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 liable, for the company, its finances, and its debts. You can only set up one sole proprietorship in the Netherlands, but you can operate under various trade names, perform different business activities, and work from multiple premises.

Note: 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 at KVK in the Dutch Business Register (Handelsregister). You pay a fee (inschrijfvergoeding) for this. KVK will pass on your details to the Netherlands Tax Administration (Belastingdienst). They will determine if you are an entrepreneur for BTW (Value Added Tax, VAT). If you are, they will send you your BTW-id (VAT identification number) and BTW-nummer (VAT number) by post within two 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. Once registered, you can access Mijn eenmanszaak 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 are legally obliged to keep records for your business. Your records have to meet a number of requirements. Finances (the books) are an important part of your company records. They form the basis for your financial statement, that offers insight into your company’s financial position. Have all invoices been paid? What costs have you incurred for your company? The financial statement (jaarrekening) is the basis for your tax returns. You do not have to file your financial statement with (KVK). You can outsource the 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 an extra 14% tax relief, through the SME profit exemption (mkb-winstvrijstelling).

See additional information about paying taxes in the Netherlands

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). 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 corporate entity. This means you are 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. If your sole proprietorship is declared bankrupt, you peronally are also bankrupt. If you have a partner, you can prevent them from going bankrupt too by drawing up a pre-nuptial or registered partner agreement.

Signing authority

The owner of the business always has full authority to sign. This means you are entitled to sign contracts or perform certain legal actions, such as reporting a change in the Business Register. You can give someone power of attorney (or proxy rights), a document which states who else besides you is allowed to act on behalf of the 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. The first time you hire an employee, you have to register as an employer with the Tax Administration and notify KVK. Read what hiring staff involves.

Dutch social security and national insurance contributions

In the Netherlands, you'll have to pay national insurance contributions (volksverzekeringen) and you will be entitled to an old-age pension (AOW) once you reach the state pension age. This pension is a minimum income, which you can supplement yourself.

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. 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.

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 retirement reserve? This also counts as income, and you will have to pay tax. Read more about ending your business.

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. Also, if your company's turnover has grown, you may claim certain tax benefits if you have a bv. There are several ways in which you can convert your sole proprietorship into a bv.

You can also decide to join a commercial or general partnership (vof) or, if you practice a regulated profession (like dentist, architect, or surgeon), a professional partnership (maatschap). Joining a partnership doesn’t change your liability, but enables you to collaborate and share costs. Read more about changing your legal structure

Note: Be aware that for tax purposes, the Dutch Tax Administration views changes in legal structure as ending one business and starting another.

Sole proprietorship or private limited company?

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.