Thanks to its central location, robust infrastructure, and business-friendly environment, the Netherlands has long been an attractive destination for international businesses. However, registering a legal entity in the Netherlands is challenging.
While the Dutch market offers plenty of opportunities, companies must be prepared to navigate complex regulations, significant financial costs, and administrative hurdles.
Below are five key challenges companies commonly face when attempting to register in the Netherlands, along with a potential solution for simplifying expansion and ensuring compliance.
1. Complex legal and regulatory requirements
The legal framework for company registration in the Netherlands is strict, with detailed corporate governance rules that must be followed. Companies must choose the appropriate legal structure—such as a BV (besloten vennootschap) or NV (naamloze vennootschap)—and adhere to the corresponding regulations. In addition, industry-specific compliance standards may apply, further complicating the process.
Non-compliance with Dutch corporate law can lead to serious penalties, including fines and legal actions. The lack of familiarity with these laws often leaves international businesses vulnerable, particularly if they don’t have local legal expertise or advisors.
2. High financial costs and tax burdens
Setting up a company in the Netherlands involves a number of upfront and ongoing costs. These include notary fees for the deed of incorporation, registration fees with the Dutch Chamber of Commerce (KVK), and various legal and consulting expenses.
Beyond initial registration costs, companies face ongoing financial obligations such as Dutch corporate tax, VAT compliance, and mandatory social security contributions.
The Dutch 30% tax ruling, a well-known benefit for expats in the Netherlands, has undergone changes in recent years, impacting the duration and eligibility criteria for new and existing applicants.
Hidden costs can also arise, such as the need for local accounting services and the cost of maintaining compliance with Dutch tax authorities. These financial burdens can strain resources—especially for smaller businesses or startups.
3. Administrative burdens and slow registration process
Registering a company in the Netherlands requires extensive paperwork and documentation. Businesses must file the correct forms, provide identification for company directors, draft and notarize incorporation documents, and obtain various tax and trade registrations.
This administrative process can be time-consuming, and approval timelines can vary. Delays are not uncommon, particularly when dealing with multiple agencies, such as the KVK and the Belastingdienst (Dutch tax office). Moreover, compliance with Dutch labour laws, including drafting locally compliant employment contracts, adds to the administrative workload.
4. Difficulty hiring and managing employees
Hiring employees in the Netherlands comes with its own set of challenges. Dutch employment laws differ significantly from those of other countries, with strict rules around minimum wages, employee benefits, and dismissal procedures. Employers are also responsible for handling payroll taxes, pension contributions, and social security payments.
If a company plans to hire non-EU employees, it must also handle complex visa and work permit requirements. Without a strong understanding of local employment regulations, businesses may struggle to onboard talent quickly and remain compliant.
5. Risk of permanent establishment and liability issues
Operating in the Netherlands without proper company registration can trigger permanent establishment (PE) risks, exposing businesses to corporate tax obligations. If authorities determine that a company has a PE, it may be required to pay Dutch corporate taxes on local profits, even if the company is officially registered elsewhere.
In addition, having employees working in the Netherlands without an official local entity can lead to compliance and liability risks. Companies may face penalties if their operations are deemed to have a taxable presence without the proper registrations in place.
How a Dutch Employer of Record can simplify business expansion
For companies looking to enter the Dutch market without navigating these hurdles, a Dutch Employer of Record (EOR) provides a practical alternative.
An EOR acts as a local employer on behalf of your company, managing all compliance, payroll, and tax obligations. This allows businesses to hire employees and operate in the Netherlands without setting up their own legal entity.
Key benefits of using an EOR:
- Quick and compliant hiring: An EOR can onboard employees in the Netherlands rapidly, ensuring all contracts and payments meet local standards.
- Payroll, tax, and benefits administration: The EOR takes care of payroll processing, tax withholding, social security contributions, and benefits, relieving companies of these burdens.
- Reduced legal and financial exposure: By working through an EOR, businesses avoid the risks associated with permanent establishment and compliance violations.
- Full compliance with Dutch labour laws: The EOR ensures that all employment terms adhere to Dutch regulations, giving companies peace of mind.
For example, imagine a US-based tech company looking to expand into the Netherlands to take advantage of the local talent pool. Instead of setting up a Dutch BV and navigating the complex legal and administrative process, they collaborate with a Dutch EWC. The EOR takes care of hiring their local employees, manages payroll, and ensures full compliance with Dutch employment laws. As a result, the company can focus on growth while leaving the legal and administrative details to a trusted local partner.
Expanding into the Netherlands with confidence
Expanding into the Netherlands is a promising move for many businesses, but the challenges of registering a company there can’t be ignored. The process can be overwhelming, from legal complexities and financial costs to administrative delays and employment compliance issues. By understanding these potential obstacles, companies can better prepare for the journey ahead.
Partnering with a Dutch Employer of Record offers a streamlined solution for those looking for a more efficient and compliant way to enter the Dutch market. An EOR helps international businesses hire quickly, manage payroll and tax obligations, and avoid the complications of establishing a legal entity. Contact us and consider exploring EOR services to ensure a smoother, more cost-effective expansion into the Netherlands.