The criteria for a taxable permanent establishment in the Netherlands

Last updated : 04-10-2023

08 January 2023 Add expertise tag Add service tag Add country tag

When a foreign company starts conducting business activities in the Netherlands, it may become subject to the collection of Dutch corporate income tax. Whether or not this is the case will depend on the nature of the activities conducted and the establishment of the foreign company in the Netherlands. In technical terms, the activities in the Netherlands must qualify as a "permanent establishment."

Once it has been established that there is a permanent establishment according to Dutch law, applicable tax treaties may still override Dutch law and forbid the Netherlands in specific cases to levy tax from the foreign company.

The diagram below provides general guidelines for determining whether or not a foreign company becomes subject to Dutch corporate income tax in a particular situation. These guidelines are indicative only and are not meant to be comprehensive. Please consult us or your own tax advisor to determine your own position.

Activities in the Netherlands	In general Dutch tax liability	In general no Dutch tax liability
Branch: place to run a business, an office, a factory, a workshop, a mine, or any other place where natural resources are being obtained	Taxed in case business activities are being conducted on a regular basis from a fixed place of business	Not taxable in case the activities are of auxiliary, preparatory or supportive nature for the foreign head office and the foreign company is established in a treaty country, including (1) storage, display, or delivery of goods, or (2) keep a stock for storage, display, or delivery of goods or (3) purchase goods or make inquiries or (4) preparation activities or supportive activities or (5) activities limited to a combination of the aforementioned activities
Local representatives, for example, a real estate broker, commission merchant, or agent	Taxed in case the local representative has the authorization of the foreign company to close (sign) contracts or negotiate contracts and the representative exercises this authorization on a regular basis	Not taxed in case the representative is truly independent and acts for his/her own account and within the framework of his/her own usual business
Local employee	Taxed in case the employer is engaged in one of the above-mentioned taxed activities	Not taxed in case one of the above-mentioned exceptions is applicable
Subsidiary company	The foreign shareholder will under normal circumstances not become subject to Dutch tax for profits generated by the subsidiary company, unless the subsidiary company makes profits that actually, from an arm's length perspective belong to the shareholder (transfer pricing). The foregoing does not include the potential Dutch tax on dividends and capital gains derived from the shares in the Dutch company	The foreign shareholder will under normal circumstances not become subject to Dutch tax for profits generated by the subsidiary company, unless the subsidiary company makes profits that actually, from an arm's length perspective belong to the shareholder (transfer pricing). The foregoing does not include the potential Dutch tax on dividends and capital gains derived from the shares in the Dutch company
Local construction or engineering activities	Taxed in case the activities exceed a certain duration, in most cases 30 days, depending on the nature of the activities and the wording of applicable tax treaties	Not taxed in case the activities do not exceed a certain duration, in most cases 30 days, depending on the nature of the activities and the wording of applicable tax treaties