BV or not to BV, that is the question

Jun 8, 2016

If an individual or a group of individuals decide to set up a business in the Netherlands (often contemplated by the spouse of an expatriate), we usually advise the start-up that a choice for a limited liability company (hereafter BV) is a lot less tax advantageous than becoming sole proprietor (eenmanszaak) or a (personal) partnership (VOF). Please note that setting up a business let alone a BV may in certain cases be impossible from an immigration point of view, please contact us for more information.

A few reasons for this:
1. € 7.280 income profit deduction (if active for at least 1.225 hours per year);
2. increase of aforementioned deduction for starting entrepreneurs (during the first 3 years) of €2.123; for R&D activities this deduction is much higher;
3. starting entrepreneurs may depreciate business assets at will during the first 5 years;
4. additional personal income tax exemption of 14% of profits;
5. carry-back term of tax losses is 3 years for private entrepreneurs (BVs: 1 year).

A starting BV cannot carry back its initial losses because it does not have any profit history. In case of a sole proprietorship or a partnership the private entrepreneur can carry back its losses to any positive private (wage) income of the past 3 years. Moreover, a BV needs to pay a market wage to its main directors/shareholders (sometimes even if the BV is not yet profitable). Based on the above, it is usually better to postpone the BV for a couple of years and to migrate into a BV tax-free when profits exceed say €120,000.

In certain cases a BV can otherwise be necessary (limitation of liability, venture capital participation, franchising conditions etc.). In these cases we can investigate if we can combine a BV with a sole proprietorship to achieve the best of both worlds.