There are foreign companies where the actual business takes place almost entirely within the Netherlands, without any actual connection with the country of incorporation. These companies are called 'companies formally registered abroad'.

'No more than a postal address'
When it is clear that the connection between a foreign company and its country of incorporation is actually limited and, for example, consists of a postal address only and meeting whatever requirements are necessary to comply with that country's laws, there is said to be a company formally registered abroad.
Note: this should be distinguished from a Dutch subsidiary of a company which actually runs its business from abroad.

Why have a formal foreign company registration?
In the past some Dutch entrepreneurs chose to formally register a company abroad. These companies would operate as separate legal entities, meaning that the liability of the entrepreneur was limited, just as with a Dutch BV or NV.(private and public limited companies respectively). At the same time they did not have to deal with the problems of starting up a BV, such as the obligation to have start-up capital of 18,000 EURO, or to co-operate with a background investigation.

Abuse
Since it was easier to opt for a registration abroad, this opportunity was often abused in the past. For example, people who did not want to set up a BV so that they could avoid a background investigation would register a company abroad. In some cases this was improper use of this option. Experience shows that the interests of third parties could sometimes be prejudiced. A bona fide business could be left with unpaid accounts owed by these 'foreign' companies.
Naturally, not all foreign registered companies are untrustworthy, since there may also be good reasons for the use of a foreign company registration in the Netherlands. However, if the only reason is the avoidance of Dutch laws, we can say that there is improper use of a formal foreign company registration.

Further legal requirements
At the end of 1997 the Dutch government introduced a measure to prevent this abuse: the Wet formeel buitenlandse vennootschappen (Companies Formally Registered Abroad Act). Since that time the use of formal registration abroad by purely Dutch companies has to satisfy further requirements, comparable to the requirements which apply to a Dutch BV, such as:

·      minimum start-up capital of 18,000 EUR,

·      filing of annual accounts each year with the Chamber of Commerce,

·      filing proof of registration in a foreign companies' register annually with the Chamber of Commerce.

In addition, when registering the company in the companies' register, confirmation must be provided that the company is a formal foreign company.
Penalties which can be incurred for failing to comply with the requirements set out by this Act are the same as those which a BV or NV could expect to face.
Note: directors of a formal foreign company are jointly and severally liable for all legal acts undertaken on behalf of the company until such time as all legal requirements have been complied with.

In conflict with European law?
It is possible that the Companies Formally Registered Abroad Act could be amended or revoked? This question about the legality of the Act was submitted to the European Court of Justice.

These proceedings broke down for procedural reasons. New proceedings are now being prepared. Of course, the proceedings before the European Court can only relate to questions of whether any prejudice is being suffered to the freedom of establishment within the European Union. For foreign form companies outside the European Union, such as the 'Delaware Corporation', the Act will remain in force without amendment in any event, without regard to the European Court ruling. At this time the Companies Formally Registered Abroad Act remains in force under Dutch law. Every formal foreign company must therefore comply with its terms.

Source: This document has been prepared based upon the information provided by the Dutch Chamber of Commerce (Kamer van Koophandel en Fabrieken)

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