Setting up a sole proprietorship: How to do it?

What is a sole proprietorship? 

A sole proprietorship is a form of business where you are the sole owner. There is no legal separation between you and your business: income, liabilities and risks are all directly yours. Before starting, you register with the Chamber of Commerce. After registration, you will automatically receive your VAT identification number and sales tax number from the tax authorities and you can get started right away.

Difference between sole proprietorship and zzp 

A sole proprietorship is an official legal form, similar to a bv or vof, for example. Zzp'er is not a legal form, but a term for working independently without staff. In practice, most self-employed people choose the sole proprietorship, because it is quick and cheap to arrange and fits well with small-scale entrepreneurship. Want to know exactly what the difference is between these terms? Then read our article on the difference between zzp, sole trader and freelance.

Can I hire staff? 

Yes, you can. The name sole proprietorship only says that there is one owner. You can hire unlimited employees. Once you do, you become an employer and pay payroll taxes and contributions. The legal form does not change in the process: you remain the sole owner and fully responsible. 

Benefits of setting up a sole proprietorship 

The sole proprietorship is popular because it is quick and easy to start. Low costs, limited administration and tax advantages make this legal form attractive for starters. 

Key benefits include: 

• Low set-up costs: Registering with the Chamber of Commerce costs €82.25 and a notary is not required. 

• Tax benefits: if you meet the hours criterion, you can make use of smart deductions such as the self-employment deduction, start-up deduction and the SME profit exemption.

• Full control: you decide everything yourself, without shareholders or partners. 

• Simple administration: No compulsory annual accounts, only VAT returns and income tax. 

Thanks to these benefits, many start-ups can still enjoy tax advantages and full control over their business with relatively little hassle. 

Disadvantages of sole proprietorship 

The simplicity of the sole proprietorship also has drawbacks. You are personally liable, the tax burden can increase and you do not build up a pension or safety net. 

Main drawbacks are: 

• Unlimited liability: debts can be recovered directly from your private assets. 

• Higher tax burden: profit falls in box 1 with progressive rates up to 49.5%. 

• No social services: you have to arrange your own pension, AOV and buffers. 

Liability and debts 

If your company gets into debt or goes bankrupt, you are fully responsible. If you are married in community of property, your partner's assets can also be claimed. This risk makes the sole proprietorship less suitable if you make large investments or commitments. For more protection, entrepreneurs often later switch to a private limited company. 

Tax matters 

If you start a sole proprietorship, you will have to deal with tax. The two main types are the income tax return and the sales tax (VAT). The tax authorities see your profit as personal income, on which you pay income tax. In addition, you usually have to charge VAT on your invoices and remit it neatly.

Income Tax 

Everyone in the Netherlands pays income tax on his or her income every year. As an entrepreneur, there is an additional component to this: the profit from your business.

That profit, your turnover minus your business expenses, is taxed in Box 1. The higher your total income, the higher the tax rate. If you meet the hour criterion, you can make use of deductions such as the self-employed deduction, start-up deduction and SME profit exemption. These reduce your taxable profit and thus your final tax burden.

Tax benefits 

Do you meet the hours criterion (1,225 hours per year), then you are entitled to deductions such as the self-employed deduction, start-up deduction and the SME profit exemption. These schemes reduce your profits, so you pay less tax. There are also other schemes and deductions entrepreneurs can avail of, depending on their situation.

VAT (sales tax) 

Most entrepreneurs are subject to VAT. That means you charge VAT on your invoices and then remit it to the tax authorities.

Every three months you file a VAT return: you declare how much VAT you received and how much you paid on business expenses. You remit or get back the difference.

Small business scheme 

Do you earn less than €20,000 a year? Then you can opt for the small entrepreneur scheme (KOR). You then don't have to charge or declare VAT. This makes administration easier, but the downside is that you can no longer reclaim VAT on your business expenses either.

Do I need an accountant? 

An accountant is not compulsory, but it is wise. Deductions and VAT rules in particular can be complicated. An accountant will help you avoid mistakes, make the best use of tax benefits and save time. At Van Passe we take this completely out of your hands, so you can focus on your business. 

Setting up a sole proprietorship in five steps 

Starting a sole proprietorship is easy and can often be arranged within a week. 

1. Preparing: Make a business plan, choose a business name and check it with the Chamber of Commerce. 
2. Register at the Chamber of Commerce: arrange this online via the website.
3. Appointment at the Chamber of Commerce: your details will be checked and the registration will be finalised.
4. Receiving documents: You get your Chamber of Commerce number and later your vat id and sales tax number. 
5. Getting started: open a business account and officially start your business. 

Sole proprietorship or private limited company 

Are you hesitating between a sole proprietorship and a private limited company? The table below shows the main differences in a row.