A BV company is the legal entity in the Netherlands that can be compared with the UK Ltd, or German GmbH. Setting up a BV company in the Netherlands can be interesting, but is the BV company always a Dutch resident company?
Setting up BV company
A BV company is a legal entity with a share capital. The minimum required share capital is EUR 0,01. Setting up at EUR 0,01 looks like a joke an basically it is a joke…on you. In most cases the amount is so silly it is forgotten to be paid into the BV company bank account. That implies the share capital is not paid up, hence the limited liability has not taken its effect. Everything done in the BV company is done on the liability of the shareholders.
Moreover, what can you pay for with EUR 0,01? I cannot think of anything. Then again, you need to pay the notary for the incorporation, the accountant for the assistance, deposit for possible rent, the rent, furniture for the office. I recommend to make a calculation of the initial costs and take that amount for share capital. That prevents the shareholder needing to loan immediately to the BV company.
The first financial year can be a long book year. Most financial book years are equal to a calendar year. The shareholder can be a human being or another legal entity.
Foreign shareholder and BV company
We are frequently contacted, nearly on daily basis, with the request to assist with the set up a BV company. From the call or email we often recognize that we are contacted from abroad. Our first and basically only question is:
Where is the managing director living?
Maybe an inappropriate question to be asked, but extremely relevant. The rule is that a BV company is a tax resident in the country where the managing director is living. The BV company is always a tax resident in the Netherlands for corporate income tax purposes, as it is incorporated under Dutch law. But if the managing director remains living in China, Argentina or Germany, then local corporate income tax is also applicable. However, that is not the tax to be feared.
Value Added Tax issues
The issue the BV company has with the managing director living abroad is Value Added Tax. When the company is incorporated, the Dutch tax office automatically issues tax numbers based on general forms being completed. Among them is the VAT requirement to file the quarterly VAT return.
The notary charged VAT, rent is with VAT, the accountant charges VAT and all the amounts are being reclaimed. If the BV company has a genuine business in for instance trade, then invoices are issued with charged VAT and goods are purchased at 0% or 21% VAT.
The moment the tax office makes inquiries and the conclusion is that the BV company is not a tax resident in the Netherlands as the director is living abroad, the issue starts.
The rule is that when a company charges VAT, this needs to be paid to the Dutch tax office at all times. However, VAT can only be reclaimed from the Dutch tax office, when the company is regarded a VAT entrepreneur. A BV company that is not a tax resident in the Netherlands, cannot claim back VAT. Hence the tax office will claim back the refunded VAT amounts, plus a penalty for wrongly filing VAT returns. Often that is done over a 5 year period, which can bring the BV company in liquid problems.
Managing director and salary
The managing director his or her salary is always taxed in the country where the BV company has its legal seat. That implies that the salary needs to be taxed under the Dutch tax system, while the director is maybe living abroad. The Dutch tax rates for income tax can make this an undesired result.
Dutch banks will not open a bank account for the BV company when the shareholder is a foreign person or company, or when the director is not living in the Netherlands. That is our experience. That is often also a show stopper for potential clients.
Orange Tax Services
The reason why we are contacted that often from abroad with a request for a Dutch BV company is the fact that it has been in the news that The Netherlands has a low tax rate constructions. We do have regulations that can result in low taxation, but that only applies to huge companies that have an army of tax advisors arranging the benefit. That said, the European Commission is doing its best now to terminate these regulations. In other words, local Dutch BV company entrepreneurs do not recognize the Netherlands being a tax haven. Neither do we. We see the Dutch BV company as a good alternative for operating a company. If it is the best solution depends on the situation.