The decision to start a business is an important one and entrepreneurs may not always have the possibility to open a company, despite the fact that they are ready to work on their own. If this is the case, incorporating the simplest business form that allows one to engage in individual professional activities in the Netherlands may be the optimal solution.
This article summarizes the most important characteristics of the sole trader Netherlands. Read more below to find out a complete definition, when you can use this business form and how it is managed.
If you would like to know more about the sole trader, as well as about other business forms that can be incorporated in the Netherlands by local and foreign investors, please reach out to our team of specialist Dutch lawyers.
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What is the sole proprietorship?
A sole trader in the Netherlands is an individual business owner who manages his or her own activity and is fully liable for the debts of the company. The sole trader is one of the legal forms of business entities available in the Netherlands. Our Dutch lawyers can offer you complete information about all of the available business structures.
The sole trader does not have legal personality. Its identity is that of the business owner and it can only be owned by one individual. Entrepreneurs who operate a sole trader in the Netherlands may hire employees, according the type of business.
There is no restriction as to the field in which the sole trader can be used. Entrepreneurs can perform different commercial activities and operate under more than one trade name, if this suits their purposes. Moreover, they are not bound to a head office, they can work from any location. This high degree of flexibility can be an important advantage and it is often one of the main reasons, apart from the quick and easy incorporation, why entrepreneurs decide to set up this business form.
If you are year unsure of whether or not the sole trader Netherlands is suitable for your purposes and business goals, our Dutch lawyers can offer you complete information about all of the available business structures.
How is a sole trader business managed in the Netherlands?
One important issue about the Dutch sole trader is that the business owner is fully liable for the debts of the company. No distinction is made between the company’s assets and the personal assets. In certain unfortunate cases, like bankruptcy, creditors can recover their debts by claiming either business assets or personal assets.
Married couples in the Netherlands will most likely have share assets, thus the spouse’s assets are vulnerable in case of bankruptcy. In some cases, however, the spouse’s assets may be partially included in the business assets or not at all. Our lawyers in the Netherlands can give you complete details about liability.
Entrepreneurs who choose to work via a sole trader in Netherlands can choose to delegate part of their activities. This may be needed in some cases, as running a business one one’s own can pose difficulties from time to time. A solution for this is to appoint a thirds party to handle part of the manners by using a power of attorney. However, because in the case of the sole trader the individual is fully liable, there is the option to also register the other individual with the Commercial Register. By doing this, the entrepreneur maintains a transparent level of information regarding the manner in which the business is run and how many individuals (other than himself) have authority to act on behalf of the company. This can be important information for certain business partners and it can also be important from the point of view of liability, as this business form has the highest degree of liability.
The sole trader is subject to lighter accounting and reporting requirements, compared to other, more complex business forms that can be incorporated in the Netherlands. However, the owner of the sole trader is required to keep accurate and appropriate business records. The books, as well as other accounting documents are recorded as per the current provisions and need to reflect a transparent situation (the true financial situation of the company). A distinct advantage is that, despite the fact that the sole trader owner will keep proper and accurate books, he will not need to file the annual account with the KVK, the Dutch Chamber of Commerce.
How does one set up a sole trader in the Netherlands?
One advantage of the sole trader is that it offers a simple incorporation procedure and entrepreneurs can begin their activity in a short amount of time. The sole trader must be registered in the Commercial Register.
The sole trader needs to be registered for VAT in the Netherlands and the owner must pay income tax on its profits. If the commercial activities are subject to value-added tax, once the entrepreneur registers the sole trader, he will receive the Dutch VAT identification number by post.
Certain costs are in place for registering a business in the Netherlands and the same applies in case of the sole trader. Do keep in mind that these fees can be subject to change and our team of experts can give you updated information when you are ready to register. The non-recurring registration fee was set at € 51,30 by the Dutch Commercial Register, only payable digitally. The fee is required in order to cover the administrative costs of the registration.
You can read more about the taxes for a sole trader in Netherlands below. An important issue to remember is that the sole trader can, despite its name, hire employees. However, if the owner decided to grow the business in this manner, he will need to register as an employer (with the Dutch Tax Administration) as well as notify the Dutch Chamber of Commerce of this change. Once this step is complete, the sole trader owner will receive the forms that will be required to meet the payroll tax obligations.
Any employment relationship starts once the parties enter into an employment contract. Our lawyers can help you draw up this document by observing the current rules in the Netherlands for the working hours, minimum wage, the pension scheme and other important details. An issue to keep in mind is that the employer is generally required to find a suitable employee in the EEA and/or Switzerland first. If this is not possible (and he will be asked to provide proof of this), he can recruit an employee from another country. The Dutch Ministry of Social Affairs and Employment can ask employers to provide details on the identities of their employees.
Sole trader taxes in the Netherlands
The sole trader is a simpler business form, and investors enjoy the fact that it can be easily and quickly incorporated, however, they do need to fully comply with the laws in force regarding taxation. You can read below about the most important taxes for this business form, presented by our tax lawyers in the Netherlands:
- Income tax: profits derived from a sole trader are taxed under the “Box 1” regime, up to EUR 68,507 at a rate of 37.1%;
- VAT: the standard value-added tax rate is 22% and two other rates, of 9% and 0% apply, according to the types of goods or services;
- National insurance: in 2021, this contribution is paid up to EUR 35,130; the rate can be adjusted in the tear in which the individual reaches the state pension age; starting with 2021, the state pension age is 66 years and 4 months;
- Others: as a sole trader, one is not entitled to unemployment benefits, disability or illness benefits; pregnant women are entitled to benefits.
While the benefits that may be available to company owners do not apply to the sole trader, one should know that self-employed individuals still have access to certain benefits. We summarize these below:
- freelancers and self-employed professionals who have a low income;
- older and partially disabled formerly freelance or self-employed income support for those professionals who are forced to close the sole trader;
- allowance during pregnancy and after childbirth for female self-employed professionals;
- childcare benefits for those sole traders whose child is attending a childcare facility;
- assistance for starting one’s own business when the individuals has a long-term disability;
- starting a company and at the same time retaining the unemployment benefit.
Certain conditions apply for all of these benefits. We advise that those interested reach out to our team of lawyers in Netherlands.
In addition to the benefits listed above, sole traders or freelancers also have access to (and are advised to use) voluntary insurance against a number of business risks. Some examples of compulsory insurances include third party car insurance, building insurance, professional indemnity insurance. Some options for voluntary insurance include those in case of disability, business interruption, loss-of-income, machinery and equipment, business legal expenses, cyber insurance or sick leave insurance. These insurances are wholly or partly cancelled in the event in which the individual wishes to close down the business.
Sole traders in the Netherlands cannot claim insurance as employees are allowed. However, they do have the option to claim national insurance. Our lawyers can give you more details about the types of insurances that are available as well as accessing the types of benefits briefly listed in this article.
In the first quarter of 2021, there were 1,281,040 sole proprietorships registered in the Netherlands. By the third quarter of 2021, the number was 1,328,970. As a comparison, at the start of 2020 (Q1) there were 1,222,460 and at the start of 2019, there were1,139,455 sole proprietorships. The increasing number (as low as 912,960 during the first quarter of 2015) indicates that many businesses start as a sole trader.
Changing the legal structure of a sole trader
As the business grows, entrepreneurs may find that a different business form will better suit their new needs. A significant reason to switch from a sole trader to a private limited company (as it often occurs) is to reduce the high level of liability. As the name suggests, this type of company allows for limited liability (the founder is only liable up to the extent of the capital invested in the business).
Apart from enjoying a lower level of liability, entrepreneurs who change a sole trader into a company will be able to claim tax benefits, if they are available and they qualify for these. While it is true that the taxation principles will change, and that the corporation will be subject to other accounting and reporting requirements, the entrepreneur will rest assured that his personal assets will be completely separate from those of the business.
If a private limited company is not suitable at the moment, changing from a sole trader in Netherlands can also mean changing to a partnership. This can be a general partnership and while the liability will not change (as a partner the entrepreneur will still be fully liable), it may be advantageous in certain professions to join a practice and work together with colleagues.
As a sole trader in the Netherlands you are able organize your own business and focus on increasing your profit and number of clients. Our Dutch law office offers a wide range of legal and business services, suitable for all kinds of activities. Contact our law firm if you want to work as an entrepreneur in the Netherlands.