Sole trader or sole proprietorship

Many starting entrepreneurs choose sole proprietor (also called sole trader), or eenmanszaak as their legal structure. Setting up as a sole proprietor is quick and easy.

What is a sole proprietorship?

An eenmanszaak is a legal structure without legal personality. As sole trader you alone are responsible, and personally liable, for the business, its finances, and its debts. You can only set up 1 sole proprietorship in the Netherlands, but you can operate under various trade names, perform different business activities, and work from more than 1 establishment.

Difference from freelancer and zzp'er

Freelancer and zzp'er (zelfstandige zonder personeel) are not legal structures in the Netherlands. Most freelancers and zzp'ers who register at KVK, do so as a sole proprietor.

Setting up and registering a Dutch sole proprietorship

To set up as a sole trader in the Netherlands, you have to register with the Netherlands Chamber of Commerce KVK. KVK will pass on your details to the Netherlands Tax Administration (Belastingdienst). They will determine if you are an entrepreneur for VAT (BTW). If you are, they will send you your VAT-identification number and VAT tax number by post within 2 weeks.

Registering at KVK online

You can register your eenmanszaak online. You need your DigiD to do so. To finalise your registration, you need to make an appointment at one of the KVK offices. You pay a one-time registration fee (inschrijfvergoeding). Once registered, you can access My KVK using your DigiD to look up your company extract. You can then check that all the details are still correct and report any changes directly.

Administration

You must keep records for your business. Your records must meet a number of requirements. You must keep your records for at least 7 years.

Bookkeeping

An important part of your records is bookkeeping. This is an overview of all your financial matters. This includes your income and expenses, VAT paid and received, inventory, and cash in the bank. It also includes invoices and quotes. You use your bookkeeping to prepare your annual financial statements.

The financial statements (jaarrekening) provide an overview of your profit or loss and are used for your tax returns. You are not required to file your financial statements with KVK.

You can outsource your administration to a bookkeeper or an accountant. Prices for this are on average between €500 and €1,000 a year.

Income tax and VAT

You must pay income tax (inkomstenbelasting) on your sole proprietorship's profits. Various rates apply in the Netherlands according to how the Tax Administration categorises income.

There are three tax brackets, 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 Tax Administration recognises you as a business owner, and you meet the hours criterion (you have to put a minimum of 1,225 hours per year into your company to qualify), then you'll be entitled to certain entrepreneurs' allowances (ondernemersaftrek): 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 extra tax relief, through the SME profit exemption (mkb-winstvrijstelling).

See additional information about paying taxes in the Netherlands

VAT (turnover tax)

If the Tax Administration considers you an entrepreneur for VAT, you will have to pay VAT on your turnover. Whether you are considered a VAT entrepreneur depends on your situation (in Dutch).

Small businesses scheme

Is your turnover less than €20,000 a year? Then you can apply for the small businesses scheme (KOR). If you use the KOR, you don’t charge VAT.

Liability

In the Netherlands, a sole proprietorship is not a legal entity. This means you are liable for all your business's actions and you are personally liable for any debts with your own money. If your business does not have enough funds to pay your bills, you must use your personal funds to cover them. All your assets count toward paying off your debts, including your savings and your home.

Debts and your partner

Do you have a partner? If so, your partner may also have to contribute to your debts. Whether your partner is also liable depends on the official status of your relationship and when you entered into it. With prenuptial or civil partnership agreements, you can prevent creditors from accessing your partner's money. The rules for a marriage and registered partnership are the same.

> Read more about your partner's liability

Signing authority

The owner of the business always has full authority to sign. This means you are entitled to sign contracts in the name of your business or perform certain legal actions, such as reporting a change in the Business Register.

Grant authorisation

You can give someone a power of attorney (authorisation). This is a declaration that this person is allowed to act on behalf of your company.

Tip: if you give someone power of attorney, register them in the Business Register as well. This is not mandatory but it is useful. It means your business partners can verify who has authority to act on behalf of the company.

Sole proprietor and employees

Despite the name, sole traders can 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. There is no limit on the number of people you may employ.

Employees and taxes

You are required to pay payroll taxes and social security contributions for your employees. The first time you hire an employee, you must register as an employer with the Tax Administration and notify KVK.

> Read what hiring staff involves.

Dutch social security and national insurance contributions

Pension

As a sole proprietor in the Netherlands, you must to pay national insurance contributions (volksverzekeringen) and you will be entitled to an state pension (AOW) once you reach the state pension age. This pension is a minimum income, which you can supplement yourself.

Disability and illness benefits

You are not entitled to disability, illness or unemployment benefits. If you want to be certain of an income, even if you fall ill or have insufficient work, you can take out disability insurance.

Maternity benefits

If you are pregnant, you are entitled to maternity pay for 16 weeks or more. You can apply for this at the Employment Insurance Agency UWV, read about the terms and conditions.

Depending on your type of business, you may want to take out other kinds of insurance.

Changing your legal structure

You can change your legal structure from sole proprietor to private limited company (BV). One of the advantages is that not you, but the BV will be liable for the company, including its finances and debts. There are several ways in which you can convert your sole proprietorship into a BV.

You can also decide to join a general partnership (VOF) or, if you practice a regulated profession (like dentist, architect, or surgeon), a professional partnership (maatschap). Joining a partnership means you can collaborate and share costs.

Read more about changing your legal structure

Ending your sole proprietorship

Should you decide to end your business, you must deregister at KVK. You must also settle with the Tax Administration. If your company has increased in value over time, you will have to pay a discontinuation profit tax. Have you built up a fiscal retirement reserve? This also counts as income, and you will have to pay tax.

Read more about ending your business.

Sole proprietorship or BV, what suits you?

Many starting entrepreneurs are unsure whether to start up as an eenmanszaak or a BV. Read more about making the choice between a sole proprietorship or a private limited company.