Sole Proprietorship and Partnership
For some small businesses a self proprietorship (in Dutch: Eenmanszaak) or a general partnership (in Dutch: VOF) can be considered. The setup is simple and affordable, but depending on the business the tax and liability is often less attractive. Below you will find a comparison of the three legal entities: sole proprietorship (eenmanszaak), general partnership (venootschap onder firma or vof) and private limited (BV).
Advantages of a eenmanszaak (sole proprietor) or vof (partnership)
- Low-threshold. Registration at the Chamber of Commerce is cheap (€50 one-off) and no starting capital is required. Furthermore, you do not need an office, but you need at least an address. This may even be a residential address.
- Flexible. Easy to start a business with several partners by drawing up a form-free partnership contract.
- Tax advantages for small businesses. Although income tax that you will have to pay as a partner is higher than the corporate income tax rate in the BV, if the profit is relatively low it can make sense to have a partnership (liability is another issue). This is mostly due to a couple of tax benefits. In case you have a 50/50 percent partnership, each partner will have to add 50% of the profits to his personal income tax. Some of the tax benefits are the following: You can qualify for ‘Zelfstandigenaftrek’ (+/- €7000). On top of that, as a starter you will qualify for ‘Startersaftrek’, an additional discount of over €2000 during three out of the first five years of the partnership or sole proprietorship. MKB-winstvrijstelling takes 14% of your taxable profit (after you have deducted the ‘Zelfstandigenaftrek’ and the ‘Startersaftrek’.
Disadvantages of a sole proprietorship or partnership
- Liability. As the owner of a sole proprietorship you are personally liable for all matters of the company. In a partnership each partner is liable with his / her private assets for all debts of the VOF, regardless of whether the debts have been caused by this partner.
- Not investor-friendly. A VOF does not have shares and therefore it will be difficult to attract outside investment in a general partnership.
- Higher taxes. In many cases a sole proprietorship or a general partnership pays more taxes than a Dutch private limited (BV) company.
- A BSN (national social security number) is required to set up a one-man company or general partnership. In practice you will need to be a resident to set up one of these business forms.
The partnership contract is relevant if you are a partner in a general partnership (in Dutch: vennootschap onder firma, or VOF). You are not obliged by law to have this partnership contract in place, but it is highly recommended. If anything changes between you and one of your partners, it could lead to conflicts that will be hard to solve since there is nothing on paper.Read More
The BV is a limited liability company and preferred legal form for foreign entrepreneurs in the Netherlands. That is because the BV is flexible, easy and affordable to set up. On top of that, the overall tax pressure on a BV in the Netherlands is one of the lowest in Europe. Finally, your BV will shield you from personal liability of your company’s actions, debt and bankruptcy.Read More
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