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Quick and easy – but is there a downside?
Most people decide to set up a 'sole proprietorship', or in Dutch an eenmanszaak, when starting a business for themselves. Setting up as a sole trader has some advantages. It's quick and easy to do, and often offers more tax benefits than setting up a private limited company (Besloten Vennootschap, BV), especially in the early years. A disadvantage of establishing yourself as a sole trader is that you're personally liable for your business debts.
Setting up and registering a sole proprietorship
The only thing you'll need to do to set up as a sole trader in the Netherlands is register with the Netherlands Chamber of Commerce (Kamer van Koophandel, KVK). This will cost you €50,-. When you register, you will be listed in the Commercial Register (Handelsregister).
You can only set up one sole proprietorship, but you can operate under various trade names, perform different commercial activities and work from multiple premises.
Sole proprietors: VAT number procedure changes as of 1 January 2020
From 1 January 2020 onwards, the Tax and Customs Administration will issue your VAT number when you register at the Chamber of Commerce. When you register with the Commercial Register, the Chamber of Commerce will forward your registration to the Tax Administration, and they will process this to provide you with your VAT number. This may take up to five days. Until 1 January 2020, the Chamber of Commerce will issue you with your VAT number directly when you register your business.
The change in procedure is necessary to protect sole proprietors' privacy; prior to the change, the VAT number was linked to the private citizen service number (BSN). Personal data were freely available in the Commercial Register. The Data Protection Authority (Autoriteit Persoonsbescherming) has ruled that this is a violation of the GDPR. If you were already registered as a sole proprietor with your citizen service number before 1 January 2020, the Tax Administration will issue you with a new VAT number. You don't have to undertake any action.
Sole trader liability
Running a sole proprietorship, your business is not a legal corporate entity. This means you're liable for all your actions and finances. No difference is made between your personal and business assets. Creditors are therefore entitled to make a claim on your personal assets. You'll also have to file for personal bankruptcy if your sole proprietorship is declared bankrupt.
Taxes for sole traders
You'll have to pay income tax (inkomstenbelasting) on your sole proprietorship's profits. Various rates apply in the Netherlands according to how the Dutch Tax and Customs Administration (Belastingdienst) categorises income.
There are three categories that are referred to in the Netherlands as boxes – Box 1, Box 2 and Box 3. Profits from your sole proprietorship are taxed under 'Box 1 – Taxable income from employment and home-ownership' (belastbaar inkomen uit werk en woning).
If the Dutch Tax and Customs Administration recognises you as a business owner, and you meet a minimum working-hour requirement, then you'll be entitled to certain tax benefits. These entrepreneurs' allowances (ondernemersaftrek) consist of several tax benefits, such as private business ownership allowance (zelfstandigenaftrek) and tax relief for new companies (startersaftrek). After having deducted these allowances from their profit, entrepreneurs are entitled to an extra 14% tax relief, through the SME profit exemption (mkb-winstvrijstelling).
Sole proprietorship or private limited company?
If you're unsure about whether to do business as a sole trader or as a private limited company, list the differences and determine what's most important to you in your situation. Taxes may be lower for a BV, but the annual costs may be higher. Liability can also play an important role in opting for one legal form or the other. Read Legal business structures: an overview to help you make up your mind.
Social security and national insurance contributions
In the Netherlands, you'll have to pay national insurance contributions (volksverzekeringen) and you'll be entitled to an old-age pension (AOW) once you reach 65. This pension is a minimum income, which you'll have to supplement yourself.
Sole trader and employees
Even as a sole trader, it's possible to employ staff. The Dutch term 'eenmanszaak' (literally 'one-man business') simply refers to the legal structure, and has nothing to do with the number of people employed by your business.
Statistics: sole proprietorships
Number of sole proprietorships.