The differences between DAFT and EOR explained

The world is becoming more connected than ever before, and with it, the need for businesses to expand their operations globally is also increasing. One of the biggest challenges that companies face when expanding internationally is navigating the complex web of immigration laws and regulations. This is especially true for the Dutch market. Some enterprises might need a little help getting a foothold in a foreign country.

This is where visa sponsorship and Employer of Record services come into play. In this article, we will be discussing one such visa program, known as the DAFT visa, and the differences to an Employers of Record (also known as umbrella company). If you are an individual looking to build a business and work in the Netherlands, understanding the DAFT visa and the potential role of an employer of record, can be instrumental in achieving your goals. Still, this article isn’t only for self-employed entrepreneurs. If you are a business owner looking to expand your operation or move a branch of your organization, you could learn a thing or two from this article.

What is DAFT?

Ever since the American Revolution, the relationship between the United States and the Netherlands has been good. Due to many events in the past, it has been characterized by cooperation, mutual respect and shared values. An example of this strong relationship is the DAFT, otherwise known as the Dutch-American Friendship Treaty. Signed in 1956, this treaty is an agreement between both countries to promote economic relations further. From this agreement stems the provision that established a visa program which allows US entrepreneurs to live and work in the Netherlands as self-employed individuals.

Due to the establishment of the visa program, this means U.S. investors can start a business in the Netherlands, if they have the required capital. As a result they can become sponsors for their spouses and/or children more easily, if they wish to move here as well.

What is a DAFT Visa?

The Dutch-American Friendship Treaty in itself is pretty cut and dry. It allows citizens of the United States to open up shop in The Netherlands for a period of time. Though the more interesting aspect of the agreement is the DAFT visa, which allows American entrepreneurs to actually live and work in the Netherlands. They can do so without the need for a sponsor or to hold a job at a Dutch company.

In the first instance the permit is valid for two years. During this time the U.S. citizen can start and or purchase a business in a city in the Netherlands and operate it fully as a self-employed entrepreneur. The visa can be renewed for three more years if the business turns out to be successful. After five years it is possible for the visa holder to apply for permanent residency, when conditions are met after these five years.

Requirements to receive a DAFT Visa

Understandably, every American citizen who has an entrepreneurial dream and a will to expand the American dream to European soil, wants and needs the DAFT visa. Nevertheless, to obtain a DAFT visa, one has to be qualified for a DAFT visa. Here you will find which requirements you have to adhere to to obtain a visa:

• You must be a citizen of the United States, which seems pretty obvious since it’s the Dutch-American Friendship Treaty.
• You must be at least 18 years old, this is the age at which someone is seen as an adult by Dutch law.
• You must be in possession of a valid passport.
• To start a new business or buy one and continue an existing business, you will have to have a business plan.
• This business you are willing to open must meet the requirements of the Dutch Chamber of Commerce.
• While living in the Netherlands, you will have to have sufficient funds to support yourself. Depending on the cost of living in the area where you will be residing, your intended duration of stay, and your planned activities, this amount may vary. Yet, the Dutch government requires self-employed entrepreneurs to have access to a minimum of €4,500 in financial resources for the first year of their stay in the Netherlands. This includes funds for accommodation, food, health insurance, and other living expenses. It is important to note that the €4,500 requirement is a minimum, and you may need to show evidence of additional financial resources depending on your individual situation.
• You must have health insurance.
• You do not have a criminal record.

You’re looking at the list of requirements and thinking to yourself ‘I need to apply for this visa!’ Well, before you do so, know that in some cases an Employer of Record (EOR or also known as umbrella company) is more beneficial than a DAFT visa. Below we will explain what an EOR does and when you should choose which service.

What is EOR?

EOR, or EoR, is short for Employer of Record (also known as umbrella company). On the basis an EOR is a third-party organization or company that acts as the official employer of an employee on behalf of another company. Think of it like an American who wants to open a branch of their American company in the Netherlands, but isn’t actually relocating there. In this case, they can hire an EOR, which is responsible for all the administrative tasks related to employment. They become the full legal employer of a workforce and assume all employer-related responsibilities and tasks. Such as payroll, benefits, taxes, and compliance with labor laws. 

So the employee works for the client company, but is officially employed by the EOR. EORs are often used by companies that are expanding into new markets or hiring remote workers. By using an EOR, the client company can avoid the complexities and costs of setting up a legal entity in a new country or dealing with local labor laws and regulations. The EOR takes care of all the legal and administrative aspects of employment, allowing the client company to focus on its core business activities.

When DAFT or EOR?

Both DAFT and EOR can help you if you are looking to open up shop in The Netherlands. Yet they are very different from one another. In one case you’d be better off applying for a DAFT visa and in other instances you could benefit greatly from an EOR.

If you are a self-employed US citizen and are looking to follow your entrepreneurial dream and open up shop in the Netherlands, the DAFT visa is the way to go in the beginning. It will grant you access to live and work in the country, be a sponsor for a partner and/or child and build your business (from the ground) up. If business is booming after the initial period of two years or after the elongation of five years, you might want to think about enlisting an EOR. Business is booming, so chances are that your team grew by quite a bit. A third-party organization such as an EOR can help you navigate the legal and administrative aspects of employment under Dutch law.

It might be the case that you already have a successful business back in the United States and you are looking to expand. Since the DAFT visa is specifically for self-employed entrepreneurs, it’s not possible to apply for it in the above mentioned situation. Don’t you worry though. An EOR in the Netherlands is there to help you with all employer-related tasks and responsibilities. This way you can focus fully on business management and the expansion abroad!

Now what if you are looking to move an entire branch of your company to the Netherlands? Again not to worry, in this case the solution is similar to the one above. As a branch mostly consists of more employees than a self-employed citizen of the United States, an EOR is the way to navigate the Dutch employment climate. An EOR can help you with tasks such as payroll, benefits, taxes and compliance but also with housing and tax-benefits such as the 30% ruling for employees during their stay.

Your Employer of Record in the Netherlands

If you are considering expanding your organization into the Netherlands or even moving an entire branch here, you’ll have to balance speed and compliance. To make this process go as smoothly as possible, you might like some help with setting up payroll, finding housing, or any other aspect of relocating your team to the Netherlands. Contact us, we can make it easy and stress free for you! Employer of Record The Netherlands is 100% compliant with Dutch law, and we’ll take care of any IP, tax, NDA requirements that your employer may have. We have got you covered!