Having a great idea for a service or a product does not necessarily mean you also know how to actual make this work tax wise. Here we can help you out.
Startup and tax
The moment you actually start to do activities to explore the possibilities of your startup company, you need to setup a type of company. In the Netherlands we basically have two choices: BV company or one man company.
Startup BV company
The BV company is the ideal type of company when you have investors investing in your startup company. These investors would like to have a part of the company in return of their investment and this you can provide by issuing shares to these investors.
There are two type of shares you can issue. The regular one, the same you have yourself, or a type B share. This share is entitled to the proceeds of the company, like dividend, but has no voting right. As you are the person with the ideas, this type of share could be very convenient for you. The investor still participates in the success of the company.
BV and 30% ruling
The BV company also provide the possibility to apply for the so called 30% ruling. If you already had the 30% ruling with your previous employment, you can continue this ruling in the BV company. As long as the conditions are being met. The conditions are the minimum required income in this case, more than the distance you lived from the Netherlands and the period you lived in the Netherlands before your arrival.
BV company and limited liability
The BV company is a limited liability company. That said, the share capital you deposit is maybe EUR 1. For EUR 1 you should not expect that your liability is protected when you operate clearly under your family name and the clients come to your BV company because of you. This is different when it is not your personality the clients come for, but the product or service your company provides. So be careful with the limited liability aspect of the limited liability company, as bankruptcy curator type of persons know their ways around the rules to get to the money and the money is with you in private.
Downsides BV company startup
The downsides of a BV company are the formalities that come with this type of vehicle. You are the managing director shareholders, hence you need to meet the minimum income requirements. The regular minimum income requirements are EUR 44.000, but for startups these have been loosened a bit. But then again, if your startup is successful immediately, do not expect that these loosened rules apply anymore. Besides the EUR 44.000 minimum income requirement, we have the at least 75% of the profit income requirement. That requirement applies when you are not able to proof that a similar person in a similar situation would earn another salary, being less than 75% of the profit.
That is the salary, but the salary is only a small but important part of the formalities. If you take out money from the BV company, it is a loan. That implies you need to pay this back. All entrepreneurs take out money, none of them actually make a loan agreement in which is determined the rules of the loan. The thought is often that the amount is soon paid back, but it never is.
The shareholder needs to make shareholder meetings, publish the annual reports with the Chambers of Commerce, actually pay up the share capital, even if it is EUR 0,01. If the director is not acting in the best interest of the BV company, he or she can be held liable personally.
Rules and more rules connected to penalties for not complying make the BV company an undesired vehicle.
Startup one man company
The alternative for the BV company is the one man company. The one man company stands for one man holding the assets of the company. It does not imply the one man company cannot have employees, the company can have as many employees as required.
The one man company has no formalities, everything done is done by you. You, yourself and your company are one for fiscal purposes. That makes the accounting much more simple.
You could think the downside is that the full profit is taxed. Indeed. But over the full profit you have the entrepreneurs discounts such as 14% over the overall taxable profit. Such a massive discount you find nowhere else.
As the structure is simple, the formalities are much less than in the BV company, the accounting fees are significant lower.
If it turns out to be a success and you would like to become a BV company for reasons you might have, you can always easily change the vehicle from one man company into a BV company.
One man company and liability
With the one man company you are indeed privately fully liable for the obligations of the company. That said, it goes without saying you need a liability insurance, you need general terms and conditions that limit your liability. If you are married, change the marriage from mutual consent to terms and conditions where your partner owns the assets and you do not. But please first make sure your partner is not running off with the assets after this update. Basically you need to act in the interest of your clients and yourself and then liability is not often the case.
Downsides one man company startup
The downside of a one man company is that you cannot have the money of an investor, as the investor cannot make any claim on the proceeds in the future. For a startup that could be a significant downside.
Other startup vehicles
An alternative to the BV company or the one man company is for instance the foundation (Stichting). My objections against this vehicle is that by law no profit payments can be made to the founders or managers of the foundation. Plus a foundation has many rules and regulations.
Another alternative for the one man company is the joint venture (VOF). However, this is the soft type of the BV company with multiple partners. Every year the profit is divided on the basis of the effort made for the startup. One partner is working like a horse, the other is in bed thinking new concepts. Both equally important, but the horse might have the idea that he worked harder, hence should earn more. That is the start of why many VOF type of companies do not survive.
Orange Tax Services
We meet many startup companies, we wish them the success they need. What they do not need is immediate issues with the tax office. One of the aspects that goes wrong immediately is the first value added tax return. The startup is simply not accustomed to this process, hence forgets to file the VAT return based on being unaware and only after the penalty is issued they seek the advise of an accountant, like us.
Besides tax issues most entrepreneurs have exotic ideas how to run their bookkeeping with online systems that can upload and download details like bank statement automatically and book it immediately. This can indeed be the case, if you are an expert in bookkeeping. All these programs need input what amount needs to go where and if you have no idea, the numbers soon disappear in the system and provide a wrong output.
We try to keep it simple and the moment the company is ready for this sophisticated manner of bookkeeping we will be glad to install the system. But our experience learns us that most entrepreneurs find it difficult to work with administration, this software does not make it easier, and sometimes a simple excel overview can make them understand the cash flow of the company, which is key for a startup. We of course do not operate with an excel bookkeeping, but if that in connection with the client makes things clear, we will be glad to assist.