The #1 reason that the IND rejects a DAFT visa renewal application is that the applicant has failed to maintain their “DAFT investment” of €4500.00. Find out why having a balance sheet and a bookkeeper is so important.

I do rather frequently find myself in the position of explaining that as a Dutch attorney, my role is not to be a source of legal expertise to anyone who asks me, or who even wants to pay me for it.  Rather, my role is to be a trusted advisor to my clients in the context of an attorney-client relationship, and to use my expertise in representing them in their procedures with the Dutch immigration authority (Immigratie- en Naturalisatiedienst, IND). I therefore only help clients in matters where I can be fully involved in and responsible for their procedures, and I generally do not give piecemeal legal advice to people who are taking care of their own procedures.

Of course, I am aware that there is a burgeoning industry of non-lawyers and influencers writing on internet forums and blogs giving US citizens free advice on “how to apply for the DAFT visa”, i.e. how to apply for a residence permit for self-employment on the basis of the Dutch-American Friendship Treaty, the treaty signed in 1956 that exempts US citizens who can invest €4500.00 in their business from the onerous scoring system for proving that their business is of essential importance to the Dutch economy. That’s fine, of course, because almost anyone can, ultimately, obtain an approval from the IND if they have enough patience for false starts, dead ends, and lots of back and forth with the IND (all while using Google Translate to translate the IND’s letters). What I offer to first-time applicants for my fixed fees for complete assistance is absolute certainty about the order of steps to follow, which saves them time and anxiety.

I am also aware, however, that those internet forums and blogs are sometimes full of really bad advice, or even only slightly bad advice that sets freshly minted holders of this type of residence permit off on a wrong path. I see many of these people, in fact, when their first application for renewal of their residence permit is rejected by the IND two years later, and they need my help to file an objection against that rejection decision. I really do not take any pleasure in this. I can almost always fix this problem and get these clients an approval for a renewal after all, but it comes at the cost of what is called a “residence gap” (verblijfsgat), meaning that the holder’s history of having had an uninterrupted series of valid residence permits in the Netherlands is, well, interrupted (in between the expiration date of their previous residence permit, and the starting date of the renewed residence permit, which will usually be the date that they proved to the IND that they do satisfy the conditions for renewal after all). This means that the clock starts over again for saving up the five uninterrupted years required to get a permanent residence permit (and/or the freedom to work in salaried employment, and not just as a freelancer).

What is the #1 reason that the IND rejects a renewal application? It is that the applicant has failed to maintain their investment of €4500.00 in their Dutch eenmanszaak (sole proprietorship or “ZZP” freelance business—I’m going to leave BVs, or limited-liability corporations, out of this for now, since if you have a BV you shouldn’t be relying on free information from the internet anyways), which was essentially the “one job” that they had (aside from actually actively running their business). Luckily, I no longer hear of many people who took the shockingly bad advice, given on some internet forums, that “you just have to keep your €4500.00 in the bank account until the IND approves you, and then you can take it out again”.

But the single most pervasive misunderstanding that does still exist is that the investment requirement is about keeping €4500.00 in the business bank account.

Believe it or not: no, that is not actually what the requirement is! And it never has been. (Although yes, of course, in many cases, but not all, keeping €4500.00 in a business bank account will indirectly satisfy the requirement.)

I am convinced that the source of this misunderstanding is that speakers of English mistranslate the Dutch word balans (when the IND asks for your openingsbalans) as “balance” in the sense of “bank account balance”. Actually, the Dutch word for “bank account balance” is saldo, which is not the same thing. The correct translation of balans is “balance sheet”, meaning the balance of assets and liabilities that a business has at any given moment. This is not something that is determined by simply printing out a bank statement. It has to be determined, as far as the IND is concerned, by a person who is a professional financial advisor (in the IND’s jargon, an “authorized external third party”, meaning that it is someone who is not part of your own business or family, whom you specifically hired and authorized to audit your business). In other words: a bookkeeper or boekhouder.

A picture containing bicycle with bumper sticker

Americans would typically call such a person an “accountant”, but for these purposes, using someone who is literally called an “accountant” in Dutch, a registeraccountant or RA, is serious overkill: that’s someone sitting in an office in a glass tower who is extremely highly qualified and certified for auditing publicly traded corporations, and who is accordingly very expensive. Basically, all you need is anyone who, as their paid job, takes care of keeping people’s books and doing tax filings (if they don’t have a professional certification, it is enough that they have a Becon-nummer or belastingconsulent number, issued by the Dutch tax authority or Belastingdienst).

There is certainly awareness on the internet forums that such an individual is required for the IND process. But one of the greatest misrepresentations on the forums of that person’s task (again, going back to this misunderstandings of what balans means) is that this person is “certifying your bank balance”. No, not at all. The IND fully believes, if you print out a bank statement from a Dutch bank (and in fact you do need to submit that bank statement to the IND as well), that the amount shown for the saldo is really there in that bank account; they don’t need anyone to certify that for them. What the bookkeeper is doing, by drafting the opening balance sheet and putting their name and signature on it, is accounting for the money that is in your business bank account. In other words: where, or from whom, does that money originate, and how does it figure in the balance of assets and liabilities?

So with this article, I aim to clear up — once and for all, and completely for free! — what this requirement of a balance sheet is about and why, even if you decide to save money on a lawyer, you should not skimp on a bookkeeper.

And why you should definitely not hire a Dutch bookkeeper on a one-off basis, just to write your opening balance and get your approval from the IND, because that is, to use the old English expression, “penny-wise but pound-foolish.”

(In other words, what seems like saving money at first will end up costing you very, very dearly. In Dutch: goedkoop is duurkoop.) I will also explain why you don’t need a specialized bookkeeper at all — you don’t need to ask if they have any experience or knowledge of “the DAFT”.

OK, so what is a balance sheet and why is this important? A balance sheet has two columns: assets (activa, in Dutch) and liabilities (passiva).  Assets are, essentially: what does a business have at a given moment? Liabilities, are, essentially: what does a business owe at a given moment? It’s called a “balance” because the total assets have to equal the total liabilities.

Huh? But how does that add up if your business doesn’t have any debts? I’ll explain. In that case, the only debt that the business has is to its owner: you. This is the line item under the liabilities column that we call “owner’s equity” (eigen vermogen). Equity is the “x” in the equation:

total assets = total debts to external parties + x

that makes both sides of the equation add up.

So in the ideal situation, when you have just started your business and transferred €4500.00 of your own money into the business account, your opening balance sheet looks like this:

The job of the bookkeeper is to verify, on her or his professional honor and responsibility, that the money that went into the bank account did indeed come from the owner’s own assets, which means that at least €4500.00 of the business’s assets correspond to owner’s equity.

To quickly explain why it’s not, actually, about the money in the bank account, let me give a counter-example of when having that amount of money in the bank account will not satisfy the requirement of the Treaty.  Imagine that you started your business, opened your business bank account, and then immediately took out a business loan for €4500.00 from DutchBank, which the bank transfers into your business bank account. Then your opening balance sheet will look like this:

See? In this case, the money in the bank account is worthless for satisfying the investment requirement of the Treaty, because it wasn’t actually your investment—it corresponds to a debt to an external party.

(A quick-and-dirty way to test your equity is: if at any given moment you were to liquidate your business by selling all its assets, collecting all its outstanding invoices, and paying off all its debts, would you, the owner, still be left holding at least €4500.00 in cash after the liquidation?)

OK, so now on to why it’s in your interest to always have a bookkeeper, not just as a one-off assignment. (Anyways, most bookkeepers will not actually charge you much, if anything, for the opening balance sheet if you commit to their annual or quarterly fee for doing all your business bookkeeping and tax filings.)  Why? Because it gets much more complicated to determine your balance sheet once you have already started doing business, in other words when you need an interim balance sheet (which you will need for your renewal application two years later) and not just an opening balance sheet.  Every single transaction that your business conducts from the start of business will cause the columns in the balance sheet, and therefore your equity, to fluctuate.

Let’s go back to the first opening balance sheet above—you started your business the right way, investing your own money in it, and that satisfied the IND and you got your first residence permit, valid for two years.  And you send your first invoice to a customer in the Netherlands, for which you also have to bill your customer 21% in value-added tax (VAT, omzetbelasting or Btw—belasting op toegevoegde waarde). And let’s say the invoice is for €100.00 excluding VAT, meaning the invoice is for €121.00.

Even before your customer pays your invoice, that outstanding invoice is already an asset that your business has! You have already realized revenue for your business (omzet), simply by the fact that a customer owes your business money. But at the same time, not all of that invoice amount is owed to you. The VAT portion is owed to the Belastingdienst (in other words, you’re obliged to pass it on to the Belastingdienst).  This is what your balance sheet looks like now:

So far, so good! You’ve added €100.00 to your owner’s equity, in fact, so you’re safe.

And then your customer actually pays the invoice with a transfer into your business bank account, and this is what your balance sheet looks like:

But this is where it can go wrong: you say “woohoo! I just made €121.00”. And you withdraw €121.00 from the business bank account to spend it on personal expenses like food, or even on business expenses (other than assets), like office rent or a telephone subscription. Now your balance sheet looks like this:

Uh-oh! You’ve already failed to maintain your investment. This is one of the most common rookie mistakes that results from not understanding how VAT works, and thinking that the requirement of the Treaty was just maintaining €4500.00 in the bank account.

Another misleading bit of advice I’ve heard about from the forums: describing the purpose* of the €4500.00 deposit as being “for covering business expenses”. No, not really. As mentioned above, if you’re spending money on a service or rent before enough revenue comes in to cover it, then that is coming straight out of your investment amount and depleting it.

You can, of course, turn liquid assets (money) into fixed assets (equipment, furniture, etc.) or inventory, and those assets will still have value that has to be taken into account when calculating your equity. But in most cases, fixed assets lose value over time, often even immediately. If your business has €4500.00 in cash, and you spend €1000.00 of that on a laptop for your business, then as soon as you take that laptop out of the box and turn it on, it’s already used goods, and it’s not worth €1000.00 anymore. (You could maybe resell it for €995.00.) That would also mean your equity has now dropped below €4500.00.

(* What is the purpose of this investment, which in the Treaty is called a “substantial amount of capital”? It’s probably there to serve as a sort of deposit, a bit of something that creditors can grab onto if the business goes bankrupt. In other words, it’s a reserve that’s only supposed to be dipped into when it’s already too late to save your business.)

What I really hope to make clear with all these examples is how much hassle and trouble it will save you, in the long run, if you have a professional keeping track of all this for you. Bookkeepers have software that maintains a ledger account (i.e. a virtual version of the old Scrooge-style giant bound books with lined pages) in which every invoice, every debt, and every inflow and outflow of cash into your business bank account is accounted for, and in which depreciation (the loss of value, typically 20% per year) of your business’s fixed assets is kept track of. Their software can generate your balance sheet at any given moment with the press of a key, and the bookkeeper has verified (usually by reminding you regularly to keep them updated with all your invoices, receipts, and bank statements) that that balance sheet does reflect the actual state of assets and liabilities. (They will also do your VAT filings for you every quarter, which is another way that I see a lot of starting business owners get into trouble: forgetting to file their VAT, even if all they had to file was -0- for not having any revenue, and then getting a bill from the Belastingdienst for €4000 or more, being the amount the Belastingdienst will assume is being held out on them.)

Woe betide the business owner who hires a bookkeeper for a one-off opening balance, and then has to hire another bookkeeper, two years later, to finalize their annual reports and current balance sheet for their renewal application with the IND. That second bookkeeper is going to charge a lot: because they have to basically set up a virtual timeline and input all of the invoices, receipts and bank transactions retrospectively, as if they had been doing the bookkeeping all along. What’s worse, any damage to the equity that happened in the past, especially in a year that’s already over, can no longer be repaired: the annual report for that previous year will show that the equity slipped below €4500.00, and the IND can potentially not only not renew the residence permit, but revoke it retroactively as well (since in that given year, the investment was not maintained).

It doesn’t have to be complicated. You also don’t need to have a bookkeeper who knows anything about your special immigration requirements. All you need to say to any bookkeeper is that whatever happens, you need to keep your eigen vermogen above €4500.00, and that they should warn you if it looks like it’s slipping. (Considering the little debts that can pop into existence all the time, of course, it’s wise to keep more than €4500.00 in your business bank account, just to make sure your equity is covered. Open a savings account in the name of your business, as well, to put that cash in and keep yourself from accidentally spending it.)

One last thing: while you should rely on a bookkeeper to keep tabs on your equity, if you are ever uncertain about some aspect of Dutch immigration law, you should not rely on a bookkeeper or tax advisor to know the answer.

Even in areas of Dutch immigration law which may seem simple, it is always better to have applications filed by an advocaat (an actual attorney who is a member of the Dutch bar association and who is required to take continuing education courses and is subject to disciplinary measures for malpractice — and you can look up anyone’s name here to see if they are an advocaat — note that not all people with law degrees, juristen, are qualified as attorneys), and better yet by one who is specialized in Dutch immigration law and is a member of the Specialist Association of Dutch Migration Lawyers.