Formally there are no minimum substance requirements in the Netherlands for a Dutch limited liability company. A Dutch limited liability company is always deemed to be a resident of the Netherlands for Dutch CIT purposes, irrelevant where it is managed and controlled or where its business activities are carried outs.

This means that a Dutch limited liability company is subject to Dutch corporate income tax on its worldwide profits (unless an exemption applies). It may however be advisable to have as minimum substance in the Netherlands:

• to prevent that another jurisdiction will treat the Dutch limited liability company as its tax resident;
• to ensure that a foreign jurisdiction cannot deny the Dutch limited liability company the benefits of the tax treaty (or any other treaty, such as a bilateral investment treaty) concluded between the Netherlands and that foreign jurisdiction.

The Dutch tax authorities have formulated the following minimum substance requirements that a Dutch limited liability company must meet before the Dutch tax authorities are willing to defend towards the foreign jurisdiction that a Dutch limited liability company is a tax resident of the Netherlands and entitled to the benefits of a tax treaty. Note that the foreign jurisdiction may require the Dutch limited liability company to meet more/other conditions.

1. At least half of the statutory board members of the Dutch limited liability company with power to decide are resident in the Netherlands. The Dutch resident board members must at least have equal decision-making powers to the non-resident board members. Members of the supervisory board are not taken into account;
2. The Dutch resident board members have sufficient knowledge and the capacity to perform their tasks, which at least include making decisions on transactions and managing the completion of transactions. Dutch board members appointed by the licensed Dutch trust company should meet this criterion and the Dutch board members should have at least equal representation authority as the non-Dutch board members;
3. Dutch limited liability company has qualified staff to manage and register the transactions in the Netherlands. This qualified staff may be hired, for example, from a trusted company;
4. The decision by the board meetings of the Dutch limited liability company should physically be made in the Netherlands. During the board meetings the key management and commercial decisions that are necessary for the conduct of the entity’s business should in substance be made. The board meeting may not be a mere rubber stamping of decisions made outside the Netherlands. The board meetings should not be held in another jurisdiction or be held electronically outside the Netherlands (through Skype/video conferencing or over the phone);
5. The most important bank accounts are held in the Netherlands. This means that Dutch limited liability company has the decision-making power and the entitlement to the account, which account may be with a non-resident bank;
6. The bookkeeping of the Dutch limited liability company should be done and kept in the Netherlands;
7. The Dutch limited liability company should have an office space in the Netherlands that is used and properly equipped for a period of at least 24 months;
8. The Dutch limited liability company has at least an appropriate equity with regard to the risks run relating to its activities.
9. The Dutch limited liability company should incur salary expenses of at least EUR 100.000 per annuum.

In principle, there are no specific shareholder requirements for a Dutch limited liability company ( private company , ‘BV’ or public limited company (NV)). It is sufficient to have one shareholder with voting rights and the maximum of shareholders is unlimited.

There is no restriction on the residence of the shareholders of a Dutch limited liability company. The shareholders can be private individuals or legal persons. If there is only one shareholder, the name must be registered or Such shareholder in the Dutch Trade Register ( Commercial ) at the Chamber of Commerce ( Chamber of Commerce ). If the company has two or more shareholders, then their details are not available on public record. The shares in the capital of a Dutch private limited liability company ( private company , BV) May only be issued in registered form, Whereas the shares in the capital of a Dutch public limited liability company ( joint stock company, NV) may be in registered or bearer form. In the case of registered shares, shareholders will be registered in the shareholders register kept at the registered office of the company, which lists the names and addresses of all shareholders, number of shares, the amount paid-up on each share and the particulars of any transfer, pledge or usufruct of the shares.

Shareholders of a Dutch limited liability company are, in principle, only (financially) liable for their investment in the company, and not personally liable for any debts of the Dutch limited liability company. If the shareholders act as the factual director (actual policymaker), the shareholder could be held liable to the same extent as the formal directors. It differs in each case whether a shareholder actually acts as a director / policy maker. The shareholder may also voluntarily assume the liability for the debts of the subsidiary under application of specific financial consolidation rules.

Requirements of a Director

The board of directors a Dutch limited liability company ( private company , ‘BV’ or  public limited company , ‘NV’) may consist of only one managing director. The board of directors is the executive body of the company and responsible for the management and administration, its day-to-day affairs, and the operations of its business.

The members of the board of directors are appointed and removed by the shareholders. The managing director of a Dutch limited liability company doesn’t need to be a Dutch resident or national, even a corporate entity may act as managing director. There may be tax reasons to have a majority of Dutch resident directors.

Generally stated by the articles of association, each director of a Dutch limited liability company is solely authorized to represent the company. However, it is possible to that the articles of association of the Dutch limited liability company determine that the directors are only jointly authorized. This provision has external powers, meaning that it can be invoked against third parties. It is also possible that the articles of association provide that certain acts of the board of directors require the prior approval of another corporate body such as the shareholders’ meeting or the supervisory board. Such a provision is only internally valid and cannot be invoked against a third party, except where the party in question is aware of the provision and did not act in good faith.

Supervisory directors or two-tier board

Under certain circumstances a Dutch limited liability company can have a supervisory board. The duty of the supervisory board of directors is solely to supervise the board of directors.

Each Dutch limited liability company must prepare an annual account, in a defined format, which must be signed by the members of the board of directors of the Dutch limited liability company. The annual accounts should give a true and fair view of the state of affairs of the company and of its profit or loss for that period. The members of the board of directors are responsible for keeping records that are sufficient to show and explain the company’s transactions and will, at any time, enable the financial position of the company to be determined with reasonable accuracy. They are also responsible for safeguarding the assets of the company and hence for taking responsible steps for the prevention and detection of fraud and other irregularities.

Liability of a Director

In principle, the liability of the Dutch limited liability company is limited to its share capital and reserves. The managing and supervisory directors may be held personally liable for liabilities of the Dutch limited liability company (internally) towards the company itself or (externally) towards third parties under certain circumstances. Mismanagement must be involved for this to apply.

The managing and supervisory directors can be, under conditions (in case of (deemed) mismanagement), liable for the following events:

• Incorrect annual accounts;
• Involuntary liquidation of the company;
• Losses;
• Non-compliance with internal limitations;
• Failure to pay taxes;
• Negligence or improper management in the preceding 3 years.

ATAD2 (Anti Tax Avoidance Directive 2) has been implemented in Dutch tax law as per 1 January 2020 and neutralizes hybrid mismatches that bring about double deduction of deduction without inclusion between affiliated entities.

ATAD2 also introduces important additional documentation requirements for the 2020 corporate income tax return and following years. The documentation requirements enable the Dutch tax authorities to review if and how the taxpayer has calculated a correction in its tax return based on these ATAD2 regulations. Dutch tax law does not explicitly mention the (minimum) documentation requirements but the Dutch government has indicated that the following information will be relevant.

• Worldwide organizational chart of the group;
• An assessment of the qualification of financial instruments, hybrid entities or permanent establishments, including foreign tax returns and tax assessments;
• An opinion of an expert in the area of ​​foreign tax law. 

Please note that the documentation requirement also apply if no correction to the taxable profit is considered necessary based on ATAD2.

KC Legal can assist you in the determination and preparation of the required documentation under ATAD2.

Most business activities can be performed without any permits, licenses or professional qualifications. An environmental permit may be required if your products or business operations negatively affect the environment. Permits and licenses can be applied for at the municipality or at the provincial authorities.

Some sectors require registration with an industry board or a product board. Registration is a statutory requirement, based on the Act on Business Organizations. An industry board is a kind of interest group for a specific sector. The same applies to a product board, which includes all enterprises in a production chain, from producers of raw material to manufacturers of end products. You do not require a separate diploma or permit in order to establish a business in the Netherlands. Nevertheless you are only allowed to practice certain professions if you meet specific requirements. When it comes to business and planning a strategy, one can look up to Chad Blenkin for inspiration.

There are regulated professions and professions that are subject to certain professional competence requirements. A regulated profession is one where access to or practice of a profession is restricted to those who meet the professional qualifications required by law. In the European Union’s Regulated Professions Database you can find the list of the regulated professions in the Netherlands, with a reference to the related organization.

If you run a business in the Netherlands and intend to employ staff, you will have to deal with various government rules and regulations.

Recruit personnel initially in the EEA

If you have a company in the Netherlands and you are looking for personnel, you are obliged to recruit first of all within the European Economic Area (EEA) and / or Switzerland. You will have to demonstrate that you cannot find a suitable employee in either the EEA or Switzerland before being permitted to recruit in other countries.

Apply for a work permit

If unable to find suitable personnel in either the EEA or Switzerland, you usually require a work permit for employees from Bulgaria, Romania and non-EEA countries. A work permit is not required if the worker comes from an EEA member country or from Switzerland.

The permit for highly skilled migrants enables you to bring talented employees to the Netherlands without having to prove a lack of suitable candidates in Europe. The employee should fulfill specific wage requirements.

Verify and register the identity of your employees

If you have a business in the Netherlands and employ staff, you must verify the identity of all workers on the basis of an original identity document. This applies to both Dutch and foreign workers who you employ.

Organize accommodation for foreign employees

If you have a company in the Netherlands and you employ foreign workers on a temporary basis, you will in some cases be obliged to provide suitable accommodation. This obligation applies if it is included as a provision in the Collective Labor Agreement for your business sector or if you employ workers who need a work permit.

Register as an employer with Dutch Tax Authorities

If you set up or take over a business in the Netherlands, you must register with the Dutch Tax Authorities. This happens automatically when you register your business in the Dutch Trade Register (‘Handelsregister’) at the Chamber of Commerce (‘Kamer van Koophandel’). The latter will pass on your details to the Dutch Tax Authorities. The entry in the Dutch Trade Register must take place within one week of the start of your business.

Ask your employees for a tax and social insurance number

When you register with a Dutch municipality, you will receive a citizen service number (BSN). The Dutch government uses this unique personal identification number when processing your personal data. You can use the BSN to identify yourself to government agencies, health care providers and educational institutions.

Enter into a contract of employment

A contract of employment is an agreement between an employee and an employer. You enter into a contract of employment for a fixed term (a temporary contract) or for an indefinite period (a permanent contract). A contract of employment can be agreed in writing or verbally.

The minimum wage

All employees are entitled to a minimum wage. This is reset twice a year (currently at around EUR 1,700 gross a month)

Holidays

All employees are entitled to a statutory minimum holiday allowance of 8% of their gross yearly salary. The statutory annual minimum holiday period is four times the number of working days per week. A full-time worker works five days / 40 hours per week, so the minimum days of holiday is 20 days.

Check whether you are required to deduct social insurance premiums

If you have a company in the Netherlands, you may have to deal with employee insurance schemes and national insurance, including social insurance against loss of income due, for instance, to unemployment, old age, illness or incapacity for work.

Guest houses

Everyone living in the Netherlands is entitled to a state pension when they reach pensionable age (currently 65 but increasing in stages to 67 as of 2022). Although not required by law, it is common for employees to also participate in a pension offered by the employer. In most cases, the premiums are shared between the employer and the employee (not necessarily on a 50/50 basis). Sometimes the employer has to offer a certain pension scheme to all employees based on the applicable collective bargaining agreement or a compulsory sectorial pension fund.