In my previous post I briefly listed pros and cons of being an entrepreneur. The next logical question is—what does it actually mean, to be an entrepreneur?
To properly answer this seemingly simple question one needs to take a deep dive into the swamp of Dutch laws, regulations, stipulations, and definitions.
But first a bit of background information. The Dutch government considers small and medium enterprises (MKB) one of the pillars of the national economy, and rightly so. It promotes and stimulates business related endeavours of the citizens by the means of free and paid seminars, workshops, informational portals, mobile apps, social networks for entrepreneurs, subsidies for starting own business, tax benefits and so on.
In particular, in 2014 the Dutch Chamber of Commerce (Kamer van Koophandel), the official institution responsible for registering private businesses, opened a portal called Ondernemersplein (“Entrepreneurs’ Square”). This portal provides a lot of of practical information on various aspects of running a private business.
So what is an “entrepreneur”?
Back to the original question, the Ondernemersplein explains that entrepreneurship is defined differently by different authorities.
Without going into not-so-exciting details of the Dutch tax legislation, I’ll list the basic rules that might draw the attention of Mister Tax Inspector to your activities.
- You work independently and generate income as a result of that.
- You perform this work and receive income on a regular basis.
- These activities are not limited to your friends and/or family relations.
- You take certain risks in order to run these activities.
The Dutch Tax Office (Belastingdienst) uses the above criteria to test whether you are obliged to declare your VAT and/or income. However all this legalistic stuff is only useful while filling in tax declarations. What can be of more use for a freelancer is the understanding how he should register his business in order to get the most freedom while keeping risks and taxes minimal. And the most important choice concerns…
The type of business entity
Like many other countries, the Netherlands has the notion of business entity (rechtsvorm). A business entity can be of a number of types, but the most frequently used are two:
Let’s discuss why one would prefer one or the other.
This is the simplest type of business entity, a business owned and run by a single person. Officially called “eenmanszaak” (which literally means “one-man business”), but it’s common to call the owner a “zzp'er” (Zelfstandig Zonder Personeel, “independent [entrepreneur] without staff”) or simply a freelancer.
Registering such a business is a piece of cake: you only need to make an appointment at the Chamber of Commerce, fill out a couple of forms and pay €50 on the spot. One natural person is only allowed to have a single eenmanszaak, but the latter can have multiple branches and perform various activities. Also, despite the somewhat misleading name, the owner can hire additional employees.
It’s also pretty straightforward in terms of financial reporting. Once a quarter you have to submit a VAT declaration (btw-aangifte) to the Tax Office and once a year an income declaration (aangifte inkomstenbelasting). There is no distinction between your income and that of the business entity.
With all the simplicity this type of business has a significant downside: the owner is personally liable for their business. And if he/she is married, so is their spouse, too. In practice it means that if things go sour and the company fails to fulfil its financial obligations to its creditors or, say, employees, then the owner will have to sacrifice his/her possessions, such as car, house etc.
Since this form of business is not seen as employment, the owner doesn’t have to pay social contributions (however the complication of the Wet DBA is still relevant). For the same reason the 30% tax relief (30%-regeling) cannot be applied.
Private limited company (B.V.)
Establishing a B.V. is somewhat more involved. The official registration is executed by a notary, and their services are anything but cheap here. Very roughly you can expect a fee of €1000, but it can deviate by hundreds of euros in both directions with a specific notary.
Like eenmanszaak, a B.V. has to report its received and paid VAT once a quarter. What’s different is that it must also submit a complicated annual report (jaarstukken) to the Chamber of Commerce once a year—and that is on top of your own, private tax form. It also works differently in terms of taxation. In general, administering a B.V. is much more complex, and running it is more costly.
Its biggest advantage, though, is the complete separation between its business assets and the private possessions of the owner (except for cases of deliberate wrongdoing). Moreover, two or more B.V.’s can be combined to form a holding, which provides an even better risk protection.
Another difference is that B.V. is a form of employment, which allows to apply the 30%-regeling for migrants, and at the same time to avoid paying social contributions in case you’re a DGA (Directeur grootaandeelhouder), director with considerable interest. Your interest in company is seen as considerable once you possess more than 5% of the total number of the company’s shares. In other words, if you run the B.V. yourself, you’re always a DGA.
… and others
Besides the two types described above there are also several other basic ones (Vennootschap onder firma, Maatschap, Commanditaire vennootschap, Naamloze vennootschap etc.) that are used less frequently, and numerous combinations and derivatives, such as the holding I just mentioned. There also exist exotic patented schemes, such as ZZP-BV, whose goal is to protect freelancers from the insatiable Tax Office and the Wet DBA it upholds. In that scheme the company shares are redistributed in such a way that your business is formally not yours anymore and you’re therefore no DGA but merely a hired employee, albeit the most important one.
… and payrolling
The payrolling construction is standing a bit apart in this story. Payrolling is not a type of business entity, nor is it entrepreneurship from the legal point of view. But in fact it’s very close to running a one-man business.
In this scheme you get hired by a payroll service company (payrollbedrijf) on the conditions that you find work for yourself, as well as get paid from whatever you’ve earned. The company is in its turn responsible for all ongoing administration and accounting. It also pays your social contributions, which is somewhat reducing your income. And, of course, it charges you for its service.
In return you get liberated from most of the paperwork while retaining the freedom of working for yourself, you don’t have to worry about the Wet DBA, and you mitigate some risks by the available social security scheme. You’re also entitled to 30% ruling as long as it’s effective.
At this point I believe it’s clear that this subject is pretty complicated, and it takes some effort to get acquainted with. Or, if you don’t feel like spending your time on it, you may decide to outsource the preparations by hiring a consultant. The market for this type of services is huge in the Netherlands.