Do you have a sole proprietorship? And is your company growing fast? Then it is probably more tax efficient to convert your sole proprietorship into a BV. This is partly due to the differences in costs and liability. Read more in this article about the advantages of a BV and the points to consider during the transition.
A BV (private limited company) has several advantages compared to a sole proprietorship. It depends on the situation of your company whether a BV is really more tax efficient than a sole proprietorship.
In principle, many entrepreneurs adhere to the rule that with a profit of € 100,000 or more, the sole proprietorship is converted into a BV. The main reason for switching to a BV is the difference in liability. More about that below.
We have listed the biggest advantages of a BV below for you:
The BV is its own legal entity: this means that the available financial resources of the BV are transferred to the company. The company is responsible for all legal obligations and must be able to pay any creditors. So you are not personally liable. In short: business and private life remain separate.
The BV cannot go bankrupt as an independent entrepreneur: if you go bankrupt, you will still have an income that goes through other activities, such as online marketing or certain services.
A BV looks more professional than a sole proprietorship.
The money you invest in this company is once again free to spend. For example, you can put the money in the payment of your car, or in your house or keep it for later.
The biggest difference between a sole proprietorship and BV is the connection with the founder. For example, in a sole proprietorship there is no distinction between the sole proprietorship and yourself, while a BV is a legal entity.
Because your sole proprietorship is not a separate legal entity, you are personally liable as an entrepreneur. Your private assets can be used to settle the costs or debts of your business. This is not the case with a BV. Your private assets and business assets are then separated.
Some administrative and tax differences
| Sole proprietorship | BV |
|---|---|
| You can start a sole proprietorship relatively easily, cheaply and quickly via a business counter. | Before you can register a BV at a business counter, you must first go to the notary. This entails a somewhat higher cost. |
| There are not many accounting and administrative obligations. | The accounting and administrative obligations are more extensive than with a sole proprietorship, and therefore slightly more expensive. |
| The income from your sole proprietorship is taxed through personal income tax. | The income of a BV is taxed via corporation tax or ‘vennootschapsbelasting’ (VPB). This is fiscally more advantageous than personal income tax. |
| Transfering a sole proprietorship is quite difficult. | A BV is easier to transfer. |
Converting your sole proprietorship to a BV is easier than you might think. Before the transition is possible, the new BV must be established first. Only then, your sole proprietorship will be terminated. The costs are low, and the process is relatively short. Since 2012 it is no longer mandatory to have a starting capital of 18,000 euros. A single euro is nowadays already enough to establish a BV. Most entrepreneurs do opt for a certain starting capital when incorporating.
There are a number of one-time costs involved in the establishment of a BV. For example, the registration in the Trade Register (about 50 euros) and the costs of a notary. The notary fees vary by office. In general, you can assume an amount between 300 and 1000 euro, depending on the complexity of your wishes.
There are some points to take into account when converting:
You have to establish the BV first;
Amendment of articles of incorporation;
Division of assets and liabilities, each part by two or three parts.
your (new) BV will have a new KVK number.
There are three ways to convert a sole proprietorship to a limited liability company:
Asset-liability transaction
Tax-free transfer of assets
Transfer of assets subject to tax
If you opt for an asset-liability business acquisition, you quickly and easily convert your sole proprietorship into a BV. You sell all assets and liabilities of the sole proprietorship to a newly established BV. You first go to the notary to establish the BV, then the notary will ensure registration of your BV at the KvK (Kamer van Koophandel). The asset/liability transaction is the most obvious way and also the most advantageous method for transaction in sole proprietorships.
You will also need an asset-liability document. This document states which assets and debts you are selling to the limited company. You can choose to draw up this document yourself or have it drawn up by a notary. You do not need a notarial deed when converting by means of an asset-liability transaction.
Asset-liability transaction:
Contribution of property at no additional cost;
You do not pay income tax on tax reserves;
The conversion is not retroactive.
Do you want to convert your sole proprietorship to a BV via a tax-free transfer? With a tax-free transfer of assets, you do not have to pay income tax on tax reserves or on the surplus value of your business premises. Therefore, this method is particularly suitable for sole proprietorships that have existed for a somewhat longer period. Your new BV starts with a balance sheet that is the same as the final balance sheet of your sole proprietorship.
Tax-free transfer of assets
Suitable for sole proprietorships with capital gains (or tax reserves);
Suitable for sole proprietorships that exist for a longer period;
Valid retroactively up to 9 months earlier.
Do you want to convert your company retroactively into a BV and do you intend to sell it within three years? If so, the purulent contribution is the most suitable option. You send a letter of intent to the tax authorities, in which you let them know that you are converting a sole proprietorship into a BV. You can draft a declaration of intent together with an accountant.
Then you set up the BV at the notary. The notary also draws up a deed of contribution. This contains all the assets and liabilities of your sole proprietorship that are transferred to the BV. The notary will register your BV and de-register the sole proprietorship at the KVK.
you may be entitled to discontinuation profit (stakingswinst), because you cease your sole proprietorship with a tax-free transfer of assets.
To keep the overview, it is important to take into account various tax and accounting aspects. For example, it is mandatory for a BV to file annual accounts with the Chamber of Commerce, but this is not the case for a sole proprietorship. In addition, there are other practical issues, such as thinking of your business name and arranging a workplace (eg office space).
DGA (director and major shareholder)
In addition, when starting your own BV, you become the DGA of the company and pay yourself wages from the company (this is called DGA salary). The tax authorities no longer consider you an entrepreneur, and you can no longer make use of various deductions. For example, the self-employed tax deduction, starters tax deduction and SME profit exemption.
What is a sole proprietorship (eenmanszaak)?
A sole proprietorship (eenmanszaak) is a type of business structure in the Netherlands where an individual runs their own business.This means that the owner is personally responsible for all business activities and liabilities, and all profits are taxed as personal income.
What is a BV?
BV stands for Besloten Vennootschap, which translates to a private limited company in English. A BV is a business structure in the Netherlands that offers limited liability to its shareholders. This means that the shareholders are not personally liable for the company's debts and legal issues.
Why would someone want to switch from a sole proprietorship to a BV?
There are a few reasons why someone might want to switch from a sole proprietorship to a BV. One reason is that a BV offers limited liability, which can protect the owners' personal assets in case the business incurs debts or legal issues. Additionally, a BV can be more attractive to potential investors or partners, as it is seen as a more formal and established business structure. If you're looking to expand your business, a BV can make it easier to raise capital and take on new partners or investors.
What is the process for switching from a sole proprietorship to a BV?
The process for switching from a sole proprietorship to a BV involves several steps, including drafting articles of association, registering the BV with the Chamber of Commerce, and transferring assets and liabilities from the sole proprietorship to the BV. It is recommended to seek the advice of a legal professional or accountant to ensure a smooth and proper transition.
What are the tax implications of switching from a sole proprietorship to a BV?
Switching from a sole proprietorship to a BV can have tax implications. For example, the BV will be subject to corporate income tax, while the sole proprietorship is subject to income tax. It is important to consult with a tax advisor to understand the specific tax implications of making this switch.
How does the ownership structure differ between a sole proprietorship and a BV?
In a sole proprietorship, the individual owner has full control and ownership of the business. In a BV, ownership is divided among the shareholders, and decisions are made collectively through a shareholder meeting. The BV also has a board of directors, which oversees the day-to-day operations of the business.
Is switching from a sole proprietorship to a BV right for every business owner?
No, switching from a sole proprietorship to a BV is not necessarily the right choice for every business owner. It depends on the specific needs and goals of the business. It is important to carefully consider the potential benefits and drawbacks and consult with professionals before making this decision.
Converting your sole proprietorship into a limited liability company (BV) changes the legal structure of your business. But what is the difference between the two structures? And how can I optimize my business plan for the transition?
The experienced bookkeepers and accountants in our network will be happy to talk you through the options that are open to you on the way to a successful transition. Start your free, no-obligation inquiry via the form below, and we will put you in touch with up to three bookkeepers or accountants in your area. You can see for yourself whether to start a partnership.
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