Doing business in The Netherlands - Corporation or branch ?

When you intend to start a new business in the Netherlands you have to decide which legal form if most appropriate for your new Dutch business.

The Dutch B.V. (a private limited liability company) is the most frequently used legal entity by foreign investors, for example to carry out a business, for direct investments in real estate, as (intermediate) holding company, for exploitation of IP, as finance company, etc. As an alternative, a foreign corporation may decide to set up a branch or representative office.

What is the most appropriate alternative for your business? The following schedule compares the main characteristics between a branch and a corporation which may help you to make this decision:

	Operating through a BV	Operating through a branch
Liability	The shareholders of the BV have limited liability	The foreign company has unlimited liability for the obligations of the branch
Corporate law	Dutch corporate law applies to the BV	Dutch corporate law does in principle not apply
Minimum capital	The minimum capital is € 18,000	There is no limited capital requirement for a branch (there is a law prescribing minimum capital requirements for branch but the status of this law is uncertain due to European jurisprudence)
Business permits	For special lines of business a BV may be required to obtain a permit	For special lines of business a branch may be required to obtain a permit
Foreign directors	Allowed	Allowed
Commercial	Within the Dutch and European market a Dutch BV has a good and reliable reputation and business image	Depends on home country
Registration requirements	A BV needs to be registered with the Dutch Chamber of Commerce and with the Dutch tax authorities	A branch needs to be registered with the Dutch Chamber of Commerce and with the Dutch tax authorities, unless it concerns a representative office
Filing requirements	A BV needs to file annual financial statements with the Dutch Chamber of Commerce as well as periodical tax returns	A branch does not need to file annual statements, but instead limited information about the foreign company should be filed. The periodical tax filings are basically the same as for a BV
Funding	Solvability of BV will be decisive	Solvability of the foreign company will be decisive
Incorporation procedure	Notarial deed required as well as consent of the Dutch Ministry of Justice	No notarial deed or consent of Dutch Ministry of Justice required; only registration with Chamber of Commerce and tax authorities
Incorporation cost	The minimum cost for incorporation is approximately € 1,500. What should be added are the expenses for the tax registration, etc.	Basically only the expenses for registration with the Chamber of Commerce and the expenses for registration with the tax authorities
Annual maintenance cost	The costs of preparing the financial statements, the annual contribution to the Chamber Commerce, and the costs of tax compliance	Mainly the costs of tax compliance
Corporate tax	A BV is in essence subject to corporate tax for its worldwide profits	Depending on the nature and volume of the activities of the branch, the branch may not be subject to Dutch corporate tax.  If a branch does have a taxable presence in the Netherlands it is only subject to Dutch corporate tax for profits allocable to the business of the branch. The rules applying to a branch are further similar to the rules which apply to a BV
Capital tax	n.a.	n.a.
Dividend withholding tax	Dividends paid by a BV are subject to 15% Dutch dividend withholding tax, unless a tax treaty or European regulations prescribe a lower percentage (even reduction to nil)	Profit distributions by a branch are generally not subject to Dutch dividend withholding tax
Wage tax	A BV has a withholding obligation for wage taxes in relation to its employees. The BV must keep a wage tax administration and should file periodical tax returns	The wage tax obligations are the same as for a BV unless it concerns a representative office
Value added tax	A BV is subject to the Dutch VAT regime and should file periodical VAT  returns	A branch is subject to the Dutch VAT regime similar to a BV unless it concerns a representative office.  For a representative office special rules apply for the refund of input VAT
Tax treaties	A BV has in general access to the Dutch tax treaty network	A branch has no access to the Dutch treaty network, with the exception of certain tax credit facilities