Finding and retaining personnel is an essential condition for the existence and growth of an organization. Companies stand out through the personnel they employ. Dutch tax legislation allows numerous options for rewarding personnel in fiscally friendly ways.

The Dutch legislation includes various provisions to secure the rights and obligations of both employer and employee in the Dutch employment market. As a general rule, the employer and employee should behave according to the standard of good employership or employeeship respectively. The employer has a number of specific legal obligations with respect to work and rest times, leave and working conditions.

Wage tax

As is evident from Section 5 Tax Legislation, wage withholding tax is an advance tax payment on income tax. Anyone deriving an income from employment in the Netherlands is liable to pay income tax on the income. In addition, employees in the Netherlands are generally covered by social security. The employer withholds the social security premium and wage tax due from the wages as a single amount and subsequently pays this to the tax authorities. The combined amount is referred to as wage tax. The wage tax is subsequently settled against the amount of income tax due.

Wage tax is calculated on the full value of the remunerations received by the employee based on the employment contract. The remuneration may take the form of cash, such as a salary, holiday allowances, overtime, commissions and payments for a thirteenth month Employees can however also receive remuneration ‘in kind’, such as products from the company or holiday trips. The concept of remuneration also includes various other claims, compensations and provisions.

A claim is a right to receive a benefit or provision after a period of time or subject to certain predetermined conditions. One example of the latter is the right to receive retirement benefits. Examples of provisions include tools, meals, public transport tickets, etc. ‘Compensation’ normally refers to amounts that the employer pays its employees to cover costs incurred by the employee in the fulfilment of his or her job.

Tax rate

The wage tax rates in 2010 are:

• On the first € 18,218 of taxable income: a percentage of 33.45% is withheld (2.30% wage tax and 31.15% social security premium);
• On the next € 14,520 of taxable income: a percentage of 41.95% is withheld (10.80% wage tax and 31.15% social security premium);
• On the next € 21,629 of taxable income: 42% is withheld;
• On all additional income: a percentage of 52% is withheld.

When withholding the wage tax, the employer must also take into account the general tax allowance and the labour allowance. The latter discounts are discussed in greater detail in Chapter 5 Tax Legislation.

The employer himself, rather than the employee is liable for certain taxable components of the wage. This concerns the so-called final levy components. Certain forms of compensations ‘in kind’ are eligible for final levy payment, such as traffic fines not charged to the employee and excessive compensations and provisions of a maximum of € 200 (2010) per month. An important example of a compulsory final levy component is a redundancy payment for an older employee which actually qualifies as an early retirement payment.

Tax-free compensations and provisions

Not all compensations and provisions are taxable components of the wage. Compensations are tax-free in as far as they are deemed to be issued to cut costs, liabilities and depreciations with respect to the proper fulfilment of the employment contract. Compensations paid by the employer to the employee, and which are not generally perceived by society as remuneration and which society considers the reasonable duty of the employer to pay or provide, are also included in the latter category. A ‘free’ compensation is always paid out in the form of cash, while a ‘free’ provision could also be provided in the form of goods and services. The concepts are considered equivalent to the greatest extent possible. If something can be provided untaxed, then it can generally also be compensated untaxed. Certain forms of compensation and provisions are however only exempted up to a certain limit and in some instance standard amounts apply. The following are a number of ‘free’ compensations and provisions.

Travel expenses

Employers are entitled to pay their personnel untaxed compensation of € 0.19 (2010) per kilometre for home-work travel and other work-related kilometres. This is irrespective of the means of transport used. When using public transport, the employer is entitled to choose between the completely untaxed compensation of the actual cost of the public transport and an untaxed compensation of € 0.19 per kilometre. Alternatively, the employer may provide the employee with a car (in case of any private use of the car, a percentage of the catalogue price must be added to the employee’s taxable income).

Coffee and refreshments

Expenses for refreshments taken during work hours, such as coffee, tea, confectionary and fruit may be provided untaxed. The employer is entitled to provide the above items free of tax without the need for documentary proof to the value of € 2.75 per week or € 0.55 a day (2010).

Meals

Meals may be provided untaxed provided that the business character is of more than incidental interest. The value of a meal at a company canteen is set at the fixed amount of € 2.20 (2010) for a coffee meal or breakfast and € 4.20 (2010) for a cooked meal.

Company products

Employers are entitled to offer their employees discounts or compensation for purchasing products produced or manufactured by the company. This can be done tax-free subject to the following conditions: These must be products that are unique to the industry in which the company operates; The maximum discount or compensation per product must be 20% of the market value of the product; The total value of the discount or compensation may not exceed € 500 per calendar year. If in any calendar year the employee does not make use of this facility, any remaining amounts may be carried forward for a maximum of 2 calendar years.

This may also extend beyond the termination of the employment contract due to disability or retirement.

Study/Training

Study and / or training expenses incurred by the employee with a view to obtaining an income can be compensated free of tax. This includes study and course fees, the cost of study books and other study materials. The following items are exceptions to the above and are taxed: compensation for costs related to a work room or study space, including its design and furnishing; compensation for foreign travel in as far as the compensation exceeds € 0.19 per kilometre.

Relocation

If an employee is required to relocate for work purposes, the employer is entitled to compensate the employee free of tax for the moving costs for his household goods. In addition the employer may give a tax-free moving expenses allowance of a maximum of € 7,750 (2010). The condition is however that this is a move that is entirely related to the employment. This in any case applies if the employer gives the allowance within two years after the employee accepts the new employment (or after transfer) and the employee moves to a dwelling less than 10 kilometres from his/her work where he/she previously lived further that 25 kilometres away from his/her work.

Courses, congresses, etc.

Employers are entitled to compensate employees free of tax for the cost of courses, congresses, seminars, symposiums, excursions, study trips and so forth. This also covers the related travel (maximum € 0.19 p/km) and accommodation. This must however involve professional expenses.

Representation costs

The cost of receptions, festivities, gifts, promotional gifts and entertainment, including the associated travel (maximum € 0.19 p/km) and accommodation can also be free of tax compensated. This must however involve professional expenses.

Employment relationships

According to Dutch law, 3 different general types of agreements are used to determine the rights and duties of persons performing activities in the course of a business for another party. The employment agreement (‘arbeidsovereenkomst’) is the most common agreement. The assignment agreement (‘overeenkomst van opdracht’); for example, a freelance agreement, consultancy agreement or a management agreement is used often in an attempt to avoid an employment agreement coming into being. A third agreement is the contracting agreement (‘aannemingsovereenkomst’). This agreement is concluded between parties if the purpose of the activities is to construct an item with a physical nature.

Essential features of the employment agreement are: the obligation to perform labour in person in return for pay, and the authority of the other party to give instructions as to how the labour is to be performed. Other agreements lack one or more of these features. The employment agreement itself is not subject to rules as to its form (oral agreements are perfectly valid, although problems as to proof may arise). However, according to Dutch labour law the employer is under the obligation to provide certain information in writing to the employee with respect to the employment agreement. This relates to place of work, job title, the date the employment agreement enters into force, remuneration, working hours, terms and conditions relating to holidays and the applicability of any collective labour agreement.

Furthermore, Dutch labour law takes the legal presumption of an employment agreement as a starting point if a person has performed labour every week for 3 consecutive months, with a minimum of 20 hours a month. The contracted work in any given month is presumed to amount to the average working period per month over the 3 preceding months.

Governing law

As a rule, an employment relation is governed by the law of the country to which it is most closely connected (typically: the country where the labour is performed). In principle, parties to an employment agreement are free to choose a different law to apply to their relationship. However, according to European legislation, the effect of any choice of law in international employment agreements is limited to the extent that the employee will not lose protection on the basis of mandatory provisions of the law of any member state which would apply if no choice of law had been made.

Mandatory rules are legal provisions which cannot be contracted out. For example, many provisions of Dutch labour law regarding the termination of an employment agreement are considered to be mandatory. The parties to an employment agreement are limited to negotiations of their own terms and conditions by both Dutch labour law and any applicable collective labour agreement, since these contain many mandatory rules on terms and conditions of employment.

Employment law regulations

Employment relations in the Netherlands are mostly regulated by the Dutch Civil Code (‘Burgerlijk Wetboek’). An important principle of the employment provisions of the Dutch Civil Code is the protection of what is known as the weakest party, i.e. the employee. Apart from the Dutch Civil Code, regulations concerning labour law can be found in several other regulations and legislative acts, such as the Works Council Act and the Workings Conditions Act. As a result of the unification of Europe, Dutch regulations are increasingly influenced by European treaties and case law of the European Court of Justice. Furthermore, employment regulations are laid down in the Collective Labour Agreements.

Collective labour agreements (‘CAOs’)

As mentioned above, employment agreements are also influenced by collective labour agreements (‘CAOs’). Collective labour agreements are negotiated between representatives of employers and employees and are intended to provide consistent employment conditions within specific branches. Collective labour agreements can be negotiated for an entire branch or be limited to a company. Furthermore, the Minister of Social Affairs can impose the application of a collective labour agreement on the entire industry or sector by declaring a collective labour agreement generally binding. Any provision in an individual employment agreement, which restricts the rights of the employee under an applicable collective labour agreement, is void. In such cases the provisions of the collective labour agreement prevail.

Trade Unions

Although the influence of Trade Unions in the Netherlands is generally waning, Trade Unions are still well organised in the manufacturing industry and the semi public sector or privatised sector. The most important trade unions are the Christian Trade Union Federation (‘Christelijk Nationaal Vakverbond’ (CNV)) and the Federation of Dutch Trade Unions (‘Federatie Nederlandse Vakbeweging’ (FNV)). The main employers’ association is the Confederation of Netherlands Industry and Employers (‘VNO-NCW’).

Employment agreements

An employment agreement may be agreed for an indefinite or fixed period of time. If an employment agreement for a fixed period of time is continued, a new agreement will then be deemed to be have been entered into under the same conditions and for the same period of time (subject to a maximum of 1 year) as the former employment agreement.

Parties are free to enter into consecutive employment agreements for a fixed period of time, ending by operation of law, however two restrictions apply:

• The aggregate duration of the consecutive employment agreements (with interruptions of not more than 3 months) may not exceed 36 months; if the aggregate duration is longer than 36 months (interruptions included), the last employment agreement shall be deemed to be an employment for an indefinite period of time.
• The number of consecutive employment agreements must be less than 4. If the number of consecutive employment agreements exceeds 3 (while there are no interruptions of more than 3 months in between the employment agreements), the fourth employment agreement will be considered to be an employment agreement for an indefinite period of time.

Termination of an employment agreement

With respect to termination of an employment agreement, a distinction must be made between an employment agreement for a fixed period of time and an employment agreement for an indefinite period of time. There are several ways for employment agreements to terminate:

Probation period

Parties can agree upon a probation period. However, it should be noted that a probation period is subject to strict rules. A probation period for maximum 2 months can only be concluded if parties have agreed upon an employment contract for a fixed period of at least 2 years, or in case of an employment contract for an indefinite period of time. An employment contract for the limited period of less than 2 years and an employment for a specific project, where a termination date is not indicated, may only contain a probation period of 1 month. During the probation period both the employer and the employee can terminate the employment contract directly at any time. In order to be valid, the probation period has to be expressly agreed upon by parties in writing. Any deviation from the aforementioned rules will result in a void probation period.

Lapse of the agreed period

An employment agreement for a fixed period of time will terminate by operation of law at the end of the agreed period of time without formalities.

Summary dismissal

The employment agreement can be terminated for urgent cause; for instance, if the employee has committed a serious crime, such as, but not limited to, theft, fraud, etc. Before a summary dismissal can be given, all circumstances must be taken into consideration. Dismissal must be given without delay, only the time necessary for an investigation into the facts is usually allowed. The grounds for the dismissal must be conveyed to the employee at the moment of dismissal. The employment ends immediately, without notice, and the employee is not entitled to compensation. Usually, payment of unemployment benefits is denied. The courts do not easily accept that sufficient grounds are present to deem a summary dismissal valid. Before deciding on a summary dismissal, therefore always consult a legal advisor. The employee may challenge the dismissal itself within 6 months, stating that he is still employed and is thus entitled to pay. Alternatively, the employee may acquiesce in the termination of the employment, but claim damages for reasons that the grounds for the dismissal were not valid. As a risk containment measure, it is advisable to file for dissolution of the employment (see below).

Death of the employee

The employment agreement will terminate by operation of law in case of death of the employee: the family of the employee is entitled to be paid approximately 1 month’s gross salary.

Mutual consent

The employment agreement can be terminated by mutual consent. Until 1 October 2006, a termination by mutual consent bore the risk for the employee that he would not be eligible for unemployment benefit. To secure the unemployment rights for the employee, the employee was obliged to fight the termination of his employment agreement. As from 1 October 2006, the entitlement to unemployment benefits exists unless the employee him/herself has taken the initiative for termination or he/she has acted in such a way that there is an urgent cause for summary dismissal. The purpose of this policy change is to create a more flexible dismissal regime and to save costs for the employer. In everyday practice, to avoid any risks, some employees still prefer a court procedure to dissolve the employment contract on neutral grounds or a request to the Labour Office for a dismissal permit on neutral grounds (see below).

Dissolution by the Court

The Court can terminate the employment agreement through dissolution. The employer will need a sound reason to have the employment contract dissolved by the Court. Amongst others, restructuring of the company and non-performance of the employee can serve as reasons. The proceedings will take approximately 6 to 8 weeks. No notice period is called for; the court sets the termination date in its verdict (usually at a date approximately 2 weeks after the verdict). The Court can grant a severance payment to the employee in the case where the employment agreement is dissolved.

The severance payment is calculated according to the ‘Cantonal Court Formula’, which was first formulated in 1997, and has been changed as of 1 January 2009. This formula (A x B x C) takes among other things into consideration the age of the employee, his seniority within the company, his salary and which party is to blame for the dismissal.

• A. Years of service from start until end date of employment, rounded up or down to full years. If the employee is under 35 years of age, the years of services are to be multiplied by 0.5; if the employee is aged 35 up to 45, the years of services are to be multiplied by 1; if the employee is aged 45 up to 55, the years of services are to be multiplied by 1.5; years of service completed from the age of 55 are to be multiplied by 2.

• B. Gross monthly salary, including all regular emoluments, such as holiday allowance, thirteenth month, regular bonuses, etc.

• C. If the application for an order terminating the employment contract is based on ‘neutral grounds’ the correction factor will typically be 1; the grounds for termination are deemed ‘neutral’ when neither the employer nor the employee is to blame for them, e.g. if the employee is made redundant as the result of a reorganization and procedures have been followed correctly. However, there may be circumstances which justify an adjustment - upwards or downwards - of the correction factor. The court may even apply a correction factor of nil if in its opinion the circumstances of the case do not justify any compensation at all, e.g. serious dereliction of duty or misconduct by the employee.

Furthermore the Cantonal Court Judges may take into consideration the employee’s position on the job market, the employer’s financial position and the position of older employees who are close to their retirement.

No appeal is possible against the decision of the Court, either to dissolve the employment contract or to grant a severance payment. This is save exceptional cases in which – in short – the Court has failed to apply the law correctly.

Notice

The employment contract can be terminated by giving notice. Employment agreements for a fixed period of time can only end by giving notice if this possibility is explicitly stated in the employment agreement. Before notice can be given, the employer needs to obtain a dismissal permit. Dismissal permits will have to be requested at the Labour Office, stating among other things the grounds for dismissal. The proceedings will take about 6 to 12 weeks. The statutory notice period that has to be observed may vary from 1 - 4 months, depending of the duration of the employment. The statutory notice period for the employee is 1 month. If the parties want to agree upon a longer notice period (for the employee to observe) than 1 month, the employer must observe a notice period of at least twice the notice period of the employee, with a maximum notice period of 6 months for the employee. For instance, if a notice period for the employee of three is agreed, the employer will have to observe a noticee period equal to at least 6 months. The employer who has obtained a dismissal permit may observe 1 month less notice period than obliged by law or contract, provided that a minimum notice period of 1 month remains effective.

Even if a dismissal permit has been obtained, notice cannot be given if the employee is ill, unless the employee reported ill after the Labour Office received the request to grant the dismissal permit. Furthermore, notice cannot be given if the employee is pregnant or is a member of a labour representative body. Although the court may dissolve the employment agreement at any time, therefore also during illness and pregnancy, a severance payment will usually be higher under those circumstances and there are also other requirements that need to be met.

Although the Labour Office cannot grant a severance payment when granting the dismissal permit, it should be noted that the employee can request the Court to grant him a severance payment after the employment has terminated stating that the termination was apparently unjust. This is called an unfair dismissal (‘kennelijk onredelijk ontslag’). Case law shows that the Courts tends to award a severance payment using the Cantonal Court Formula (see above) as a guideline and applying a deduction because in comparison to dissolution, notice takes longer (due to notice period + longer procedure). However, there is serious discussion as to whether standard compensation must be applied, or rather the actual damages must be compensated.

Working conditions

By comparison with international worker protection standards, the Dutch regulations are of a high standard. In view of an action plan of the Dutch Government (Simplifying Social Affairs and Employment Regulation), it is expected that these regulations will be simplified to bring them more in line with the international worker protection standards and to strengthen the position of the Netherlands on the international labour market.

Under Dutch law, the employer is responsible for organizing work in such a way that it protects the safety, health and well-being of the employees in accordance with a statutory set of standards and criteria. In principle, all employers are highly recommended to avail themselves of the professional assistance of a certified occupational health service (‘Arbodienst’) in respect of the implementation of a significant part of the applicable health and safety measures (for example the occupational health medical examination). Under certain circumstances, the employer’s own employees may provide this assistance, providing that they are certified to this end.

Immigration law

Workers from EEA countries (European Union, Norway, Iceland and Liechtenstein) do not need special permits to work in the Netherlands. Non-EEA nationals, however, do need work permits to work legally in the Netherlands. The prospective employee must first apply for a residence permit, and then the prospective employer must file a request with the Labour Office for a work permit. In the event of the stay in the Netherlands not exceeding 3 months, the employee will only need a short-stay visa to enter the Netherlands. In the event of the stay being longer than 3 months, the following permits are required:

• authorization for temporary stay (MVV, ‘Machtiging tot Voorlopig Verblijf’)
• residence permit (verblijfsvergunning)
• work permit (tewerkstellingsvergunning); this permit is not required for so called knowledge workers.

Residence permit

An MVV visa is necessary prior to travelling to the Netherlands for a stay of over 3 months, as well as to be able to apply for a residence permit upon arrival. One can apply for an MVV visa at the Dutch Embassy or Consulate or the prospective employer can contact the Immigration and Naturalization Service (IND, ‘Immigratie- en Naturalisatie Dienst’). This authority approves requests for visas and investigates whether there is any objection against issuing an MVV visa. If there is no objection, the IND will send the visa to the Dutch Embassy in the home country. This visa must also be requested for accompanying family members.

Work permit

Non-EEA nationals must obtain work permits to work in the Netherlands. The work permit has to be applied for at the same time as the application for an MMV visa. The prospective employer has to submit a request for the work permit with the Centre for Work and Income (CWI). The abovementioned permit will be based upon the duration of the employment, as laid down in the employment agreement that is submitted by the prospective employer.

The Labour Office can issue a work permit for a maximum of up to 3 years and only in the event that there are no qualified employees available on the labour market in the Netherlands or EU. As a consequence of this requirement, the employer has the obligation to undertake all the necessary actions to find a qualified employee for the position that the prospective employee is to fulfil. There are special regulations for intercompany transfers and knowledge workers. There is no work permit requirement for knowledge workers. Knowledge workers are employees for whom the employer has shown he cannot find a suitable alternative within the EU, working on the basis of an employment agreement and earning a minimum gross income of approximately € 50,183 per annum (2010; for employees over the age of 30. For employees under the age of 30 a gross income of € 36,801 per annum is sufficient).

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl

Under Dutch law, a foreign individual or company may operate in the Netherlands through an incorporated or unincorporated subsidiary or branch. Dutch corporate law provides a flexible and liberal framework for the organization of subsidiaries or branches. There are no special restrictions for a foreign entrepreneur to do business in the Netherlands.

The business operations can be set up in the Netherlands with or without a legal personality. If a legal entity has legal personality, the entrepreneur cannot be held liable for more than the sum it contributed to the company’s capital.

Dutch law distinguishes 2 types of companies both of which possess legal personality: the private limited liability company (besloten vennootschap met beperkte aansprakelijkheid - BV) and the public limited liability company (naamloze vennootschap - NV). These forms of legal entities are most commonly used for doing business in the Netherlands.

Other common forms of business entities are sole proprietorship (eenmanszaak), general partnership (vennootschap onder firma - VOF), (civil) partnership (maatschap) and limited partnership (commanditaire vennootschap - CV). None of the latter forms possesses legal personality and, as a consequence thereof, the owner or owners will be fully liable for the obligations of the entity.

All entrepreneurs engaged in commercial business and all legal entities have to register their business with the Trade Register (Handelsregister) at the local Chamber of Commerce (Kamer van Koophandel).

This section covers the abovementioned legal entities for doing business in the Netherlands from a legal perspective. After dealing with the distinction between a subsidiary and a branch, the above mentioned entities will be described in greater detail. This will be followed by a summary of the status of intellectual property rights in the Netherlands. Finally, this manual will explain the advantages and disadvantages of doing business through a subsidiary or a branch.

Branch, subsidiary

Branch
A branch is not a separate legal entity. A branch is a permanent establishment of a company from which business operations are carried out. As a result, the company that establishes a branch in the Netherlands is liable for claims incurred by actions carried out by the branch.

Subsidiary
A subsidiary is a separate legal entity that may be established by one or more shareholders. The subsidiary is a legal entity that is controlled by the (parent) company. Control of a subsidiary is mostly achieved through the ownership of more than 50% of the shares in the subsidiary by the (parent) company. However, under certain circumstances it is also possible to obtain control by special voting rights or diversity of the other shareholders. These shares or rights give the (parent) company the votes to determine the composition of the board of the subsidiary and thereby to exercise control. Since a subsidiary has limited liability, a shareholder (the parent company) is, in principle, only liable to the extent of its capital contribution.

Private limited liability company (BV)

The laws regulating the BV are largely based upon rules governing the NV. The shares of a BV are not freely transferable (subject to blocking clauses incorporated in the articles of association) which makes this type of company generally preferred as the vehicle for a privately held company.

Incorporation
A BV is incorporated by one or more incorporators pursuant to the execution of a notarial deed of incorporation before a civil-law notary. The notarial deed of incorporation must be executed in the Dutch language and must at least include the company’s articles of association and the amount of issued share capital. Prior to incorporation, statement of no objection (‘verklaring van geen bezwaar’) must be obtained from the Dutch Ministry of Justice. This statement is required for incorporation and ensures that all statutory requirements for incorporation have been met. Certain information regarding the incorporator(s) must be submitted before approval is granted.

While the BV is in the process of incorporation, business may be conducted on its behalf provided that it adds to its name the letters, ‘i.o.’ (for ‘in oprichting’), which means in the process of being incorporated. The persons acting on behalf of the BV i.o. are severally liable for damages incurred by third parties until the BV (after its incorporation) has expressly or implicitly ratified the actions performed on its behalf during the process of incorporation. A similar liability arises for the persons responsible if the BV is not incorporated or if the BV fails to fulfil its obligations under the ratified actions and the responsible persons knew that the BV would be unable to do so. In the event of bankruptcy within 1 year of incorporation, the burden of proof lies with the persons responsible.

Members of the board of directors are also severally liable to third parties for legal acts performed after incorporation, but preceding the registration of the BV with the Trade Register.

Share capital
A BV must have an authorized capital, divided into a number of shares with a par value expressed in Euros. Shares without a par value are not permitted. At least 20% of the authorized capital must be issued and at least 25% of the par value of the issued shares must be paidup. The issued and paid-up capital of a BV must amount to at least € 18,000.

Payment for shares can be in cash. If payment for shares is in cash, the civil-law notary must be provided with a statement from a bank to the effect that, upon incorporation, the money will be available to the BV at the bank in question, or that the bank has received the required amount of cash in an account in the name of the BV i.o. This statement may not be issued more than 5 months prior to the date of incorporation.

Payment for shares can also be in kind. Payments in kind are contributions of property and/or other non-cash items. These payments are restricted to items that can be objectively appraised. If these payments take place upon incorporation of the BV, the incorporators must describe the contributed assets and an auditor must issue a statement to the effect that the value of the contribution is at least equal to the par value of the shares. The statement of the auditor is to be provided to the civil-law notary involved prior to incorporation and may not be issued more than 5 months prior to the date of incorporation.

Shares
A BV may only issue registered shares. Besides ordinary shares, a BV may also issue priority shares, to which certain (usually voting) rights are allocated in the articles of association, and preference shares, which entitle the shareholder to fixed dividends that have preference over any dividends on ordinary shares. Within a given type of share, the articles of association may also create different classes of shares (e.g. A, B and C shares) to which certain specific rights are allocated (e.g. upon liquidation).

Dutch law does not allow for the existence of non-voting shares. All shareholders must at least have one vote. However, by using a trust office, the voting power can be separated from the beneficial interest.

The articles of association of a BV must stipulate limitations on the transferability of the shares. Dutch law provides for 2 possible restrictions, which require the transferor either to:

• offer his shares to the other shareholders, the right of first refusal, or;
• obtain approval for the transfer of shares from the corporate body, as specified in the articles of association.

Shares in a BV are transferred by a deed of transfer executed before a civil-law notary.

The board of directors of a BV must keep an up-to-date shareholders’ register, which lists the names and addresses of all shareholders, the number of shares, the amount paid-up on each share and the particulars of any transfer, pledge or usufruct of the shares.

Management
The management of a BV consists of the board of directors and the general meeting of shareholders. A BV can, in addition, under certain circumstances have a supervisory board.

General meeting of shareholders
At least one shareholders’ meeting should be held each year. Shareholders resolutions are usually adopted by a majority of votes, unless the articles of association provide otherwise. As a rule, the shareholders may not give specific instructions to the board of directors with respect to the management of the company, but only general directions.

Supervisory board
The supervisory board’s sole concern is the interest of the BV. Its primary responsibility is to supervise and advise the board of directors. Pursuant to the Large Companies Regime (Structuurregeling), the supervisory board is only a mandatory body for a Large BV; however this is optional for other BVs.

Board of directors

The board of directors is responsible for managing the BV. The members of the board of directors are appointed and removed by the shareholders (unless the BV is a Large BV). The articles of association generally state that each director is solely authorized to represent the company. However, the articles of association may provide that the directors are only jointly authorized. Such a provision in the articles of association can be invoked against third parties.

The articles of association may provide that certain acts of the board of directors require the prior approval of another corporate body such as the shareholders’ meeting or the supervisory board. Such a provision is only internally applicable and cannot be invoked against a third party, except where the party in question is aware of the provision and did not act in good faith.

A member of the board of directors of the company can be held liable by the BV, as well as by third parties. The entire board of directors can be held liable to the BV for mismanagement. An individual member of the board of directors can be held liable with respect to specific assigned duties. The shareholders can discharge the members of the board of directors from their liability to the company by adopting an express resolution barring statutory restrictions.

Besides the aforementioned liability prior to incorporation and registration, liability towards third parties can occur in several situations. For example, in case of the bankruptcy of the BV, the members of the board of directors are severally liable for the deficit if the bankruptcy was caused by negligence or improper management in the preceding 3 years. An individual member of the board of directors can exonerate himself by proving that he is not responsible for the negligence or improper management.

Simplification and flexibilization of Dutch private company law
Dutch private company law is currently subject to extensive discussion. A Bill to simplify Dutch private company law was submitted on 31 May 2007 and is currently pending in the Dutch Parliament. The Bill will abolish many of the formalities that are currently required to set up a BV; e.g. the requirement of a minimum capital of €18,000. The new legislation will make it easier for entrepreneurs to set up a BV in the future.

Public limited liability company (NV)

In general, everything mentioned above that applies to the BV also applies to the NV. This section will outline the most significant differences between the NV and the BV.

Share capital and shares
The minimum issued and paid-up share capital is € 45,000. Besides registered shares, a NV may also issue bearer shares. Bearer shares must be fully paid up and are freely transferable. Registered shares have to be transferred by executing a deed of transfer before a civil-law notary, and in contrast to a BV, it is not a statutory requirement that the articles of association of an NV provide for limitations with respect to the transferability of the registered shares. An NV is authorized to issue share certificates (certificaten).

Other common forms of business entities

Partnership (maatschap)
Entrepreneurs in the liberal professions (such as doctors, lawyers and graphic designers) often set up partnerships (maatschap).

A partnership is an arrangement by means of which at least two partners, who may be individuals or legal entities, agree to conduct a joint business. Each partner brings money, goods and/or manpower into the business. Each partner is personally, either jointly or severally, liable for all the obligations of the partnership. A partnership does not possess legal personality.

A public partnership (openbare maatschap) participates in judicial matters under a common name. The possessions of a public partnership are legally separated from the possessions of the partners.

General/commercial partnership (VOF)
A general partnership can be defined as a public partnership that conducts a business instead of a profession. A public partnership and the partners must be registered in the Commercial Register at the Chamber of Commerce.

A limited partnership (CV)
A limited partnership is a special form of the general partnership (VOF) which has both active and limited (or sleeping/silent) partners.

An active partner is active as an entrepreneur and is liable, as in the case of the general partnership.

The silent partner, however, tends to finance the business and stays in the background. The silent partner is liable only up to the amount of his capital contribution. He is not allowed to act as an active partner and his name cannot be used in the name of the partnership. If the silent partner enters the business (to provide extra finance for growth) he becomes liable as an active partner.

Sole proprietorship (eenmanszaak)
In the case of a sole proprietorship (eenmanszaak), 1 (natural) person is fully responsible and liable for the business. A sole proprietorship does not posses legal capacity and there is no distinction between the business assets and private assets of the natural (person).

Legislative proposal
There is currently a bill pending in the Dutch Parliament which provides for replacement of the partnerships described above by a new legal form of partnership. Depending on whether it is public or not, it will be possible for such a partnership to obtain legal personality and, consequently, to hold property, to contract in its own name, to sue and be sued. Obtaining legal personality, however, does not result in a reduction of the liability of the owners or partners in the partnership. This new form of partnership will be introduced in the Dutch Civil Code in the near future.

Trust company

A trust company is entitled to perform corporate trust services for payment, such as the administration and management of a company that conducts business in the Netherlands. A trust company can take care of (required) administrative services, such as the preparation of annual reports. In certain instances the trust company is the (sole) director of the company for which it provides the services.

Intellectual property

The Benelux Convention on Intellectual Property regulates the provisions regarding the registration, use and protection of trade marks, designs and models in the Netherlands, Belgium and Luxembourg.

Trademarks can be names, drawings, stamps, letters, numbers, shapes of goods or packages and all other signs used to distinguish the goods of one company from those of others. A registered trademark is protected for a period of 10 years from the registration date and the protection can be extended by a further 10 years. Renewal must be requested and all due fees paid. The rightful owner is entitled to claim damages for infringement of its rights (such as the use of the trademark by another party).

A design or model is the new appearance of a utility product. A registered model or design is protected for 5 years from the registration date onwards and the protection can be extended by 4 periods of 5 years each, up to a maximum of 25 years. Renewal will be effective upon timely settlement of all fees due. The rightful owner is entitled to claim damages for any infringement of its rights (such as the use of the model or design by another party).

Copyright Act 1912 (Auteurswet 1912) contains provisions regarding the protection of copyrights. Copyright does not require registration in the Netherlands and applies (amongst other things) to literature, dramatic, musical and artistic work, sound recordings, films and computer programs. A copyright expires 70 years after the author’s death.

Council Regulation (EC) No 40/94 on the Community trademark introduces a system for the award of Community trade marks by the Office for Harmonisation in the Internal Market (OHIM). The Community trademark system of the European Union enables the uniform identification of products and services of enterprises throughout the European Union. Requiring no more than a single application to OHIM, the Community trade mark has a unitary character in the sense that it produces the same effects throughout the Community. The Community trade mark contains provisions concerning the registration and use of Community trademarks by (legal) persons and the protection of the rightful owners of such Community trademarks. A registered trademark is protected for 10 years from the registration date onwards and the protection can be extended repeatedly by subsequent ten-year periods. Renewal must be requested and all fees due settled in good time. The rightful owner is entitled to claim damages for infringement of its rights (such as the use of the trademark by another party).

Branch or Subsidiary

Many foreign companies make use of a subsidiary rather than a branch. The main legal reason to set up a subsidiary, instead of a branch, is limitation of liability. As a shareholder of a subsidiary, the foreign company’s liability is, in principle, limited to the extent of its capital contribution; whereas, if the foreign company makes use of a branch, it is fully responsible for all the obligations and liabilities of the branch.

One major advantage of setting up a branch is that it does not, in principle, require the same legal formalities required for setting up a subsidiary. However, the simplification and flexibilization of the Dutch limited company law (as mentioned above) may well diminish this advantage.

Another important aspect to consider with respect to the choice of setting up a branch or a subsidiary in the Netherlands is the matter of local tax regulations. The choice of setting up a branch or a subsidiary will be determined based on the circumstances and relevant factors with respect to the business as such, and the Dutch tax regulations and tax treaties.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl