What is a private limited company or bv?
A private limited company, or in Dutch a besloten vennootschap (bv), is a business structure with legal personality. This means that the bv is generally speaking liable for any debts, rather than you as an individual. As a director, you are an employee of the bv and you act on its behalf. You can set up a Dutch bv with yourself as the only director/major shareholder (DGA) or with other individuals and/or legal entities.
A private limited company's equity is divided into shares that are owned by shareholders. They also hold ultimate power, but the company directors run the business on a day-to-day basis. A private limited company may appoint a supervisory board to monitor its board of directors (two-tier board), or the supervisors may be part of the board of directors (single-tier board).
In smaller bvs, the director is often also the only shareholder. In which case, he or she is then director and major shareholder, in Dutch directeur en grootaandeelhouder (DGA). You can also opt to have more directors, to share the responsibilities. There is no legal requirement to the number of directors for a bv.
Setting up a bv
You cannot set up a bv yourself. You have to enlist the services of a civil-law notary, as there are legal requirements for setting up a private limited company. There are essentially four elements:
- Drawing up the statutes in a notarial deed: this is called incorporation;
- Making a deposit of €0.01 starting capital– cash or in kind;
- Registration in the Netherlands Chamber of Commerce KVK Business Register (Handelsregister) – usually carried out by a civil-law notary (you remain personally liable until the registration is complete);
- Registration at the Dutch Tax and Customs Administration (Belastingdienst) - this also is usually taken care of by the civil-law notary.
Tip: tool for choosing a Dutch legal structure
There are several considerations to take into account when setting up a business. Your legal structure determines your liability and which taxes you need to pay. Are you not sure whether the bv is the right legal structure for your business? Use the Tool for choosing a Dutch legal structure to find out which legal structure best suits your company.
Formation phase: bv in oprichting
It's possible to start trading before you've set up your private limited company, provided you are registered in the KVK Business Register and a civil-law notary certifies to be handling the incorporation on your behalf. You may then operate as a 'private limited company under incorporation' (in Dutch: bv in oprichting or bv io).
Make sure you clearly state that you're acting on behalf of a 'bv io' when entering into any agreements with business partners. Any contracts are entered into as a legal entity in formation. You are personally liable for your actions on behalf of the bv io. Once the bv has been established, you can transfer contracts to your bv, subject to agreement from the other party.
Sometimes sole proprietorships append 'bv io' to their name because they're in the process of incorporating their business. Be aware that you're entering into an agreement as a sole proprietorship or eenmanszaak when you sign a contract in this phase.
The costs for running a Dutch bv are:
- €75 registration fee for the KVK Business Register (one-time fee)
- €0.01 starting capital
- Notary’s fee (varies; could be anything between €500 and €1,000)
- Bookkeeping / accounting fee (varies; usually between €600 and €1,800 per year)
Like any business, bv’s have to keep records. Bv’s also have to produce annual accounts and deposit them with KVK. Which data you have to submit depends on the company size.
Private limited companies that register in the Dutch Business Register have to include their 'ultimate beneficial owner(s)' or UBOs in the UBO register. This is one of the measures taken in accordance with the Prevention of Money Laundering and Terrorism Financing Act (Wet ter voorkoming van witwassen en het financieren van terrorisme, Wwft). Persons who have more than 25% of the company shares, more than 25% of the voting rights, and/or have the ultimate say in company matters are considered UBOs. Inclusion in the UBO register can be arranged via the website of KVK. Companies that were already registered in the Business Register when the register came into existence have until 27 March 2022 to register their UBOs. See for more information this article.
Taxes and the private limited company
If you own at least 5% of your company's shares, then you have a 'substantial interest' (aanmerkelijk belang) and are referred to as a 'director and major shareholder' (directeur-grootaandeelhouder, DGA).
As a DGA, you'll have to pay income tax (inkomstenbelasting) on your salary and perhaps Dutch dividend tax (dividendbelasting). Paying yourself a salary from your BV is a relatively expensive option. A less expensive option (fiscally) is to pay out a dividend. Your bv will also have to pay corporation tax (vennootschapsbelasting, VPB) over its profits.
If the bv has an annual turnover of up to €20,000, you can use the small businesses scheme (KOR).
Customary salary scheme
If you are a director or major shareholder, the Tax and Customs Administration (Belastingdienst) won't allow you to pay yourself an excessively low or zero salary. In Dutch, this is referred to as the gebruikelijkloonregeling or 'customary salary scheme' for directors and major shareholders. Your salary has to be in line with market levels, which is why the Ministry of Finance has set a number of criteria. You must pay yourself the highest of these amounts:
- 75% of the wages earned in the employment most similar to this one
- the pay earned by the best-payed employee in the company, or a company closely linked to your company
- a minimum annual salary of €46,000 (gross).
If you can prove that the customary salary in your business sector is lower, you may ask the Tax Administration to set a lower salary requirement for you.
The 'payment test' – withdrawing equity from a Dutch bv
Directors have to perform a 'payment test' (uitkeringstoets) if they plan to withdraw equity from their BV. Doing so is only permitted if there are sufficient funds in the BV. This helps safeguard the business's financial position and helps ensure that creditors will be paid. An example of such a withdrawal is the payment of a dividend to the bv's shareholders.
The bv's board of directors has to protect its creditors' interests by assessing whether the bv will still be able to meet its financial obligations (accounts payable) for a period of approximately one year after the withdrawal. If so, the board of directors has to formally approve the withdrawal. If not, the board of directors is not authorised to proceed.
Directors who in hindsight make improper withdrawals can be held jointly and severally liable for debts incurred.
Running a private limited company, you're in theory not personally liable for your business's debts. However, banks generally ask that as a director and major shareholder you co-sign for loans as a private individual. In which case, you're then personally liable for repaying any loans.
You can also be held personally liable in the following instances if:
- You entered into overly ambitious agreements and knew (or could reasonably foresee) that the bv would be unable to fulfil its commitments.
- You failed to inform the Dutch Tax and Customs Administration in time that you were unable to pay your taxes and social security contributions.
- You were unable to pay your taxes and social security contributions as a result of mismanagement or negligence in the three years before reporting this to the Tax and Customs Administration.
- Your BV was declared bankrupt due to mismanagement or negligence in the three years leading up to this event. An example of 'mismanagement' is failure to file annual reports and accounts.
- You made payments that you knew could potentially jeopardize the bv's financial position.
If you have appointed another legal entity as director, for instance another private limited company, this does not exempt you from personal liability. All directors share who were involved in setting up the bv share personal liability for repaying loans, or in case of mismanagement, the consequences thereof.
Are you a director and major shareholder (DGA)? In this case banks often allow you to take out a private loan. This makes you personally liable. As a shareholder, your liability is only limited to the amount of your participation in the bv.
Holding and Annuity Private Limited Companies
A holding company is a private limited company (bv) that owns shares in another bv. You can structure bv's in this way to protect equity, e.g. profits or your pension provisions, from your business risk. You can set up an 'annuity private limited company' (stamrecht-bv) to hold severance pay.
Directors may either jointly or individually sign contracts or perform certain legal acts on behalf of the company. This is stated in the articles of association. Directors can also give someone else power of attorney. This person may then also act on behalf of the company. It is not mandatory to register this person with the Business Register, however, it can be useful. For example, it is a way to inform your business partners about who is allowed to act on behalf of the company.
Personnel in the Netherlands
A bv can hire personnel. You have to pay Dutch payroll taxes and social contributions for your employees. If you are hiring employees for the first time, you must register as an employer with the Dutch Tax and Customs Authorities. You must also report this to KVK.
Dutch insurances and pension
As a director you are employed by the bv and covered by social insurance. There are exceptions, namely if you:
- Have 50% or more of the votes at the shareholders' meeting (possibly together with your spouse)
- and your immediate family members own two thirds or more of the shares
- cannot be fired against your will
In this case you can take out an insurance yourself. Read more about insurances and pension as a sole proprietor (eenmanszaak).
Ending a Dutch bv
If you want to sell your company, then you can either sell your shares or divest the business from the bv by selling off its equipment, inventory, etc. As a DGA, you'll have to pay income tax on the proceeds of the sale of your shares. If you divest your business, then you'll have to pay corporation tax on the profit.
If a shareholder in the divesting bv is itself a bv, then this holding company theoretically pays no tax on the proceeds if it owns 5% or more of the shares. If you want tto end the bv, a formal decision from the general meeting of shareholders is required. The bv then needs to pay off debts and dividend before it ceases to exist.
Changing the legal structure
You can change a Dutch bv to an nv, for example, if you want to be able to attract more capital. In order to change a bv into an nv, you must, among other things, amend the articles of association and have a deed of conversion drawn up by a notary. You can also change your BV into a sole proprietorship or commercial partnership (vof). For example, in case of disappointing profits.
Good to know
A flex bv is a regular Dutch bv. The term became trending in 2012, when the process of starting a private limited company was simplified.