Today, two days after we wrote in our web log that the Netherlands as a start up hub is getting momentum, member of Dutch parliament for the social liberal party D66, Kees Verhoeven launched his plan for the creation of a new type of legal entity for the Dutch market place: the start up B.V. The purpose of the start up B.V. would be to enable young and innovative companies to commit as much of their money and time as possible in the development of their enterprises. The B.V., a private company with limited liability, is already an existing legal entity in the Netherlands and the type of legal entity mostly used in the Dutch market. It is comparable to foreign legal entities such as the German GmbH, the Belgian BVBA and the English Ltd. Amendments of Dutch corporate laws regarding the B.V. came in effect as of 1 October 2012 with the purpose to make the legal entity more flexible and to simplify the legislation. Although the start up B.V. would be modeled on the basis of the B.V. it is proposed to introduce certain additional features beneficial to start ups in the Netherlands. Currently companies that perform research and development (R&D) projects can lower their R&D costs with the Dutch fiscal schemes WBSO and RDA by obtaining a R&D statement in accordance with the applicable laws resulting in such companies paying less income tax and national insurance contributions.[1] Furthermore the so called Innovation Box provides the opportunity for an effective corporate income tax rate of 5% (in stead of the standard rate of 20% for a taxable amount up to € 200,000) for profits and losses resulting form intangible assets for which the company has a (foreign) patent or a R&D statement.[2] Therefore obtaining an R&D statement can be crucial for obtaining tax benefits and therefore lowering expenditure. The start up B.V. is suggested to be a legal entity with a temporary nature of two years with the following features:

• automatic issuance of an R&D statement giving access to the beneficial WBSO, RDA and Innovation Box schemes;
• no obligation to contribute employers premiums for the first employee;
• no obligation to deposit annual accounts;
• no obligation to apply the so called customary salary scheme (gebruikelijk loon regeling) that currently obliges the founders of the start up to pay to themselves a certain minimum amount of wages;
• more flexibility in connection with flexible contracts for employees; and
• investing in a start up B.V. will be made tax-friendly.

It is envisaged that only start ups that are connected to an incubator or accelerator and start ups that have obtained an investment of a recognized business angel will be eligible for the legal form of the start up B.V. The proposed start up B.V. gives rise to a number of questions and remarks. Without the aim of being complete, first of all it does not seem to be an entirely new type of legal form, but merely a certain special status for a B.V. earmarked as a start up B.V. If that is correct therefore the question arises how such special status can be obtained, what the exact criteria are, timing etc. Secondly and more importantly it is not clear what type of start ups will be eligible for the start up B.V. Although start ups can be incorporated for any type of business or sector, the mentioning of automatic issuance of an R&D statement giving access to the beneficial WBSO, RDA and Innovation Box schemes seems to imply that only tech start ups that conduct research and development as defined by the WBSO will be eligible for using a start up B.V. If that is the case that would narrow the number of start ups eligible for using a start up B.V. considerably. Furthermore it seems to imply that the political interest in start ups does not go across the full width of start ups in all businesses and sectors, but actually focuses on tech start ups active in for example software development, innovative hardware or life sciences. If such distinction in start ups would be made the question arises whether such distinction can be sufficiently defended. Why should certain types of start ups be denied access to the benefits other start ups get? Another question that arises is what a “recognized business angel” is. The market of business angels in the Netherlands is not transparent and therefore there are no criteria that determine when a business angel is recognized or not. Furthermore it suggests that only start ups that have obtained an investment of Dutch business angels would be eligible of using the start up B.V. effectively excluding business angels abroad. From a corporate law perspective the question arises what exactly is meant by “no obligation to deposit annual accounts”. Dutch corporate law already allows small enterprises that do not meet certain thresholds to deposit only a limited balance sheet and notes in stead of full annual accounts. In any event the suggested features of the start up B.V. have been broadly formulated as a result of which it is not clear what they will mean in practice. Nonetheless it is clear that start ups enjoy the positive attention of various political parties and that there is a clear desire to further improve the start up climate in the Netherlands. That is a development that we applaud. [1] http://english.rvo.nl/subsidies-programmes/wbso-rd-tax-credit-and-rda-research-and-development-allowance [2]http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/winst/vennootschapsbelasting/innovatiebox