The limited liability company we know in the Netherlands is called a Besloten Vennootschap, but referred to everybody as BV. How to start a BV?
How to start a BV?
A BV company is to be incorporated by a Dutch notary. The Dutch notary will have a list of questions for you to reply to. Simple things like what will be the name of the BV company and for what purposes will you use the BV company. Then there are less simple questions like if there are multiple shareholders, who will get what percentage of the shares. Does everybody get voting right, dividend rights. Questions we can help you with answering and also the notary is able to explain to you what you can do.
How to start a BV – share capital
If you incorporate a BV then you are the shareholder. But how many shares would you like to have? You may think I only need 1. But what if you would like someone to participate in your BV over time? That is then not possible. So more shares than one are normal.
What will be the share capital? The share capital can be any amount between EUR 0,01 and the highest amount you can think of. But, you do need to pay the share capital to start the limited liability part of the BV. The notary can incorporate a BV, you can start your company, but as long as the share capital is not paid to the bank account of the BV, you are personally liable for the obligations of the BV company.
You might tend to choose for the EUR 0,01. I can understand your feelings, but our experience learns us that nearly all shareholders that have chosen for this amount simply forget to make the EUR 0,01 payment to the BV. Hence they are personally liable all that time.
Then if you use the EUR 0,01, we need to put on the balance of the company the share capital. The rounding of the numbers make on your balance the share capital being zero. Investors or other persons you might need can get confused and assume you have not paid your share capital.
What can you pay for EUR 0,01 these days? I cannot think of anything, but if you incorporate a BV with EUR 0,01 share capital you put in EUR 0,01 to start running the business. The first invoice you will receive is that of the Chambers of Commerce for the registration being EUR 50, then the notary invoice arrives, the office rent company wants you to made a deposit equal to one month rent plus the one month rent. We suggest you make a calculation how much money the BV initially needs to pay the first running costs and use that as the share capital. For instance EUR 5.000 or EUR 10.000. Is also a nice share capital to show on the balance.
How to start a BV – no money
Let us assume you were very intrigued by the EUR 0,01 share capital amount and the invoice mentioned above are coming in. How will you pay for that without being called out bankrupt before you even started? The solution is to loan to your BV company the amount the BV needs to run the company. But by doing so you set immediately one step in a snake hole, fiscally.
If you loan money to me, a person you do not know, it is a big risk for you. You tend to cover yourself for this risk with collateral, but obviously I have nothing to give, so you even out the risk in the interest percentage. As this is a big risk for you, you charge a high interest rate. Let us say 14%. How do I get to 14%? That is the maximum percentage a bank can charge you by law when you take out more money from the bank than is in your bank account.
Of course you do know the BV company as it is your BV company, but that is not how you can look at it. You need to look at the BV as a third party person, currently with no track record in the financial field so you should charge them 14% interest over the money you loan your BV to pay for the costs. Of course the interest is tax deductible in the BV, but at the BV corporate income tax rate of 20%. The interest you receive is taxed in Box 1 under the progressive rate that goes up to 52% max.
That is what I refer to as snake hole, if you charge a much lower interest rate, like the 2% you see for mortgages, you are not acting business wise. The 2% is possible as the house is collateral. If you use the low percentage nevertheless, then the tax office dismisses the fact that this is a loan, but will assume it is capital you put in. And this capital you cannot pull out easily.
This you can avoid by setting the share capital at an amount that can pay for the initial costs, then you need to make a turnover to pay for the other costs.
How to start a BV – one client
One client is no client is an expression we use in the Netherlands to avoid so called employees to turn themselves in self-employed, so they pay less tax and the employer pays less social premiums. However, if everybody can start a new business with a full portfolio of clients, everybody would be successful starting a business. Hence we have the opinion you can start a BV company with one client. But keep in mind, one client is no client. In other words, if this one client decides to become a client elsewhere you have no turnover anymore.
One client is therefore not a problem, the tax office gives you a three year holiday to find more clients. We also recommend you to find more clients.
The exception to the rule are foreign clients. The reason for the tax office to pursue you finding more clients is that the tax office is afraid you are basically avoiding paying Dutch social premiums. But with a foreign client this is not the case. They have never paid Dutch social premiums and they will never pay Dutch social premiums, because if they are required to, they take their business to another country. If your one client is a foreign client, you can continue to work for this client for a longer period.
BV – administration
The BV company is a closed circuit organization. Everything that is leaving the bank account needs to be labelled. Either you pay costs for services, or if you pay yourself it can be salary, dividend or repayment of a loan. For salary payments you need to run a payroll administration, for dividend you need to have a positive result (profit after tax) plus file a dividend tax return and for the repayment of a loan you need to have a loan.
The administration we recommend you not to do yourself, but have it done by us.
Orange Tax Services
Our corporate tax advisors will hold your hand through the process of incorporating the BV company. We will advise you what we think in the best choice in your situation. We can run the full administration of your BV company and we can file all relevant tax returns. We work for all services with fixed fees, expect the fee for the administration. Feel free to apply for a quote of your services. Or look at our site where most service fees are mentioned.
