Doing business in the Netherlands and compliance obligations

We noticed that many foreign companies and individuals are considering starting a business within the EU and/or the Netherlands. However, how should the business (model) be set up properly to ensure success?

Choosing the Right Legal Structure

The first step is to determine whether a local (legal) entity should be established or whether the business can operate without one (for example, by only having a tax registration, which we will discuss in a future blog). If it is determined that a legal entity is the most appropriate structure, the next step is to decide which legal form would be most suitable: a sole proprietorship, a partnership, a limited liability company, etc. In most cases, we see that a limited liability company is used: in Dutch, a B.V. (“besloten vennootschap met beperkte aansprakelijkheid”).

Registering a Business in the Netherlands

Establishing a legal entity in the Netherlands must be done through a notary, who usually also handles the formal registrations with the Dutch Chamber of Commerce and the Ultimate Beneficial Owner register. Once the B.V. has been registered with the Dutch Chamber of Commerce, the Dutch tax authorities automatically register the company for corporate income tax. Depending on the company’s articles of association, the B.V. may also be registered for VAT purposes.

Ensuring Sufficient Business Presence (“Substance”)

After the B.V. has been established, it is important for the company to have a sufficient presence in the Netherlands (“substance”). This can mainly be achieved by having at least one director who resides in the Netherlands (a Dutch legal resident and/or an individual residing in the Netherlands). This also makes the process of opening a Dutch bank account smoother. Once the bank account has been opened, the business can commence operations. However, what other obligations does a legal entity have in the Netherlands?

VAT Registration and Compliance

If the company is not automatically registered for VAT purposes but requires a VAT registration, a request can be submitted to the Dutch tax authorities. For this, it is important that the company engages in VAT-taxable transactions, such as sales activities, manufacturing, or management services.

Furthermore, the company must maintain proper financial records, which form the basis for filing VAT returns correctly and on time. From our experience, it is advisable to use accounting software, which often also includes invoicing functionalities. Additionally, most accounting software programs can connect to a Dutch bank account, allowing for accurate bookkeeping. In many cases, sales and purchase transactions can be automatically imported into the software and booked based on previous entries.

Annual Accounts and Financial Reporting

At the end of the financial year, the administration serves as the foundation for preparing and filing the annual accounts with the Dutch Chamber of Commerce. A trial balance can typically be exported from the accounting software, which can serve as the starting point for compiling the annual accounts and performing reconciliation checks.

During this process, the VAT position will also be reconciled to ensure that the company has correctly remitted VAT or appropriately claimed input VAT. Based on our experience, this often leads to filing an additional VAT return with the Dutch tax authorities. After the annual accounts have been compiled, they must be approved by the company’s directors and adopted by the shareholders during a general shareholders’ meeting.

Corporate Income Tax Obligations

The VAT position is also crucial for the corporate income tax return since the Dutch tax authorities regularly verify whether the VAT position (receivable or payable) on the balance sheet matches the filed VAT returns. As mentioned earlier, the final step in closing the financial year is preparing and filing the corporate income tax return accurately and without reservations.

Within this tax return, certain adjustments may be made, such as partially non-deductible expenses, depreciation differences, or investment allowances. After filing the corporate income tax return, the Dutch tax authorities will issue a (preliminary) corporate income tax assessment. Any corporate tax liability must be paid within eight weeks of receiving the assessment (for deadlines and compliance obligations, please refer to our other blog).

Additional Compliance Obligations

Above, we have outlined the basic compliance obligations for a Dutch legal entity. Depending on the complexity and nature of the business, additional requirements may apply. In this blog, we have limited ourselves to addressing certain key points without further explanation:

Setting up payroll and filing wage tax returns.
Applying for the 30% ruling for incoming foreign employees.
Meeting minimum salary requirements for substantial interest holders of a Dutch company (acting as directors).
Utilizing research and development incentives, such as WBSO applications for Dutch payroll tax or the innovation box regime for corporate income tax.
Obtaining work permits for foreign employees.
Other filings, such as EC sales listings (ICP returns) and/or Intrastat returns.