Establishing a Dutch Company: Sole Proprietorship or BV?

Updated on 19 February 2024

It is easy to start a Dutch business, but every entrepreneur has choices to make. First of all, one must choose the legal entity that will operate the business; this determines the taxes he or she will have to pay. The main question is whether to register a Dutch sole proprietorship (one-man company or Eenmanszaak in Dutch) or a BV (limited liability company or besloten vennootschap in Dutch). Which one is better?

To consider to open a Netherlands sole proprietorship, you would need to first be a tax resident in the Netherlands. It is not recommended for foreign residents. The Dutch BV can be opened by a foreign resident.

The difference between a Netherlands sole proprietorship and a BV

The best solution is the one that fits the aims of the business. The Dutch BV is a company with limited liability (LLC). This option is attractive, since, in theory, the responsibility of the company members is restricted. But is this really the case in practice? Is it possible to operate a business without carrying private responsibility for its outcomes? Not according to us. The general conditions with respect to liability insurance may actually even out the differences between the BV and the sole proprietorship.

Having registered as a BV, you show your clients and partners that you own a reliable business, even if you are still operating alone. The sole proprietorship in Netherlands is frequently associated with a business operated by a single person, but this perception is incorrect. The business’ capital is indeed owned by a single person, but the entity may have numerous employees.

The BV has a series of fiscal rules involving the shareholder(s) and managing director(s). They regulate the distribution of salaries, the use of funds and other matters that can reflect significantly on the final tax liabilities.

The sole proprietorship has few rules. The whole profit of the company is subject to tax, but significant credits are available. Therefore an entrepreneur can generate taxable profit of approximately 22 000 EUR per year and be exempt from income tax for the first 3 years after the company’s establishment. Subsequently, the threshold drops to 18 000 EUR. With BVs every earned euro is a subject to tax.

The BV offers more options than the Dutch sole proprietorship. for example, share transfer to another party if the business is sold. No tax on sales is due immediately for holding structures. Loan contracts can be concluded, internal pension obligations can be drafted and so on.

An entrepreneur can always switch from sole proprietorship to a BV in order to sell the company or take advantage of other opportunities.