GENERAL INFORMATION
The Netherlands is located in Western Europe above Belgium and west of Germany. Country’s governmental system is constitutional monarchy, while its economy can be characterised as modern and the 5th largest in the euro zone.
Why Netherlands?
• Multi linguistic culture
• Skilled workforce
• Advanced infrastructure
• Economic stability
• Situated in the industrial heart of Europe
• Wide treaty network and use of EU Directives
Types of Legal forms in Netherlands
• Private Limited Liability companies (BV)
• Public Companies (NV)
• Cooperatives
• Societas Europaea (SE)
• Societas Cooperativa Europaea (SCE)
• Partnerships (general or limited partnership)
1. Private Limited Liability Companies (BV)
A BV is the most frequently used legal form in Netherlands since the shareholders of the company cannot be held personally liable for the company’s debts or other obligations. Furthermore, a BV is easy to be incorporated due to the recent amendments of the respective law which now does not provide for the existence of a minimum share capital and consequently the opening of a bank account.
2. Public Companies (NV)
Public companies can be set up by one ore more shareholders and should have at least one director. Shareholders’ liability is limited to the amount agreed upon the incorporation of the public company in return of shares. This legal form is obligatory for all stock listed companies and is mainly used by large enterprises.
3. Cooperatives
Cooperatives are associations with members (not shareholders) whom the liability can be defined by the incorporation deed. A Cooperative has to be incorporated by at least two members. Cooperatives may be limited or unlimited. The Dutch cooperative for many years has been closely linked with agriculture sector; however, nowadays more and more investors are using this kind of legal form as a holding company due to the tax advantages of using a cooperative.
4. Societas Europaea (SE)
Societas Europaea is a public EU Company with an exceptional nature due to its ability to be registered in one member state and then be transferred in any other European member state. An SE is governed by the Council Regulation on the Statute for a European Company 2157/2001 (the “Statute”), however, the statute does not provide for a comprehensive set of rules regarding the operation of a SE, rather than general provisions in relation to the overall operation of an SE. Currently there are more than 1.500 registered SE.
5. Societas Cooperativa Europaea (SCE)
The European Cooperative Society Regulation has been adopted on 22nd July 2003 aiming to facilitate the cross-border and trans-national activities of cooperatives by eliminating the obstacles arising from the national laws of each member state. An essential requirement for the creation of an SCE is that the founders shall come from at least two countries.
6. Partnerships (general or limited partnership)
Dutch Civil Code (Book 7a, Title 9) (the “Code”) governs the setup of general or limited partnerships in Netherlands. Contrary to the companies (public or private), partnerships are regulated by an agreement between the partners. The general partner or partners manage and represent the partnership in relation to third parties. This type of partners are jointly and severally liable for the debts of the partnership. In case of a limited partnership (i.e. CV), the limited partners contribute assets to the CV as a capital contribution or in the form of an interest free loan and substantially hold all of the interests in the capital and profits of the CV. The liability of the limited partners will not go beyond the amount of capital contributed.
Tax incentives
Some of the main incentives are as follows:
• Non-resident entities are only taxed on their Netherlands-sourced income
• Exemption for Dividend income arising from participations
• Exemption for capital gains arising from participations
• Wide network of Double Tax treaties concluded with more than 95 countries
WHAT YOU NEED TO KNOW WHEN ESTABLISHING A COMPANY IN THE NETHERLANDS
Titles 4 and 5 of Book 2 of the Code set out all the requirements for registering Dutch companies. Therefore, it is the core statutory law for corporate law in Netherlands.
What are the requirements for establishing a Company (BV & NV) in the Netherlands?
1.Share Capital: There is no minimum initial share capital requirement for BV companies as from 1st October 2012. The minimum share capital for a NV company is € 45,000.
2. Shareholders: The minimum number of shareholders is one (1), and this can either be a physical person or a corporate entity. Our firm offers nominee shareholders to hold shares as trustees of the client.
3.Directors: All companies shall have at least one director. The director can either be a physical person or corporate entity. The directors carry out the management of the Company and they have the right to take decisions on all matters.
Although there is no legal requirement relating to the nationality of the directors, we advise that if the Dutch Company intends to be a tax resident in Netherlands, then at least the majority of the board of directors should be comprised of Dutch resident directors.
4. Registered office: The registered office is the official physical address of the company and must be in Netherlands. Our firm can provide a registered office service upon request.
5. Tax Registration: It is obligatory for all Dutch companies to be registered with the Tax Authorities upon their incorporation.
What is the procedure of establishing a Company in the Netherlands?
A Dutch limited liability company (BV) – or a public limited liability company (NV) – must be incorporated before a Dutch civil law notary. The notarial deed of incorporation must be executed in the Dutch language, but usually the incorporators are provided with translated articles. The company name must start or end with the words Besloten Vennootschap” or the abbreviation “BV” (or in case of a public limited liability company “Naamloze Vennootschap” or the abbreviation “NV”).
Drafting the Memorandum and Articles of Association is an important step. The Articles of Association form the constitutional charter of the company. The Articles of Association comprise the regulations under which the company operates as a legal entity.
Due to the abolishment of the minimum share capital requirement on 1st October 2012, there is no more a requirement for the opening of a Bank account when incorporating a BV company.
If all the above mentioned conditions are met then the Dutch Company will be incorporated.
The final step of the incorporation procedure is the registration of the Dutch Company with the Chambers of Commerce and the Tax authorities.
Private Limited Liability companies (BV) and Public Companies (NV)
A BV is the most frequently used legal form in Netherlands since the shareholders of the company cannot be held personally liable for the company’s debts or other obligations.
The Dutch civil-law notary is the competent authority regulating the incorporation of a BV and an NV. Prior to the incorporation of a BV or an NV, the identity and all the relevant details of the incorporators, their legal representatives and the ultimate beneficial owners with an interest of 25% or more shall be disclosed to the Dutch notary.
The minimum capital requirement for the incorporation of a BV is €0.01 whereas for an NV is €45.000.
According to the Dutch respective regulations, a BV is allowed to issue only registered shares. On the contrary an NV is allowed to issue both registered and bearer shares. Both Companies provide the right for the creation of different classes of shares.
Finance Company
Private Limited Companies and Public Limited Companies are the most common legal entities for the formation of a Finance Company.
Income deriving from financial activities is taxable at the statutory rates of 20-25%. In case of a back-to-back finance company the company can suffice with reporting a small taxable spread on the interest. By establishing a Dutch Financial Company the applicants will benefit from the wide Double Tax Treaty network that the Jurisdiction of Netherlands offers and therefore they will be subject to reduced withholding tax on inbound interest. No withholding Tax is imposed on outbound interest.As the above example demonstrates, in cases where the Creditor is a Company incorporated in an offshore jurisdiction and the Debtor is an onshore Company, the interest payments are subject to withholding tax at a rate that may be as high as 30%.
If a Dutch Financial Company is interposed, the interest payments shall be subject to reduced withholding Tax which might be as low as 0%.
HOLDING COMPANY
Private and Public Limited Liability Companies are also commonly being used as holding Companies.The following example suggests the beneficial use of a Holding Company in Netherlands.
In cases where the parent Company in one country directly holds participation in another country where its subsidiary is located, dividend distributions may be subject to withholding tax at a rate of 25% or higher.
If for example the Subsidiary is Russia, which has concluded a Double Tax Treaty with Netherlands, and the Parent Company is located in another European Country, the Dutch Holding Company will work as a reduction mechanism. Normally dividend distribution from the Russian Company to the Parent Company would be subject to withholding tax of 15%. By interposing a Dutch Holding Company the dividend distributions is subject to withholding Tax of 5%, since the dividend distribution between a Dutch Holding Company and an EU parent company is exempt from dividend withholding tax. Due to the Dutch participation exemption, dividends received by the Dutch Holding Company are tax exempt.
DUTCH CV
A Dutch CV is comprised by at least one general partner and at least one limited partner who enter into a partnership agreement. Upon election of the partners the incorporation of the CV can be formalised before a Dutch notary. An example of a Dutch CV structure can be found below.
There are two kinds of Dutch CV, the closed CV which is not subject to tax and the open CV, which is subject to Dutch corporate income tax and has double tax treaty access.
No Dutch corporate income tax is imposed on partners of a Dutch CV if they are neither resident in Netherland nor conduct a business in Netherlands.
ROYALTY COMPANIES
Private Limited Liability Companies and Public Limited Liability Companies are the most common legal entities used for the formation of a Royalty Company in the Netherlands jurisdiction.
Royalty income is taxable at the rate of 20%-25%. In case of a royalty conduit company the company can suffice with reporting a small taxable spread on the royalty. If the Royalty Company is properly set up it will enjoy the wide Double Tax Treaty network that the jurisdiction of Netherlands provides and therefore will be subject to reduced withholding tax rates on inbound royalties. No withholding tax is imposed on outbound royalties. The below example demonstrates the beneficial use of a Dutch Royalty Company.
