taxed for his/her share in the income of the partnership as if it was earned directly.
The tax status of the Limited Partners is dependent on the tax status of the CV.
Benefits of the Dutch Limited Liability Partnership (Commanditaire Vennootschaap, CV)
– Legal aspects
A CV is a contract between one or more general partners and one or more limited partners. While a CV agreement can be concluded verbally, in practice a CV is typically set up by means of written agreement (contract), which is preferably executed as a notarial deed by a Dutch civil-law notary. A CV can be set up easily and within a few days. Dutch law does not include requirements as to the contents of the CV-agreement, pursuant to the principle of contractual freedom. Also, there are no requirements with regard to the identity of the partners. Hence, residents as well as non-residents can be partners in a CV, while the partners can be private individuals as well as corporate bodies.
The management of the CV must be performed by the general partner(s). The general partner(s) can be held liable for the debts of the CV. While the general partner is entrusted with the management of the CV, the limited partner is typically the party that provides the funding of the CV. The limited partner may under no circumstances be involved with the management of the CV; violation hereof means that the limited partner also will become liable for any debts and obligations of the CV. It should also be noted that the partners are free to determine their respective interests in the profits of the CV. While no partner may be completely deprived of the profits of the CV, a profit allocation of e.g. 0.001% for the general partner and 99.999% for the limited partner is allowed.
In international structures, it is common that the CV only has one general partner. This general partner is typically a designated corporate entity, often a Dutch foundation, provided and managed by a Dutch fiduciary service provider. This is basically for two reasons:
- The CV is not a corporate entity; it cannot hold legal title to assets. Therefore, legal title to the CV-assets is held by the general partner for the risk and account of the CV.
- The Dutch Foundation is not an entity designated to conduct a business and, as general partner, will not conduct any other business. Hence liability risks are ruled out as much as possible.
Profit distributions by a “closed” CV to its partners are not subject to Dutch withholding taxes. Furthermore, the contribution of assets to a CV does not trigger any (capital) taxes.
Tax Planning opportunities
The “closed” CV is a highly popular international tax planning tool. This popularity is due the tax transparency of the CV and its highly flexible character. Because the CV is tax transparent, any profits of the CV will for Dutch tax purposes be allocated to the partners in the CV according to their pro rata interest in the CV. When the partners are not tax residents of the Netherlands however, the partners will not be subject to Dutch taxation in respect of their share in the profits of the CV, as long as the partners do not derive Dutch source income through the CV. Dutch source income notably includes an enterprise carried out in the Netherlands, substantial shareholdings in Dutch resident companies and real estate based in the Netherlands.
Below we will outline two very common international tax planning structures in which a CV is used.