New legislation with respect to accounting requirements and filing obligations in the Netherlands is on its way. The new rules apply to all companies that are currently obliged to file their annual accounts in accordance with Dutch accounting requirements, that is, public companies (NVs), private companies with limited liability (BVs), cooperatives, mutual insurance associations, commercial associations and foundations, as well as companies subject to the Act on Companies Formally Registered Abroad (Wet op de formeel buitenlandse vennootschappen).
In this client alert, we will discuss certain aspects of the EU Accounting Directive Implementation Act and the proposed Act on Mandatory Electronic Filing with the Trade Register. In addition, we will touch upon a recently published consultation paper on electronic annual reporting for issuing institutions in the European Union.
1. EU Accounting Directive Implementation Act
On September 30, 2015, the Dutch Parliament passed the Accounting Directive Implementation Act. By means of this act, EU directive 2013/34/EU on annual financial statements and related reports will be implemented into Dutch law. The main goal of the directive is the modernization, simplification and further harmonization of accounting law, as well as a reduction in the administrative burden on and costs for businesses.
Below, we will highlight two changes from the Accounting Directive Implementation Act that are important from a corporate law perspective.
1.1 Reduction in the term for filing annual accounts by one month
Currently, the deadline for filing annual accounts with the Dutch Trade Register is 13 months after the end of the financial year. Under the Accounting Directive Implementation Act, this will be reduced to 12 months.
The current term for preparing annual accounts will remain unchanged. This term is five months after the end of the financial year for NVs and BVs, four months for listed entities and six months for foundations, associations, cooperatives and mutual insurance associations. For each of these entities - except for listed companies - it is possible to extend this preparation term on account of special circumstances. Under the new law, this extension term will be shortened by one month, that is, from six to five months for NVs and BVs and from five to four months for foundations, associations, cooperatives and mutual insurance associations. If the annual accounts have not been adopted two months after the preparation deadline, the unadopted accounts should be filed immediately. This means the maximum deadline for filing will amount to 12 months after the end of the financial year.
It is important to observe this shorter term for publishing the accounts, as failure to meet the filing obligation is an economic offence punishable by a fine of up to EUR 20,250 or a prison sentence of up to six months. In addition, it may lead to a company’s managing directors being held personally liable in the case of bankruptcy. There is also a risk that the Chamber of Commerce may decide to dissolve the company if the company does not comply with other registration requirements.
1.2. Increase of threshold amounts for determining company size and introduction of a separate regime for micro companies
Under Dutch law, the minimum reporting, auditing and filing requirements depend on the size of the company. Below is an overview of data to be included in the annual accounts and to be filed with the Trade Register of the Chamber of Commerce, based on company size.
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Currently, a company qualifies as a small, medium-sized or large company, respectively, if it has met two or three of the following criteria on two consecutive balance sheet dates, without interruption afterwards on two consecutive balance sheet dates:
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When the Accounting Directive Implementation Act becomes effective, these thresholds will increase significantly. Consequently, many more companies are expected to fall into the ‘small’ and ‘medium-sized’ category and will therefore benefit from a lighter annual accounts regime.
In addition to the existing categories, a new ‘micro regime’ will be introduced for companies that are even smaller than companies that fall under the small-company regime. As a result, a company will qualify as a micro, small, medium-sized or large company if it has met two or three of the following criteria on two consecutive balance sheet dates, without interruption afterwards on two consecutive balance sheet dates:
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The reporting and publication requirements under the micro-company regime will decrease significantly, compared to the small-company regime. Under the new law, it will be sufficient for micro companies to prepare a very concise balance sheet and a very concise profit and loss account. Only the balance sheet need be filed, without the profit and loss account, any explanatory notes, annual report or other information. Like small companies, micro companies will be exempted from audit requirements. It should be noted that companies that apply the exemptions from the micro-company regime will not be permitted to adopt a fair value system of accounting.
The new thresholds will also affect the rules limiting the number of directorships and memberships of supervisory boards of large companies. Several companies that previously qualified as large companies will now possibly fall into the medium-sized category, and therefore outside the scope of the limitation rules.
1.3. Effective date of the changes
The Accounting Directive Implementation Act will come into force on November 1, 2015. The provisions of this act will apply to financial years starting January 1, 2016 and later. However, the act offers the possibility of already applying the new rules to financial years that started before January 1, 2016. By way of illustration, this could mean that a company that previously qualified as a medium-sized company, but in the financial years 2014 and 2015 met the new criteria for qualifying as a small company, will be able to prepare its annual accounts for the 2015 financial year as a small company and benefit from the exemptions offered by the small-company regime.
The rule whereby annual accounts must be filed with the Trade Register within 13 months of the financial year end, will still apply to annual accounts with respect to the current financial year or a recently ended financial year. The new 12-month term will apply to annual accounts with respect to financial years starting January 1, 2016 and afterwards. Often, the articles of association of a legal entity contain the term for preparing the annual accounts, including the term by which the preparation period may be extended. For the avoidance of doubt, and taking into account the possibility of criminal liability and other negative consequences of late filing, we recommend amending this provision in the articles of association to reflect the new statutory term.
2. Act on Mandatory Electronic Filing with the Trade Register
A legislative proposal for an act amending the Trade Register Act 2007, the Civil Code and the Act on Companies Formally Registered Abroad with respect to the filing of documents with the Trade Register by electronic means was submitted to the Dutch House of Representatives last August. The proposal provides a basis for the adoption of an Order in Council (algemene maatregel van bestuur) prescribing that documents such as annual accounts be filed electronically. At the moment, companies may still choose between filing a paper version or an electronic version of their annual accounts. Electronic filing can reduce costs for both the Chamber of Commerce and businesses.
2.1. Standard Business Reporting (SBR)
A similar change has already been introduced by the Dutch tax authorities, as a consequence of which it is only possible to file tax returns by means of Standard Business Reporting (SBR). SBR is a uniform method of drawing up and delivering various financial and non-financial accounts electronically. It allows businesses to draw up internal and external reports based directly on various data from their bookkeeping software. Government institutions that require receipt of these reports can then process these data automatically. Small companies are currently already able to file their annual accounts with the Trade Register using either SBR or an online service offered by the Chamber of Commerce.
Certain types of companies will be exempted from the electronic filing obligation. Firstly, issuing institutions will be exempted, as the EU Transparency Directive already includes rules on a uniform system of electronic annual reporting for these companies. These rules are discussed in Section 3 below. Secondly, an exemption will apply to companies with their official seat outside the Netherlands that are obliged by the Trade Register Decree 2008 to file the same accounting documents with the Dutch Trade Register as those published in the country of their official seat. It should be noted that companies formally registered abroad (formeel buitenlandse vennootschappen) will not be exempted, as they are obliged to prepare and file their annual accounts in accordance with the rules applicable to Dutch companies. Finally, it is intended that a very limited group of large, mostly international, companies will be exempted, to the effect that they will have a choice between electronic filing in the format chosen by the Netherlands and the European format for issuing institutions.
2.3. Effective date of the changes
The new rules on electronic filing are expected to come into force on January 1, 2016. The exact date depends on the approval of the legislative proposal by the Dutch Parliament and the adoption of the Order in Council by the government. The Order in Council will provide further rules on which types of documents must be filed electronically, by which types of companies and from which financial year, as well as the manner in which electronic filing must take place.
3. ESMA consultation paper on electronic annual reporting for issuing institutions
The European Securities and Markets Authority (ESMA) has issued a consultation paper regarding a European Single Electronic Format (ESEF). ESEF is a uniform electronic annual reporting format for issuing institutions in the European Union, which will become mandatory as of January 1, 2020. As mentioned above, the EU Transparency Directive includes rules on a uniform system of electronic annual reporting. Based on this, ESMA is required to develop and submit draft regulatory technical standards for the development of ESEF to the European Commission by the end of 2016.
For this purpose, ESMA is seeking input from stakeholders by means of the consultation paper, which will help ESMA finalize the draft regulatory technical standards. In particular, comments are sought from issuers, auditors, investors, other users of financial information and other electronic reporting stakeholders.
Responses can be submitted here. The consultation period closes on December 24, 2015.