Many entrepreneurs start a Dutch business. The reasons for doing so vary. A Dutch company allows easy import, is taxed low, does not cost much, the economy is doing well and the level of bureaucracy is low. Once you have registered your company in the Netherlands, the question arises: how to shape the accounting?
You shall choose the accounting principles.
First of all, you shall choose between the use of Dutch GAAP, Dutch General accounting principles, or IFRS, International Financial Reporting Standards. The figures of both accounting standards are more or less the same. On the internet there are detailed overviews of the differences.
An important difference for Dutch holding companies is that Dutch GAAP provides the opportunity for holding companies to value subsidiaries at cost. Another difference is that IFRS requires many more disclosures in the notes.
As a results of these differences, the use of Dutch GAAP is taking less work and is more affordable. In case of a listed company, or any plans for a listing in the next three years, the use of IFRS is a must. It is also possible to prepare the statutory accounts in Dutch GAAP and do the group reporting in IFRS. Your Dutch accountant will be able to give you guidance.
Is an audit required for a Dutch company?
In many countries an audit is required and an audit can be a costly matter. An audit is executed by a chartered accountant after the closing of the financial year.
In the Netherlands companies can qualify as micro, small, medium and large. The qualification is based on turnover, number of employees and assets of the company itself and possible (indirect) subsidiaries. Only in case of a medium and large size qualification, there is a requirement for audit.
The thresholds for qualifying medium sized are high in the Netherlands and therefore the large majority of the companies are exempted from audit.
Many corporates that consolidate at a higher level use the exemption of article 2:408 of the Dutch civil code. In case the company has been included in the consolidate figures and some additional requirements met, there is no requirement for an audit. Companies that use the exemption are obliged to also publish the consolidated annual report.
Is a consolidation required for a Dutch company and its subsidiaries?
Consolidation means the combining of financial figures of a holding company and its direct and indirect subsidiaries for reporting purposes. Also here, the size criteria mentioned for the audit are used to qualify the size of the Dutch company including any direct and indirect subsidiaries.
Similar as with the audit a qualification of medium or large size will make that the company has to prepare consolidated and standalone figures and also publish both. The exemption of 2:408 of the Dutch civil code offers companies that consolidate at a higher level an escape from the need to consolidate.
There is also a consolidation exemption for subsidiaries that are held as investment.
Save costs by the use of an extended first financial year
The term of the first financial year of a Dutch company can be up to two years and shall minimally last one day. Most companies have a financial year ending at the end of the calendar year. Though also other end dates are an option. This is called a broken book year.
Most companies choose an extended financial year when their initial activity level will be low. Also, when the financial year is coming to an end soon after Dutch company registration. An extension will keep the expenses of the new business low and the expenses related to accounting and tax filing can be deferred.
It is not always possible to have an extended financial year. For example, in case of a fiscal unity, the financial year shall end for all entities at the same date. In case an announced drop of the tax rates, it shall also be taken into consideration that the rates at incorporation will be applicable during the full period.
In case of an announced increase of tax, this can be an extra reason to choose for an extended financial year. Your accountant in the Netherlands can provide you with more details on the pros and cons.
How to fund a Dutch company?
It is possible to finance a Dutch company by means of a loan. The interest will be an expense although there are several limitations in respect the interest deductibility. Earnings stripping rules limit the interest deduction in the Netherlands at one million euro or 30 per cent of the fiscal EBITDA.
An easier option it to finance a Dutch company by means of capital. For example, a share issue in the capital of a Dutch company. If more capital is required than included in the deed of incorporation, a separate share issue will be required. Such issuance can be realised by a notarial deed.
Shares of companies in the Netherlands do not need to be paid in immediately, though not doing so can lead to an increased liability of the shareholder. An easier way of increasing the capital is share premium contribution. Such contribution can be realised by a private deed and shareholders resolution.
Note that share premium can only be repaid in a tax neutral way without any further formalities in case there is no profit expected in the next three years.
If there is profit expected, there is an option to change the nominal value of the shares by the notary. This creates the opportunity to repay dividend without the risk of having to pay dividend withholding tax. Your bookkeeper in the Netherlands can provide you with more details.
With a qualified accountant you can make a good start in setting up the bookkeeping for your company in the Netherlands. Often it is possible to do the bookkeeping internally and have the VAT returns and annual reports prepared by a Dutch accountant. As you have read there are many ways to arrange the reporting and accounting of your business in an efficient way.