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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. 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. The downside of establishing yourself as a sole proprietor 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 a sole proprietorship in the Netherlands is register with the Netherlands Chamber of Commerce (Kamer van Koophandel, KVK). By doing so, 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.
Running a sole proprietorship, you are not a legal 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.
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 proprietorship 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.
- See additional information to help you decide between a sole proprietorship and a private limited company (in Dutch)
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.
The sole proprietorship and employees
Even as a sole proprietor, it's possible to employ staff. The Dutch term 'eenmanszaak' (literally 'one-man business') simply refers to the legal form, and has nothing to do with the number of people employed by your business.