Entity & structure

Comparing legal forms in the Netherlands

LEGAL FORM

Partnership

BV - private limited company

BV or branch

BV or NV

COMPANY STRUCTURE

Single BV

BV holding structure

BV owned by foreign company

Example of legal entity and structure advice

Entity and Structure for Businesses in the Netherlands

When starting a new company, founders should first select the preferred legal business structure:

Besides that there is the foreign branch. The latter has been out of fashion and is hardly seen as a serious legal form.

Most foreign entrepreneurs choose a BV. This Dutch legal form is the equivalent of the, German GmbH, the UK Limited company, the Norwegian AS and the Swedish AB.

Besides these entities exists the NV, comparable to a public liability company (or US Corporation). This is a very rare legal form in the Netherlands and not typically recommended.

Which legal structure is right for me?

Of the before mentioned, only the BV can be managed from abroad. That is because the others require residency in the Netherlands. The Dutch BV is the equivalent of the, German GmbH, the UK Limited company, the Norwegian AS and the Swedish AB.

On top of that, the low corporate tax rate makes the BV the most interesting choice for most small, medium and large enterprises in the Netherlands. Other advantages are that the BV is investor-friendly and the most transparent way of working together with co-founders.

A foreign entrepreneur in the Netherlands has roughly three options:

Either he has an existing entity abroad that will function as the mother company of the Dutch daughter company,
Or he sets up a single BV with himself as the main shareholder.
A third option is the so-called BV holding structure. This means in effect that the founder sets up two BV entities, a holding BV and an operating BV. The owner holds the shares in the holding which in turn holds the shares in the operating BV. This is the same setup as the Norwegian AS holding structure.

If the Dutch entity will not be a daughter company of a foreign entity, then the BV holding structure is usually the most plausible way to structure the company.

Let's take a small consulting business that wants to relocate to the Netherlands and will employ a small team. There is one shareholder and director. In the future, new partners or investors might come on board.

In this case you can either set up one BV or a holding structure.

Single BV is directly owned by the shareholder (person). Profits are taxed with corporate income tax. Distributions of profits to the shareholder (person) will be taxed immediately.
A BV holding structure consists of a holding BV (in case of several shareholders, several holding BV's) that hold the shares in the operating BV. Profits in the operating BV are taxed and can then be distributed to the holding BV tax-free. Capital built up in the holding BV is protected from bankrupcy in the operating BV. In case of a sale of shares in the operating BV (for example when the business is sold), the profits will be transferred to the holding BV where taxation can be postponed and profits reinvested free of tax.

Legal contracts for a BV

Find all contracts you should consider when starting and operating a BV limited company in the Netherlands.

Are there 2 or more shareholders active in your company? In that case, you should have a shareholders agreement. This agreement determines who has control over the company and what happens when issues arise.

Secondly, if you or anyone else will be employed in the BV company, you should have an employment contract. Not only is this important to protect the employee's rights. It also makes sure the employer knows what to expect from the employee in the BV.

Thirdly, it is very common to transfer money back and forth from your personal account to the company account and vice versa. Even if you accidentally using your company credit card instead of your private one, you are formally taking a loan from the company. These financial transactions should be legally formalized in a so-called current-account agreement (or in Dutch: rekening-courant).

Fourth, make sure to have your terms and conditions in order. Even more, if you operate a webshop, make sure you have your customer's rights and obligations written down in our specialized terms and conditions for ecommerce.

Fifth, almost all companies in the Netherlands deal with personal data in some way or another. You are most likely one of them. This is why we have designed an online GDPR check. Here you can do a legal quick scan to find out which legal documents you should have in order to be fully GDPR compliant.

And finally, at one stage in your company's lifetime it probably needs funding. Or you will sell or buy some shares in a Dutch company. We have created a selection of legal documents that are helpful when dealing with finding capital, selling and buying shares and taking a business loan.

FAQ about legal forms and structures in Holland

What type of Dutch company type should I choose?

Most foreigners that open a company in the Netherlands, open a BV company. This is a private limited company. If one or all of the shareholders of the company are located outside of the Netherlands you should most likely open a BV.

In some situations a branch office is a suitable option. A branch is a sort of extension of an existing foreign company. However, if you are planning on long-term business activity, we do not recommend this.

Another alternative is a sole proprietorship (in Dutch: Eenmanszaak) or a partnership (in Dutch: VOF). This is only interesting if you have a very small business that will stay small, you are yourself physically based in the Netherlands and your business has a very low risk profile.

Should I choose a branch or a limited company (BV)?

If you are looking for a long-term business presence in the Netherlands it is almost always recommended to set up a BV company. Although the branch office is a technically possible, in practice it has a few disadvantages.

First and foremost, Dutch consumers and suppliers do not like working with a branch of a foreign company, but rather deal with a Dutch company. Clients will be more sceptical in working with a branch office than with a permanently established entity.

Furthermore, liability for risk/debt lies with the founding mother company.

Finally, it possibly leads to double taxation problems.

Therefore it is usual more sensible to set up a structure properly straight-away, instead of having to change the structure again once the business is actually taking off.

Finally, the establishment and maintenance costs of a branch versus a BV are not substantial.

Should I set up a single BV or a BV holding structure?

In most cases it is beneficial to incorporate a BV holding structure. This means that you will incorporate two BV companies: one holding and one operating company. You will personally hold the shares in the holding BV. The holding BV will hold (part of) the shares in the operating BV. This will decrease your personal risk and will have certain tax advantages:

The holding company offers two important tax benefits. Under the Dutch tax rule participation exemption any profits on the sale of shares or dividend payments are received tax free in the holding. Because the profit is received tax-tree in the holding, you may use their full amount for further investments. This is a big cash advantage.

If you ever want to start up new activities, your holding company will serve as the base from where you conduct all of your activities. This allows you to use tax facilities such as the tax unity for the purposes of both corporate tax or vat. You may invest the profits of one BV tax-free in the other BV or offset any losses from the one with profits from the other, meanwhile lowering your tax bill.

Another benefit is the decrease of risk. Your company's vital assets such as IP, cars, business real estate, extra cash) are put in the holding company whereas the actual activity is undertaken in the operating BV. If the operating company gets into trouble or even goes bankrupt, your most important assets are safe in the holding BV.

A final financial advantage once you have accumulated assets in the holding is that you can provide a loan/mortgage to yourself from the holding so you can skip a visit to the bank. The interest on this mortgage loan will be paid to your BV, which is owned by you so you will receive the interest. This interest is in turn profit in the holding and then taxed at the much lower corporate income tax rate. The interest that you have personally paid to your own holding is again deductible from your taxable personal income.

Read a full overview in our BV structure guide

Can I Incorporate an operating BV first and holding BV at a later stage?

Clients wonder often if they can incorporate an operating BV first with a natural person as the shareholder. As soon as this BV is formed, they would like to set up the holding BV structure afterwards.

In our opinion, it is better to go ahead with the holding BV right away if you are seriously considering or are sure that you want to add a holding anyway. Adding a holding later is certainly possible, but would mean that the shares will need to be transferred from your personally into the Holding. A share transfer is done by notary deed and will involve extra notary fees.

Additionally, you will need to set up the Holding which is cheaper when incorporated simultaneously with the operating BV. This does not include the money spent to legalise documents abroad.
In conclusion, adding a Holding after registration of the operating BV is possible but we would not necessarily advise it.

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