MEMORANDUM

To: [CLIENT].

From: Ororus Law Firm.

Date: May 11^th, 2020.

Subject: The legal framework of setting up a company in the Netherlands.

This Legal Memorandum (Memo) is prepared by Ororus Law Firm (Ororus or the Firm) to the benefit of [CLIENT] (also referred to as [CLIENT] or the Client) to provide an overview on (I) the advantages of setting up a private limited company in the Netherlands, (II) the requirements of setting up a private limited company, (III) on the process of incorporation and (IV) on the taxation system in the Netherlands.

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OVERVIEW

The Netherlands is considered one of the best countries for business around the world.

According to Forbes, Netherlands ranked the 4^th best country for business in 2018. Besides, it has the sixth-largest economy in the European Union. It plays an essential role as a European transportation hub.

Incorporating in the Netherlands has various benefits since it is a part of the European Union (EU). The business can freely import and export goods and products within the EU. It is considered as “the Gateway to Europe.”

The Netherlands concluded a large number of bilateral double taxation agreements (more than 100).

The Netherlands is known to have one of the lowest tax rates among all EU countries. Therefore it is considered to have a competitive tax structure.

Several business entities can be formed in the Netherlands, such as a general partnership, a limited partnership, a commercial partnership, a private/public limited company, an association, a foundation.

Our study will include a detailed explanation of the most favorable type of entity to be formed in the Netherlands: the Private Limited Company (BV), concerning its requirements and its advantages.

THE ADVANTAGES OF SETTING UP A BV IN THE NETHERLANDS

A BV is the Dutch version of the Limited Liability Company (LLC). It is the most used legal entity in the Netherlands by Foreign investors.

Due to the popularity of establishing a BV, the Dutch company law has introduced in 2012 a bunch of amendments to reduce the requirements and costs needed to establish a BV, known as a Flex BV.

Just like an LLC, a BV is an independent legal entity. Consequently, the shareholders are not held liable for the company’s debts. The liability of its shareholders is limited to the company’s amount and does not extend to their assets.

A BV can be used for trading purposes by foreign investors starting their businesses in the Netherlands. Moreover, BV companies can also be used as offshore companies by foreign entrepreneurs.

Since the company’s documents need to be approved by a notary, the BV can start trading and signing contracts while the company is still in the formation process.

THE REQUIREMENTS FOR SETTING UP A BV

In respect to:

The capital: as of the year 2012, there is no longer a minimum capital required, and therefore it is possible to start a BV with as little as (1) one Eurocent.

The shareholders: a minimum of (1) one shareholder is required. The shareholder can be an individual or an entity.

The directors: the appointment of at least (1) one director is required.

It is important to note that a shareholder can also be appointed simultaneously as a director.

The office: a BV must have a registered office in the Netherlands.

The permit: a BV will have to obtain all permits needed depending on its nature to register a business.

The secretary: a BV may appoint a secretary. However, it is not mandatory.

Bank account: it is not required to open a bank account before the formation of the company.

The audit requirement:

When it comes to statutory audit requirements as specified by the existing government regulations, the following rules apply:

For businesses with a total balance of at least 6 million Euro and/or
For businesses with at least 50 full time working employees and/or
For businesses with net revenue of at least 12 million Euro.

For businesses where any two of the three criteria mentioned above are applicable for two consecutive years, regular audits in the Netherlands are mandatory.

When it comes to Accounting and Financial Statements:

The Dutch government Audit regulations in the Netherlands make it mandatory for all corporate entities to prepare and maintain regular financial statements.

In the case of a foreign company operating in the Netherlands, it is required to file a copy of its annual accounts in its home country in the trade register in the Netherlands.

THE PROCESS OF INCORPORATION

The incorporation of a BV can be done remotely. Therefore there is no need for the shareholders to be present in the Netherlands during the incorporation process.

As a first step, the shareholders must send the information concerning the shareholders’ identity, such as the number of shareholders, details per shareholder and main activities of the BV, and the relevant documents needed.

The name chosen for the company should be available.

Once all shareholders have agreed on the draft document of incorporation, the document will be executed by the notary. It is essential to mention that the execution of the document of incorporation by the notary is mandatory.

The executed document of incorporation will be submitted to the Dutch chamber of commerce.

Afterward, the company will receive the identification number. At this point, the company officially exists.

The Chamber of Commerce will provide the company with a corporate extract. Besides, it will receive a VAT number.

The incorporation process usually takes up to 5 business days and is highly dependent on each specific situation.

The cost of incorporating a BV depends on various factors such as nominal capital, the number of shareholders, required special provisions in the articles of association. However, the cost of incorporating a standard BV is around EUR 1,500 (VAT excluded).

After all this, the company can start the process of opening a bank account.

TAXATION SYSTEM

The Netherlands is considered one of the most tax-friendly countries and has one of the lowest tax rates among the EU.

The Netherlands has signed many double taxation agreements to ensure tax relief.

There are multiple types of taxes concerning businesses:

Corporation tax

The business should pay corporate tax every year:

20% rate for companies that obtain profits up to EUR 200,000.
25% rate for the amounts over EUR 200,000.

It is important to note that, as of the year 2021, these percentages will be lowered to respectively 16% and 21%.

VAT

All Dutch businesses are obligated to charge VAT on their products and/or services. In most cases, this is the standard rate of 21%. In other cases, a lower rate might be applicable. This tax is collected via the VAT declaration you hand in quarterly.

Dutch income tax

Every business owner needs to submit their yearly income tax return, just like every employee.

Payroll tax

If the business hires employees, the business will need to consider that it will have to deduct payroll taxes from their salaries.

We trust that the above information is useful.

Please don’t hesitate to contact us for any clarification.

Sincerely,

Ororus Law Firm

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SCHEDULE 1: MEMO CONSIDERATIONS

Documents examined and inquiries made

To issue this Memo, we have only examined the documents listed in section 5 below and only made and relied on the searches and inquiries listed in section 6.

Assumptions and qualifications

The opinions in this Memo are given based on the assumptions set out in section 7. The opinions in this Memo are strictly limited to the matters stated therein and do not extend to other matters.

Scope of Memo
- This Memo relates only to the laws mentioned therein as applied by the Lebanese courts at this Memo date. By giving this Memo, we do not assume any responsibility to notify you of future changes in the law that may affect the opinions expressed in this Memo or otherwise to update this Memo in any respect.
- We have not been responsible for investigating or verifying the accuracy of the facts or the reasonableness of any statement of opinion or intention contained in or relevant to any document referred to in this Memo or that no material facts have been omitted therefrom.
Who may rely on the Memo

This Memo is solely for the benefit of the Client. It may not be disclosed to or relied on by any other person or used for any other purpose without our prior written consent.