Sole trader or sole proprietorship

Many starting entrepreneurs choose sole trader (also called sole proprietor), or eenmanszaak in Dutch, as their legal structure. Setting up as a sole trader is quick and easy.

What is a sole proprietorship?

A Dutch eenmanszaak is a legal structure without legal personality. As sole trader you alone are responsible, and liable, for the company, its finances and its debts. You can only set up one sole proprietorship in the Netherlands, but you can operate under various trade names, perform different commercial activities and work from multiple premises.

You are legally obliged to keep records for your business. Your records have to meet a number of requirements. Finances (the books) are an important part of your company records. They form the basis for your financial statement, that offers insight into your company’s financial position: have all invoices been paid? What costs have you incurred for your company? The financial statement (jaarrekening) is the basis for your tax returns. You do not have to file your financial statement with the Netherlands Chamber of Commerce (KVK).

Note: freelancer and zzp'er are not legal structures in the Netherlands. Most freelancers and zzp'ers who register at the KVK, do so as a sole trader.

Setting up and registering a Dutch sole proprietorship

How to start a sole proprietorship? To set up as a sole trader in the Netherlands, you have to register at KVK. When you register, you will be listed in the Dutch Business Register (Handelsregister). The KVK will pass on your details to the Netherlands Tax Administration (Belastingdienst). They will determine if you are an entrepreneur for BTW (Value Added Tax, VAT). If you are, they will send you your BTW-id (VAT identification number) and BTW-nummer (VAT number) by post within two weeks.

Pre-register at KVK online

You can pre-register your eenmanszaak online at the KVK website. You need your DigiD to do so. To finalise your registration, you need to make an appointment at one of the offices. Once registered, you can access 'Mijn eenmanszaak' to look up your company extract and report any changes.

Costs

KVK will charge you a one-off fee for registering your company in the Dutch Business Register. Other costs may arise if you decide to hire the services of an accountant or bookkeeper to keep your records (keeping records is a legal obligation). On average, this could cost you between €500 to 1,000 per year.

Taxes for sole traders

Income tax

You'll have to pay income tax (inkomstenbelasting) on your sole proprietorship's profits. Various rates apply in the Netherlands according to how the Tax Administration categorises income.

There are three tax brackets, that are referred to in the Netherlands as boxes – Box 1, Box 2 and Box 3. Profits from your sole proprietorship are taxed under 'Box 1 – Taxable income from employment and home-ownership' (belastbaar inkomen uit werk en woning).

If the Tax Administration recognises you as a business owner, and you meet the hours criterion (you have to put a minimum of 1225 hours per year into your company to qualify), then you'll be entitled to certain entrepreneurs' allowances (ondernemersaftrek): several tax benefits, such as private business ownership allowance (zelfstandigenaftrek) and tax relief for new companies (startersaftrek). After having deducted these allowances from their profit, entrepreneurs are entitled to an extra 14% tax relief, through the SME profit exemption (mkb-winstvrijstelling).

• See additional information about paying taxes in the Netherlands

BTW: VAT

If you register a business in the Netherlands, in most cases the Tax Administration considers you an entrepreneur for VAT (click here for a list of VAT-exempt professions, in Dutch). You will have to file a VAT return and pay VAT on your turnover. Is your turnover less than €20,000 a year? Then you can apply for the small businesses scheme (KOR). If you use the KOR, you don’t charge VAT.

Liability

In the Netherlands, a sole proprietorship is not a legal corporate entity. This means you're liable for all your actions and finances. No difference is made between your personal and business assets. Creditors are therefore entitled to make a claim on your personal assets. You'll also have to file for personal bankruptcy if your sole proprietorship is declared bankrupt. If you have a partner, you can prevent them from going bankrupt too by drawing up a (pre)nuptial or registered partner agreement.

Authority

The owner of the business always has full authority to sign. This means you are entitled to sign contracts or perform certain legal actions, such as reporting a change in the Dutch Business Register. You can give someone power of attorney (or proxy rights), a document which states who else besides you is allowed to act on behalf of the company.

Tip: if you give someone power of attorney, register them in the Dutch Business Register as well. That way, your business partners can verify who has authority to act on behalf of the company.

Sole trader and employees

Despite the name, sole traders can employ staff. The Dutch term 'eenmanszaak' (literally 'one-man business') simply refers to the legal structure, and has nothing to do with the number of people employed by your business. The first time you hire an employee, you have to register as an employer with the Dutch Tax Administration and notify the Netherlands Chamber of Commerce KVK. Read what hiring staff entails.

Dutch social security and national insurance contributions

In the Netherlands, you'll have to pay national insurance contributions (volksverzekeringen) and you'll be entitled to an old-age pension (AOW) once you reach the state pension age. This pension is a minimum income, which you can supplement yourself.

You are not entitled to disability, illness or unemployment benefits. If you want to be certain of an income, even if you fall ill or have insufficient work, you can take out a disability insurance. If you are pregnant, you are entitled to a pregnancy benefit of 16 weeks or more. You can apply for this benefit at the Employment Insurance Agency UWV. Depending on your type of business, you may want to take out other kinds of insurance.

Ending your sole trader business

Should you decide to end your business, you must deregister at the KVK. You also have to settle with the Tax Administration. If your company has increased in value over time, you will have to pay a discontinuation profit tax. Have you built up a retirement reserve? This also counts as income, and you will have to pay tax. Read more about ending your business.

Changing your legal structure

You can change your legal structure from sole trader to private limited company (bv). One of the advantages is that not you, but the bv will be liable for the company, including its finances and debts. Also, if your company's turnover has grown, you may claim certain tax benefits if you have a bv. There are several ways in which you can turn your sole tradership into a private limited company.

You can also decide to join a commercial or general partnership (vof) or, if you practice a regulated profession (like dentist, architect, or surgeon), a professional partnership (maatschap). Joining a partnership doesn’t change your liability, but enables you to collaborate and share costs.

Note: Be aware that for tax purposes, the Dutch Tax Administration views changes in legal structure as ending one business and starting another.

Contact the KVK for advice on changing your legal structure.

Good to know

Sole proprietorship or private limited company?

Many businesses start up as either an eenmanszaak or a bv. If you're unsure about which legal structure suits your situation best, list the advantages and disadvantages. For instance: your turnover exceeds a certain amount, taxes may be lower for a bv, but the annual costs may be higher. Personal or company liability is also usually an important consideration.

To help make up your mind, read these articles:

Legal business structures: an overview and

Sole proprietorship or private limited?

No UBO report duty

Sole proprietorships do not have to register their ultimate beneficial owner in the KVK UBO register.