Financing companies in the Netherlands

What are they and what advantages do they offer?

As an experienced entrepreneur or executive, or even as a starting trading professional, chances are that you have already found yourself talking to a financing company in the past about the possibility of a loan.

Financing companies often enter the picture either when banks for whatever reason are reluctant to provide liquidity, or when a business or an individual needs a certain amount of money relatively quickly. While financing companies make loans to individuals and companies to make a profit from the interest rates, which are generally higher than those of an average bank, they are not banks. They do not receive cash deposits from clients and they do not provide common commercial banking services like checking accounts, for example. Loans from financing companies in the Netherlands or elsewhere are usually secured by collateral, such as real estate or a vehicle.

What is a financing company in the Netherlands?

A financing company in the Netherlands is nothing more and nothing less than a financing company that is located in the Netherlands, in the heart of the European Union. It provides financing services to individuals and/or businesses, either domestically or internationally, or both, depending on the company’s specific objectives. Besides that, seeing as the Netherlands is a very sought-after domicile for holding companies as well. A financing company in the Netherlands may also be created as part of a larger corporate holding structure in which it provides loans to either other companies in the structure, or to clients of the parent company or other companies in the holding. We will elaborate more on this below.

General advantages of a financing company.

When it comes to a financing company and the advantages it can offer to its owner, it is important to determine the company’s purpose. As we briefly touched upon earlier, a financing company can serve external persons and businesses as an alternative to traditional banks, providing loans to parties in need of (quick) liquidity. Alternatively, a financing company can also be set up as part of a larger corporate structure in which it provides financing options to clients of the companies in that structure or to those companies themselves.

• Alternative to traditional banking.

Many professionals see financing companies as a valuable alternative to traditional commercial banks. Especially in times when financing from traditional banks is harder to come by, for example during economic recessions or crisis periods, financing companies often become the number-one go-to parties for individuals and other companies looking for liquidity.

• Supporting your sales process.

Running your own financing company as part of a larger corporate structure allows you to provide excellent support for your sales processes. Whether you are selling machinery, raw materials, or fast-moving consumer goods, offering flexible financing and payment options at the actual point-of-sale help to close the deal faster. If you have the capacity to tailor each financing request to the precise needs of the requesting party, you can turn your financing company into yet another benefit for your customers.

• Improving sales margins.

In connection to the previous point, setting up a financing company can also have a very positive impact on your sales margins. Offering immediate tailor-made financing solutions to your customers will help to reduce negotiation and price-cutting, which will have a positive impact on your margins and revenues per sale.

• Increasing customer retention.

Setting up a finance company gives your business the ability to offer your customers attractive bundles that include financing. Bundling the purchase of products and/or services with straightforward tailor-made financing helps you to create a strong connection with the customer. Such a “one-stop-shop” approach will in turn increase your business’s customer retention.

• Shaping your financing services to your liking.

Running your own financing company means that you can shape its service offering exactly the way you want. Earlier on, we wrote that financing companies do not offer many of the commercial services offered by traditional banks, but that does not mean that you can’t offer extras to your customers. If you believe it’s worthwhile, for example, you can decide to create a mobile app where your customers can easily track the state of their loan or a dedicated customer centre that is available 24/7. In the end, it all depends on what your customers want and what actually provides additional value to your existing processes.

Advantages of a financing company in the Netherlands.

What we discussed briefly above are the advantages of setting up a financing company in general, either as an independent business or as part of a larger holding structure. There is more though because choosing to set up a financing company in the Netherlands provides you and your business with a whole host of additional advantages. These range from the geographic location of the Netherlands and the exceptional stability of the country’s economy to the excellent existing infrastructure and the attractive fiscal climate, especially for corporate entities and holding structures.

• The Netherlands’ current tax regime is a major pull for entrepreneurs and executives looking for a location to domicile their financing company within the European Union. To give you an idea: for 2023, the Personal Income Tax rate in the Netherlands sits at 36,93% – 49,50%, while the rates for corporate tax and dividend withholding tax currently sit at 19% – 25,8% and 15%, respectively. What’s more, limited liability companies recording annual profits of no more than € 200.000 pay just 19% tax on those profits. With some smart and responsible structuring, the fiscal benefits of a trading company in the Netherlands are practically unrivalled in the European Union.

• As with any other type of company, you will need to make a decision on the type of incorporation for your financing company in the Netherlands. Generally, a so-called limited liability company (LLC, or “besloten vennootschap” (BV) in Dutch) is the incorporation type of choice. Such a company creates a legal distinction between your company’s assets and your own assets in order to limit your personal liability as a shareholder. Do keep in mind though, that personal liability can still be an issue for shareholders if there is proof of serious negligence or when annual accounts are not filed in time.

• In the past, the creation of a limited liability company in the Netherlands required a deposit of capital valued at € 18.000, least. This requirement was adjusted in 2012 though, and since then, you can contribute just € 0,01 to fulfil the capital requirement. This means that setting up a financing company in the Netherlands has become extremely affordable, though there are more costs associated with the whole process. Examples of such costs are notary costs, possible legal fees, and compliance costs (VAT returns, bookkeeping, etc…).

• The goal of your financing company in the Netherlands is to run a profit, or at least, that’s what we are assuming. For profitable companies in particular, the Netherlands is a very attractive location, thanks to the fact that the reinvestment of profits into the company is not taxed in the Netherlands. In other words, when you choose to leave generated profits in the company for the purpose of reinvestment, you do not pay taxes on those profits. In combination with a holding company in the Netherlands especially, this can result in major fiscal benefits.

• We mentioned it a few times before already, but we would just like to emphasise it once more: the Netherlands’ location, smack in the heart of Europe, is a considerable advantage in itself. The European Union boasts a GDP worth € 14,5 trillion and settling in the Netherlands gives you access to all 27 countries in the region. That includes some of the most developed and wealthy markets in the world.

• For international entrepreneurs, traders, and executives from English-speaking countries in particular, such as the United States, the United Kingdom or the United Arab Emirates for example, the Netherlands is the perfect place to set up a financing company. Why? Because the country’s level of English literacy sits around 92%, which is one of the highest in the world among regions where English is not an official language. As a result, English can be spoken anywhere, from local supermarkets and schools to professional service providers and banking institutions.

Are you considering setting up a financing company in the Netherlands and would you like to know more about the possibilities in regard to your specific situation? Get in touch with CompanyNL, so we can discuss the optimal approach for you and your company, naturally in an entirely non-committal way!