Netherlands: Doing Business In

Civil law.

There are 4 main types of legal entities:

1. The “Naamloze Vennootschap” (NV), which is a public company with limited liability.
2. The “Besloten Vennootschap” (BV), which is a private limited company with limited liability.
3. The “Coöperatie”, which is an cooperative with members instead of shareholders.
4. A partnership, whether general (“vennootschap onder firma” or “VOF”) or limited (“commanditaire vennootschap” or “CV”).

Foreign entities can register a Dutch branch or register the foreign entity in the Netherlands and use this entity to start doing business. Alternatively a foreign entity can set up a Dutch company and become a (sole) shareholder of such entity. There are no special restrictions on foreign-owned companies planning to start a business in The Netherlands.

NVs must have a minimum issued and paid-in capital of EUR 45,000. For B.V.s no minimum issued and paid-in capital is required, as long as at least one share is issued to a person or legal entity other than the B.V. or its subsidiaries. No capital requirements apply to the cooperative and partnerships.

NVs, BVs and cooperation’s are established by means of the execution of a notarial deed. Partnerships can be established by means of a private instrument. Most commonly used is the BV for professional investments.

Most companies are managed by a management board, consisting of executive directors only. For large entities a supervisory board may be required. The supervisory board supervises the management board and provides advice. Alternatively a one-tier board can be installed, which consists of executive and non-executive board members.

All companies must have at least one director. There is no requirement for a director to be based in The Netherlands or to have Dutch nationality.

In general, directors (a private individual or a legal entity, either foreign or Dutch) are appointed by the general meeting of shareholders or members. Unless disqualified as director and/or representative by the court, every individual / legal entity is appointable to act as representative and/or director of a company.

The articles of association may contain additional requirements or restrictions regarding the representation and management of the company.

There is no requirement for a shareholder to be resident in The Netherlands or to have Dutch nationality. Both a private individual and a legal entity can act as shareholder.

The articles of association may contain specific requirements or restrictions for (potential) shareholders.

Unless otherwise stipulated in the articles of association an entity or establishment is free to expand business operations in The Netherlands through commercial agents and or resellers.

The Dutch Corporate Governance Code (also: Code) is the most dominant governance code and applies to – briefly put – listed entities. The Code was lastly revised in 2016.

The Code set outs general principles, which are considered as reflecting widespread views on good corporate governance. These principles are each followed by and supplemented with specific best practice provisions. Together, the principles and best practice provisions aim to define responsibilities for:

• Long-term value creation

The management board is responsible for the continuity of the company and its affiliated enterprise. The Code emphasizes the relevance of the management board to focus on long-term value creation for the company and to take into account the stakeholder interests that are relevant in this context.

• Effective management and supervision

The Code aims to strengthen the checks and balances between the management board and the supervisory board with provisions related to effective corporate governance and independent supervision.

• Remuneration

Pursuant to the Code, the remuneration policy applicable to management board members should be clear and understandable, should focus on long-term value creation for the company and its affiliated enterprise, and take into account the internal pay ratios.

• The general meeting

The general meeting should be able to exert such influence on the policies of the management board and the supervisory board of the company that it plays a fully-fledged role in the system of checks and balances in the company. Good corporate governance requires such level of participation of the general meeting.

Compliance with the Code is based on the “comply or explain” principle. Listed entities are obliged to comply with each principle and provision of the Code, but may deviate therefrom. In case of a deviation, the entity in question must explain, in a separate chapter of its management report, the extent to which it did not comply with any principles and best practice provisions during the relevant financial year.

Proposals for an amendment of the Code were published in February 2022. The most innovative proposals concern long-term value creation in combination with ESG, the role of shareholders and diversity and inclusion (D&I). For example, it is proposed that listed entities should formulate an ESG strategy with concrete objectives and account for it in their management report. The aim is to have the updated Code enter into force on 1 January 2023.

There are several ways for a shareholder to provide the entity with working capital. The main options are a 1) a shareholders cash contribution, 2) subscribing for more shares and 3) executing a shareholder loan agreement.

Outside the shareholder – entity relation, the entity may consider a loan from another entity within the same group or from a third party. In addition to this the company may opt for other alternatives such as the restructuring of debts and asset refinancing.

NVs and BVs can return proceeds to their shareholders in several ways. For both the NV and the BV distributions of dividend are subject to certain capital requirements. These capital requirements aim to avoid bankruptcy or harm to creditors.

By far the most popular option is to provide shareholders with a (stock)dividend.

Dividend distributions – NV

The general meeting (of shareholders) of a Dutch NV can resolve to distribute the NV’s profits to its shareholders as dividend only upon adoption of the annual accounts and only if the NV’s equity exceeds the amount of the paid-up and called-up capital and the reserves required to be maintained by law and the articles of association.

Interim dividend is only allowed if (i) an interim dividend is specifically allowed by the NV’s articles of association; and (ii) the NV’s equity exceeds the amount of paid-up and called-up capital and the reserves required to be maintained by law and the articles of association. The NV’s equity in this regard should be calculated on the basis of an interim balance sheet not older than the first day of the third month prior to the month when a resolution on interim dividend is adopted.

Dividend distributions – BV

The general meeting (of shareholders) of a Dutch BV can resolve to distribute the BV’s profits to its shareholders at any time as long as the BV’s equity exceeds the amount of the reserves required to be maintained by law and the articles of association. A resolution of the general meeting in this regard will remain without any effect until the BV’s management board approves it, which approval the management board can only withhold when it knows or should reasonably foresee that following the distribution the BV will not be able to continue paying its due (and foreseeable) debts.

The entity may also execute Share buybacks.

Repurchase of NV-shares

A Dutch NV is allowed to repurchase its own, fully paid-up, shares with or without consideration unless its articles of association exclude or limit such possibility. A transfer of NV’s shares requires a Dutch law notarial deed of transfer, except when the shares are listed on a regulated stock exchange.

A repurchase of shares with consideration is only allowed if the NV’s equity less the purchase price for the shares is not less than the paid-up and called-up share capital and the reserves the NV is required to maintain by law and the articles of association. The NV’s equity in this regard shall be calculated on the basis of the last adopted balance sheet less (i) the share purchase price, (ii) the amount of loans granted by the NV with a view of acquisition by a third party of shares in its capital, and (iii) (dividend) distributions made by the company or its subsidiaries after the balance sheet date. If more than 6 months have lapsed since the end of a financial year without the annual accounts for that year having been adopted, no repurchase of shares is allowed.

Repurchase of BV-shares

A Dutch BV is allowed to repurchase its own, fully paid-up, shares with or without consideration unless its articles of association exclude or limit such possibility.

A repurchase of shares with consideration is only allowed if (i) the BV’s equity less the purchase price for the shares is not less than the reserves the BV is required to maintain by law and the articles of association and (ii) the BVs’ management board has approved the share buyback, which approval the management board can only withhold when it knows or could reasonably foresee that following the share buyback the BV will not be able to continue paying its due (and payable) debts. As opposed to the NV, Dutch law does not include any specific requirements regarding the balance sheet of the BV based on which its equity should be calculated.

Voting requirements and thresholds are normally laid down in the articles of association of Dutch companies.

In principle, shareholders (or members) are not authorized to issue binding instructions to the management. However, the articles of association may stipulate that that the managing board must act in accordance with the instructions of the general meeting. The managing board shall be obliged to follow such instructions unless these instructions are contrary to the interests of the company and its affiliated enterprise.

Unfair dismissal

There are (strictly speaking) four ways to terminate the employment agreement (unilaterally of mutual):

• The UWV;
• Subdistrict Court;
• Mutual consent;
• Termination due to urgent reasons.

There are nine exhaustive grounds on which an employer can request for dismissal of an employee:

1. Economic reasons;
2. Long-term illness;
3. Frequent sickness;
4. Non-performance;
5. Culpable behavior or omission;
6. Conscientious objections;
7. Disrupted employment relations;
8. Other reasons;
9. A combination of grounds c, d, e, g and/or h.

Not only must the requirements for dismissal be fully met, the employer must also – prior to a dismissal and within a reasonable period – try to redeploy the employee in another position, if necessary by offering education. This obligation does not apply in case of culpable behavior by the employee.

If a prohibition against a termination of the employment agreement applies, the UWV or Subdistrict Court will in principle not give permission to terminate the employment agreement. Several types of employees have special dismissal protection. This includes:

• Sick employees (during the first 104 weeks of sickness);
• Pregnant employees (pre-maternity);
• Employees on post-maternity leave (including a period of at least six weeks after pregnancy leave);
• Members of an employee representation body;
• Trade union members;
• Employees using their rights to special leave;
• Employees who are or were recently involved in a transfer of undertaking.

Please be noted that even though the employee has special dismissal protection, it could occur that under specific circumstances the permission to terminate the employment agreement will be given. Based on case law, the assessment of the Subdistrict Court in these specific circumstances will be determined on a case-by-case basis and therefore depends on all circumstances of that particular case.

Associated Cost

The costs of a dismissal will depend on the reason for dismissal. Potential costs will include:

• Transition fee (see above); and
• Additional reasonable compensation (see above).

Collective dismissals

A collective dismissal implies the dismissal for business reasons of more than 20 employees (working in the same business area, with the dismissals taking place within a period of 3 months).

In case of a collective dismissal, the trade unions and UWV should be notified in time. The employer should submit a dismissal plan. After the notification, the employer should also notify the works council (if any). All aforementioned stakeholders should be able to have a substantial influence on the decision. Therefore, they should be involved before the final decision has been made.

Trade Unions

In Dutch labor law, the trade unions play an important role in the negotiation of collective bargaining agreements. Collective bargaining agreements have to be concluded between trade unions, as the employees’ representatives, and organizations that represent the employers or individual companies. The company can also be bound to a collective bargaining agreement if it is not represented by an employers’ organization but if the agreement is declared generally binding by the Dutch Minister of Social Affairs.

Collective bargaining agreements are well known in the Netherlands and lead to additional rights and obligations to be observed by the employer. Whether or not a collective bargaining agreement is applicable depends, amongst other things, on the activities performed by the company and the individual employee.

The trade unions should be consulted with respect to collective dismissals (more than 20 dismissals). In that case also the Dutch Employee Dismissal Agency (“UWV”) should be notified.

Works Council

According to the Dutch Works Council Act, an employer is obliged to establish a Works Council if at least 50 employees work within the company. Pursuant to the Works Council Act, the Works Council must be given the opportunity to render advice with respect to various decisions to be taken by the company. Certain decisions even require the prior approval of the Works Council before they can be implemented. The detailed requirements of the Works Council Act are beyond the scope of this guide.

In the event of a company in which normally at least 10 and less than 50 persons are working and no Works Council has been established, the employer shall give the employees the opportunity of a meeting with an employer representative at least twice each calendar year. The level of rights and responsibilities of a certain representative body depends on the type of body as described above.

Yes, bribery and corruption are considered criminal offences as per the Dutch Penal Code (Wetboek van Strafrecht, hereinafter referred to as DPC). While corruption is not defined and is assimilated to bribery in Dutch law, the term bribery is enshrined in the DPC. Particularly, Sections 177, 178, 363 and 364 DPC contain provisions regarding bribery of a public official; while Sections 136, 32ter and 328 quarter DPC refer to bribery of non-public officials. Additionally, entities may be held criminally liable for bribery committed by individuals, pursuant to Section 51 DPC.

There are no separate regulations with regards to the punishment of bribery and corruption; however, various laws and regulations apply to different entities to ensure prevention thereof.

Regarding enforcement, the Public Prosecutor of The Netherlands is responsible of such, and follows specific instructions for the investigation and prosecution of bribery of public officials in the Netherlands (Aanwijzing opsporing en vervoling ambtelijke corruptie in Nederland). Furthermore, it may decide, based on its principles and rules, to extend the reach of its instruction and handling of foreign bribery cases, which also must follow the instructions for the investigation and prosecution of bribery abroad (Aanwijzing opsporing en vervolging buitenlandse corruptie).

See responses to question 17 above. In some cases it is obligatory to report money laundering and terrorism financing to the Dutch Finance Intelligence Unit Nederland (FIU-Nederland). This applies among others to financial organizations, business service providers, and financial service providers, including, among others, lawyers, accountants, public notaries, casinos, trust offices, and life insurance brokers.

In The Netherlands, AML/CFT is regulated in the Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme – Wwft), in force since 2008. In broad terms, it follows a risk-based approach, which means that persons (legal and natural) obliged by it are free to determine the degree of risk they want to take and the mitigation measures they must put into place. Thus, persons are obliged to (i) monitor their customers and transactions; and (ii) notify any unusual transactions to the FIU-Nederland). Also, regulatory agency, such as DNB (Netherlands Central Bank) provide(d) additional authoritative guidance such as the Leidraad voor wwft en sanctiewet.

Yes, the Child Labor Due Diligence Act (Wet Zorgplicht Kinderarbeid), which applies to all companies that sell or supply goods to Dutch consumers, regardless of where they are established or registered. Under the new law, companies are obliged to investigate whether a product or service in their supply has been produced using child labor. If so, the company must develop and implement an action plan to ensure child labor is prevented in the future in its supply chains.

Furthermore, as a Member State of the European Union, the Netherlands will in coming years enact national legislation on the basis of the long-awaited Directive on Corporate Due Diligence, which currently has taken the form of a Proposal and has yet to be implemented.

Apart from the Dutch act on child labor, there is other legislation and regulations on environmental aspects in the supply chain, waste disposal, human rights, fair trade related aspects in supply chains.

The management board of Dutch companies are obliged to prepare annual financial statements, generally within five months after the end of the financial year. Extensions are allowed, provided that the annual accounts are adopted by the annual general meeting and filed at the Dutch Trade Register within 12 months after the lapse of a financial year.

Audit of annual accounts is only required for medium-sized and large companies.

A company is considered to be a medium-sized company in case two of the following three criteria apply for two consecutive years:

Total value of assets: EUR 20 million or more

Net turnover: EUR 40 million or more

Number of employees: more than 250

Books and records should be kept at the companies address. These documents include the minutes of board meetings and shareholders meeting as well as the by-laws of the company and the companies’ shareholders or members register.

Every financial year at least one shareholders meeting should be held. During this meeting the annual accounts will be discussed and submitted for approval of the shareholders meeting. Furthermore discharge will be requested for the members of the management board and supervisory board for their management and supervisory duties in a separate agenda item.

Companies and legal entities must register 1 or more UBOs. UBOs (Ultimate Beneficial Owners) are the owners or the persons who are in charge of a company. The UBO register helps to prevent financial and economic crimes such as money laundering, financing terrorism, tax fraud and corruption. The register makes it clear to whom money is sent. This way, people cannot hide any potential financial crimes behind a corporation.

An UBO is the owner or the person who is effectively in control of an organization:

Ultimate beneficial owners are for instance:

• persons who own more than 25% of shares of a company or legal entity, or
• persons who have more than 25% of voting rights of a company, or
• persons who are effectively in control of the company

Corporate income tax

Public and private companies pay corporate income tax on their profits. Special rules apply to companies that form a tax group and to companies that own 5% or more of another company.

Corporate income tax rates in 2022

The corporate income tax rate depends on the taxable amount. The taxable amount is the taxable profit in a year reduced by deductible losses.

• If the taxable amount is € 395,000 or less, the corporate income tax rate is 15%.
• If the taxable amount is more than € 395,000, the corporate income tax rate is € 59,250 plus 25,8% for the taxable amount exceeding € 395,000.

Taxation of international businesses

The government wants to avoid international businesses being taxed twice. The Netherlands has therefore concluded tax treaties with a large number of countries.

Resident taxpayers

All businesses that are incorporated under Dutch law or that are located in the Netherlands pay tax on their worldwide income in the Netherlands. Worldwide income includes income earned outside the Netherlands.

Non-resident taxpayers

Non-resident businesses pay corporation tax in the Netherlands on:

• taxable profit from a Dutch business;
• taxable income from a substantial holding in a businesses located in the Netherlands;
• taxable profit from a business located on Aruba, Curaçao or St Maarten or a permanent establishment located on Bonaire, St Eustatius and Saba, subject to certain conditions.

Tax treaties

A tax treaty is an agreement between two countries laying down which of them may tax which income. One country will levy taxes and the other will provide a tax reduction or exemption.

A list of the countries with which the Netherlands has signed a tax treaty is available on the Tax and Customs Administration’s website.

APA/ATR policy

The Netherlands is in favor of Advance Pricing Agreements (APAs) and Advance Tax Rulings (ATRs). APAs and ATRs are binding agreements made with the Tax and Customs Administration on the application of tax laws to international groups of companies.

APAs and ATRs provide foreign investors with assurance on how national and international tax rules will apply to them in the Netherlands. This avoids differences of interpretation in the future. Bottom of Form

A reduced rate of 9% applies to activities covered by the innovation box. The innovation box provides tax relief to encourage innovative research. All profits earned from innovative activities are taxed at this special rate.

Dividend tax

Companies can distribute some of their profits as dividend to their shareholders. Dividends are subject to tax. The general rate of dividend tax is 15%.

Withholding and deduction of dividend tax

Dividend tax is withheld from the profit distributed to shareholders. Shareholders can deduct the withholding from the balance payable on their income tax or company tax returns. If a company receives a dividend on the shares it owns in another company it can deduct the dividend tax from the balance of its corporation tax payable. A private individual can deduct it from the balance of income tax payable.

Dividend tax exemption or refund

In some circumstances, a company may be entitled to  partial or full exemption from dividend tax or to a dividend tax refund.

Transfer tax on immovable property

Acquisition of economic or legal ownership of immovable property in the Netherlands is subject to a transfer tax over its market value. The general tax rate of the transfer tax increased from 6% to 8% as of 1 January 2021.

No Stamp duties or Capital tax is applicable.

The Financial Supervision Act and the Public Takeover Bid Decree set out specific rules for Dutch listed companies that are the subject of a public offer. Certain rules in the Civil Code may also be important in relation to a transaction with a Dutch public company, for example:

• Shareholder approval is required for certain significant transactions;
• There are rules regarding (cross-border) legal (de)mergers;
• There are general corporate governance rules.

EU regulations may also be relevant in the context of a tender offer on a Dutch listed company. In particular, the following are important when making a public offer:

• Regulation (EU) 596/2014 on market abuse (Market Abuse Regulation).
• Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation).

The main regulatory body in The Netherlands regarding the public offer process is the Authority for the Financial Markets (‘AFM’). In addition to regulating the public offer process, the AFM may also be involved if the target company is regulated by the AFM because of the sector it operates in (for example, financial services).

In relation to Dutch public companies, the Corporate Governance Code also applies on a “comply or explain” basis. The Corporate Governance Code sets out rules and best practices on governance, and also more specifically in relation to takeovers.

Other regulations that may be relevant in the context of a public offer for a Dutch public company are the:

• Competition Act.
• Works Council Act.
• Merger Code.

Other potentially relevant regulators include the:

• Netherlands Authority for Consumers and Markets (‘ACM’), and the European Commission (competition authorities).
• Dutch Central Bank (financial sector).
• Minister of Economic Affairs (energy sector)
• Healthcare Authority (healthcare sector).

There is a mandatory merger control regime which applies to “concentrations”. A concentration is defined in the Dutch Competition Act (‘DCA’) as:

• a merger of two or more previously independent undertakings;
• the acquisition of control by one or more undertaking(s) over the whole or parts of one or more other undertaking(s); and
• the creation of a joint venture that performs all the functions of an autonomous economic entity on a lasting basis.

The Netherlands Authority for Consumers and Markets (‘ACM’) must be notified of a potential concentration / merger if the following two (cumulative) thresholds are met:

• the merging businesses have a combined global annual turnover of at least EUR150 million; and
• at least two of the merging businesses each have an annual turnover of at least EUR30 million in the Netherlands.

Different thresholds apply for mergers in the healthcare and pension fund sectors.

The review process of merger control notifications under the DCA consists of two phases: the notification phase (Phase 1) and the license phase (Phase 2).

Phase 1 starts when the ACM receives the notification. During Phase I the ACM must decide within four weeks whether the transaction requires a license. If no license is required, the parties can execute the transaction. If the ACM decides that a license is required, the parties can apply for the license at their discretion and according to their own timetable. However, without a license the transaction cannot be implemented. Phase 2 is initiated with the submission of a license request. During Phase 2, the ACM will conduct a more in-depth analysis of the effects of the concentration. To obtain the necessary license, the undertakings concerned must provide more detailed information to the ACM. The ACM must decide on the license request within 13 weeks. On average, however, a Phase 2 procedure typically takes five to six months. If the ACM decides not to grant a license, the notifying parties are not allowed to execute the transaction.

Dutch case law supports that negotiating parties have the obligation to negotiate in good faith. Moreover, the principle of reasonableness and fairness applies to negotiating parties. Said principle entails, among other things, that if a party is contemplating on breaking off the negotiations, such party has the obligation to respect the legitimate interests of the other party(ies), which may lead to pre-contractual liability depending on the stage of the negotiations and the legitimate expectations of the other party(ies).

The acquisition of the employer does not directly affect the employment contracts of the employees. In situations where a target company has a works council, such work council does have certain rights on the basis of the Works Council Act.

The Works Council Act regulates the different forms of voluntary and mandatory employee representation within Dutch companies. A legal entity with 50 employees or more is legally required to establish a works council. A works council has different rights, such as:

• The right to be informed on certain types of decision or on certain aspects of the company;
• The right to be consulted in respect of certain types of economic and organizational decisions, such as (amongst others) major investments, the appointment or dismissal of a member of the management board, important changes in the organization of the company, restructurings affecting the company and the transfer of all or part of the company (such as a merger or asset sale). The consultation obligation could also apply if the respective decision is taken in a group context at a higher level (for example by the management of the parent company).
• A co-determination right (i.e. the right to consent) with respect to certain other types of decisions, e.g. important decisions in the social field, such as amendments to working hours, working conditions, bonus/incentive schemes or a job evaluation system.

With respect to consultation procedures, the works council has to be involved in an early stage, so that it can have a significant influence on the decision to enter into the relevant transaction. If these procedures are not followed correctly, the company risks a negative advice or advice under certain conditions from the works council, which could result in a delay in the decision-making process or even in litigation before the Dutch District Court.

Currently, there is no overarching restriction, control or requirement rule in the Netherlands, though the legislator is preparing such mechanism and on 8 September 2020 published a draft bill for consultation. The legislation, which is expected to come into force soon, would have retroactive effects from such date. When in force, it will oblige changes in the control of vital providers or companies active in the area of sensitive technologies due to an investment, merger or acquisition, to be notified to the Minister of Economic Affairs and Climate through the Investment Assessment Agency (Bureau Toetsing Investeringen). The Minister may then decide to (a) allow the transaction, (b) forbid it, or (c) approve it subject to conditions.

Additionally, there is in place an EU Regulation establishing a foreign investments control framework, applicable directly in the Netherlands. In broad terms, it is a set of rules that enable Member States to cooperate by sharing information and raise concerns related to specific foreign investments. It enables the EU Commission to issue opinions when an investment threatens to undermine security, public order or public interest of more than one Member State, and sets specific requirements for Member States that wish to adopt national foreign direct investment rules.

No.

The most common method to wind up a BV or NV is by means of a voluntary dissolution and liquidation. The general meeting of shareholders can resolve to dissolve a company at any time. Upon dissolution, an entity continues to exist for the purposes of liquidating its assets. The liquidation and settlement of all debts is carried out by a liquidator appointed by the general meeting. It is a common practice in the Netherlands that the (former) board member(s) continue acting as liquidator(s).

The liquidation procedure requires (i) a filing of the liquidation accounts and distribution plan with the l trade register, (ii) announcement in a daily newspaper and (iii) expiration of a two-months creditors’ opposition period during which any creditor may oppose the liquidation by filing a petition with a local court. The liquidation cannot be completed until a creditor’s opposition is resolved or lifted.

Any positive liquidation surplus available upon settlement of all known debts shall be distributed to the shareholder(s) in conformity with the articles of association. If upon dissolution a liquidator is confronted with a negative liquidation surplus, he must file for bankruptcy unless all known creditors reach an agreement to proceed with liquidation outside the bankruptcy process.

An entity ceases to exist and can be deregistered from the Dutch trade register as from the moment it ceases to hold any asset.

If there are no assets or capital left in an entity, an entity may opt for the fast-track liquidation method. With this method, only a resolution of the general meeting of shareholders resolving on the dissolution is required to dissolve the entity. The resolution dissolves the legal entity with immediate effect. Must be noted that the a fast-track liquidation is not without risks. A creditor can demand payment through court if it turns out afterwards that there are outstanding debts. As a result, shareholders are now personally liable, because the legal entity has been dissolved.