When a foreign corporation becomes active in the Dutch marketplace, and the nature and volume of its physical activities in the Netherlands exceeds certain thresholds, it may be obliged to register with the Chamber of Commerce (as a foreign corporation that conducts business activities in the Netherlands), and with the Dutch tax authorities (as it may become subject to Dutch corporate income tax and, or VAT). Technically, we assume the foreign corporation has a Branch in the Netherlands.
A “branch” has no legal status, meaning it is not defined as such in Dutch corporate law.
In day-to-day life, the term “branch” covers a broad spectrum of the presence of a corporation in a country other than its country of residence/ incorporation. In fiscal terms, a “branch” has a different, more specific meaning. A foreign corporation is considered to have a Branch in the Netherlands when its presence in the Netherlands is, in volume and quality, sufficient for the assumption of a so-called “permanent establishment.”
The existence of a permanent establishment is the threshold for imposing Dutch corporate income tax on a foreign corporation for the profits realized with activities conducted by/through the permanent establishment.
The criteria for the assumption of a permanent establishment can be found in Dutch domestic (case) law and tax treaties. The definition under Dutch domestic law is, in most cases, the same as under an applicable tax treaty.
If a tax treaty is applicable, it can occur that the Netherlands cannot impose a tax on a foreign corporation because the tax treaty between the Netherlands and the country of residence of the foreign corporation does not allow the Netherlands to do so.
A permanent establishment is a fixed location where business activities are conducted, such as an office, a factory, etc. Places like a mine or well are usually explicitly included in the term permanent establishment.
The location must be fixed, which means that it should be at the free disposal of the foreign corporation and be used for conducting business in the Netherlands on more than an incidental basis.
Most tax treaties contain special rules, such as:
Most tax treaties provide for a tax exemption of a Branch that meets the substance requirements but whose activities are pure auxiliary or supporting by nature. A typical example is the “representative office,” which operates as a Branch, from where generally no commercial business activities are conducted but only activities preparatory or auxiliary to the activities of the head office. A typical activity of a Representative Office is (doing) market research, providing product information to prospective clients, etc.
The relevance of the distinction between a branch and a Representative Office is thus that a Representative Office does not constitute a taxable presence in the Netherlands for the collection of Dutch corporate income tax.
If the activities of a foreign corporation in the Netherlands meet the criteria of a permanent establishment, the foreign corporation will be subject to Dutch corporate income tax on the profits attributable to the Branch (the permanent establishment).
For the calculation of taxable profits of the Branch, the same rules apply as for domestic Dutch corporations. The tax rate is the same; See Dutch Tax rates for corporations.
The existence of a permanent establishment can also result in a liability of the Branch to charge Dutch Value Added Tax (VAT) to its clients and the obligation to withhold Dutch wage tax and social security premiums from the salaries of employees who work for the Branch.
For the levy of Dutch VAT, a Branch is considered an independent taxpayer, implying that the Branch must register for VAT purposes (and it can thus obtain an NL VAT registration number). Dutch VAT returns should be filed quarterly (and sometimes monthly or annual) with the Dutch tax office.
Once the Branch is registered for VAT purposes, it has the legal obligation to charge VAT on goods delivered/services rendered, and it can claim a refund of input VAT (including the VAT which becomes due upon import of goods and services) within definite parameters. Dutch VAT liability and the entitlement to a refund of Dutch input VAT will ultimately depend on the exact nature of goods delivered and services rendered by the Branch.
If the Dutch Branch has employees, it will mostly be obliged to set up and maintain a Dutch payroll and withhold Dutch wage tax and Dutch social security premiums from their salaries. Wage tax and premiums due must be reported in monthly returns to be filed with the tax office, and the Branch must pay the wage tax/premiums due to the tax office.
For foreign employees assigned to the Netherlands with “education, skills or experience which are not or only scarcely available on the Dutch labor market,” a special incentive generally referred to as “the 30% regulation” may be applied. In brief, this particular incentive allows the employer to pay 30% of the gross salary tax-free, and the employee can opt for the “non-residence” tax status most beneficial for the employee.
The foreign company (the head office) or the Branch may have to withhold and pay Dutch social security premiums unless an exemption applies. An exemption from the EU Regulations or an applicable social security treaty can follow, based on which employees assigned abroad stay exclusively insured in the country of origin (through a so-called Certificate of Coverage, or A1-statement).
The following is needed for the set up of a Branch in the Netherlands:
Establishing a Branch is not optional but a direct consequence of the situation that only foreign companies conducting business activities in the Netherlands can register a Branch.
As a first step, it should be determined whether or not the foreign company operates in the Netherlands under the assumption of a Branch/ permanent establishment.
Only if several factual criteria are met can the Branch be registered with the Chamber of Commerce (see below). The facts will also be relevant for determining the scope of the Dutch tax liability and the obligation to withhold Dutch wage tax and social security premiums.
The existence of a Branch/permanent establishment can also be relevant for the scope of the Dutch income tax liability of foreign employees assigned to the Netherlands: Under most tax treaties, non-resident employees will not become subject to Dutch income tax if they work in the Netherlands for less than 183 days per year. If they work for a Dutch Branch (permanent establishment), the 183-day rule does not apply because the Branch is a Netherlands-based employer and is liable for Dutch income tax on all days worked in the Netherlands.
We offer advice on the scope of the Dutch tax liability for the foreign corporation and the calculation of profits to be allocated to the Branch. We also can conduct a transfer pricing study to substantiate a remote profit allocation to the Branch.
An Advance Tax Ruling is possible if the foreign corporation wants 100% certainty that its Dutch activities do not constitute a taxable branch. We can represent and support the foreign corporation in this process.
Virtually every person/entity that conducts commercial business activities in the Netherlands is legally obliged to register itself in the Trade Register of the Chamber of Commerce of the municipality where the Branch has its registered address.
The Trade Register provides standard information about every company conducting business in the Netherlands, like statutory name, details authorities, directors, etc. Dutch corporations also need to file their Dutch financial statements. Foreign companies with Dutch Branches generally do not have this obligation.
The information contained in the Trade Register is accessible to the public. It is common in the Netherlands to consult the Trade Register when conducting business with new partners/clients/service providers, etc. Without registration in the Trade Register, potential business partners may be more critical about the reliability of your company.
The information that must be provided to the Chamber of Commerce relates to the foreign corporation that wants to register a Branch in the Netherlands, the Dutch Branch itself, and the members of the board of directors and supervisory board of the foreign corporation.
If the Branch employs a “branch manager,” this person should be registered. The branch manager is responsible and bears (potential) liabilities for the proper registration of the Branch and certain tax liabilities of the Branch.
According to Dutch law, it is not allowed to use a trade name that is the same or similar to one of another company, given the nature of the business conducted or the location of the business confuses the marketplace. There are also limitations to using a brand as a trade name. The name check for a Branch is not mandatory but is recommendable. The name check can be completed in one working day.
We can handle the registration of the Branch with the Chamber of Commerce on behalf of the foreign corporation.
Depending on the scope of the tax liability of the Dutch Branch, the Branch will have to be registered for Dutch tax purposes.
Tax registration should automatically follow from the registration with the Chamber of Commerce. In daily practice, however, this process must be closely monitored to ensure that no mistakes are being made and the tax registration of the Branch is correct and complete.
Registration with the Chamber of Commerce should result in a corporate tax, VAT, and wage tax number, but not automatically in registration with the Social Security Office. This registration must be done with the start-up of the Dutch payroll of the Branch (see below).
We can advise you on the necessity for the tax registration and its scope and handle the registration procedure on your behalf.
If the Branch has employees, it is required to set up and maintain a Dutch payroll. For more information, please consult the page Payroll Obligations in the Netherlands.
We can advise you on the scope of the Dutch income tax/social insurance liability for the employees of the Branch, the obligation to withhold wage tax and social security premiums by the Branch, the possibility of applying for the 30% regulation, etc.
We deal with foreign companies considering setting up a Branch in the Netherlands daily and assist them with setting up and maintaining their Branch (or subsidiary). We gladly put our knowledge and expertise in this field to the disposal of our clients.
Our services include: