Multiple reasons can come up why someone would incorporate a BV. In this article only 3 reasons not to use a BV company for your business.
3 reasons not to use a BV company for your business
In the Netherlands the most common used type of company is the so called one man company. Also referred to as ZZP or freelance company. A transparent company that is not a legal entity. The other option is a limited liability company, in the Netherlands named a BV company. This article is about the BV company.
3 reasons not to use a BV for your business: reason 1
Limited liability. The misconception about the BV company or limited liability company, is that your liability is limited. The correct phrase is that your liability is limited to the amount of the share capital paid up.
First common mistake made in this matter is paying up the share capital. The share capital can be as low as EUR 0,01. Some indeed incorporate with the EUR 0,01, or EUR 10 or EUR 100 share capital and then forget to pay the share capital. The amount is so silly, it is forgotten to pay. The limited liability does not kick in till the share capital is actually paid up.
Lawyers with a track record that hold your company liable for an issue that occurred act smart. Not only do they hold the company liable, the Limited liability BV, but also the person representing the company in person. That is you. And such lawyers are aware that if there is no money to claim with the BV does, they go for your assets.
Next to the lawyers you have the curators. The moment your BV company is doing bad, you pull the plug and run away….you think. Often in case of a bad running company the shareholder director cannot afford to pay the wage tax. Hence money is taken out of the BV not being taxed as salary. That is then a loan. The first act of business of a curator is to investigate this and ask you to pay that amount back.
The only point for the curator request this, is to hear you reply that you are not able to pay the loan back. Then the curator can go for your personally bankruptcy. Your personal assets can be sold to pay the outstanding creditors of the BV. That is the official story, the true story is that the curator does all of this in order to be paid him or herself in the first place.
3 reasons not to use a BV for your business: reason 2
Pay less tax. We encounter some entrepreneurs that were advised by others to work via a BV company, but the vehicle of the BV company does not suit them at all. Recently we met an entrepreneur making EUR 120.000 profit in the one man company or ZZP company. That is not enough to convert to a BV company.
The moment this entrepreneur converts the one man company to a BV company, there is a minimum salary obligation. The EUR 56.000 (2024) salary is instantly mentioned as the applicable salary. But that is not correct. The EUR 56.000 is the minimum amount. The correct salary is the salary a person doing similar work, not owning shares in the company. This could imply that the EUR 120.000 profit making company salary equivalent could be EUR 90.000.
Indeed, EUR 90.000 is less than EUR 120.000, EUR 30.000 to be exact. EUR 30.000 is under these circumstances taxed with 49,5% Box 1 income tax via ZZP being EUR 14.850 income tax. Via the BV company you pay first 19% corporate income tax being EUR 5.700. Hence EUR 24.300 profit to pay a dividend. The dividend withholding tax is 24,5% (2024) in this situation, being EUR 5.954. Hence the EUR 30.000 left over profit is taxed with EUR 5700 plus EUR 5.954 is EUR 11.653. The advantage is EUR 14.850 49,5% income tax minus EUR 11.653 corporate /income tax is EUR 3.196,50.
The running costs of a BV company annually easily is EUR 5.000 ex VAT. The party benefitting from your decision to start a BV company is the accountant charging EUR 5.000 plus VAT while you save before accounting costs EUR 3.196,50. I doubt that was the objective.
The pay less tax argument only comes in when the profit is much more substantial than the EUR 120.000 mentioned in this example.
3 reasons not to use a BV for your business: reason 3
The tax office announced in October 2024 that as per January 1, 2025 the war on companies with one client only, starts. What is this about? This is about social premiums not being paid.
The one man company or so called ZZP company is often a replacement of the employment. Not only does the ZZP entrepreneur earn more with the invoices send, than is possible in employment. By not being an employee, no obligation to attend meetings, no obligation to run night shifts (especially the case in the medical world). Not a true participant of the company.
The ZZP company with one client only is in fact a deemed employment. Entrepreneur credits are used, no employee social premiums are paid. But this is not an entrepreneur.
The BV company does not solve this issue. The director shareholder that receives a salary from its BV company does again not pay employee social premiums. No unemployment premium, no disability premiums. That is the issue of the tax office. Hence incorporating a BV company to avoid the tax office holds you and your client liable for missed social premiums, is not a solution.
Tax is exciting
We think tax is exciting. The moment a client or a new client would like to start a BV or already has one, we do investigate if that is the best set up for this client. Not only is running a BV company expensive, accounting costs wise. Also there are more obligations to meet, such as publishing the annual report. If you forget to do this in time, should the BV go bankrupt in the future, the director is personally liable. And for us the enormous fines set by the tax office, to have the company meets is obligations, is a discouragement if the BV is not the best fit for the client.
