Not every foreign corporation with a representation in the Netherlands must register for tax purposes. The lightest form is a Representative Office.
The concept of a “representative office” has no legal status.
It is the presence of a foreign company in the Netherlands, such as a Branch, but with the feature that this presence does not trigger a Dutch corporate income tax liability, unlike most Branches.
If we talk about a Branch, we mean a location or office from which business activities are conducted. A Representative Office may have an office (and employees) solely used for preparatory or ancillary activities to the head office. A typical activity of a Representative Office is market research, providing product information to prospective clients, display and storage of goods, 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 levy of) Dutch corporate income tax.
The corporate income tax exemption of the Branch (which would give it the status of Representative Office) should be based on a tax treaty between the Netherlands and the country where the foreign corporation has its head office.
Most Dutch tax treaties provide an exemption from Dutch corporate tax for branches (in technical terms, permanent establishments) that only perform preparatory and/or auxiliary activities for the foreign head office in nature.
It will depend on the precise activities of the Dutch branch and the headoffice, whether or not the corporate income tax exemption applies.
We advise foreign corporations regarding the corporate tax exemption for a Representative Office based on an applicable tax treaty. If 100% certainty is required, we can file for an Advance Tax Ruling on behalf of the foreign corporation, in which the Dutch tax office can confirm that under the facts and circumstances presented, the corporate tax exemption applies and the foreign corporation is thus not subject to Dutch corporate income tax on account of having a taxable Branch (permanent establishment) in the Netherlands.
An important distinction between a Branch and a (pure) Representative Office is that because the Representative Office is deemed not to conduct any commercial business activities in the Netherlands, it will not have to be registered in the Trade Register of the Chamber of Commerce in most cases. Registration is not possible and will be denied.
The lack of registration in the Trade Register may work against the foreign corporation if it wants to do business in the Netherlands. 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. All this information is accessible by the public, and it is a business practice in the Netherlands that the Trade Register is consulted when business is to be conducted with new partners/clients/service providers, etc. Without registration in the Trade Register, potential business partners may be more critical about the reliability of the foreign corporation and be more reluctant to do business with it.
The minimum substance required for opening a Representative Office in the Netherlands is a Dutch address. And for all that remains, in order not to jeopardize the corporate tax exemption, the less substance in the Netherlands, the better.
The address may be provided by a third party (a “virtual office” if you want), or you may prefer to rent some independent office space.
We do not deliver this kind of service but have an extensive network through which a suitable party can be arranged to offer these services to our clients.
A Representative Office can have employees.
In most cases, a pure Representative Office with employees in the Netherlands will not be obliged to keep a payroll and act as a withholding agent for Dutch wage taxes and social security premiums. The employees should settle their income tax liability (if any) by registering for Dutch income tax purposes and filing an annual Dutch personal income tax return.
The Dutch personal income tax rate is progressive, with a top rate of 49.5%. However, a special incentive may be applied for foreign employees assigned to the Netherlands with education, skills, or experience that is not or only scarcely available on the Dutch labor market, generally referred to as “the 30% regulation”. In summary, this particular incentive allows the employer to pay 30% of the gross salary tax-free, thus allowing the employee to opt for the “non-residence” tax, which is beneficial for the employee.
The employee(s) you want to assign to the Netherlands may qualify for the 30% regulation based on the situation.
Where foreign employees are assigned to the Netherlands, it is the routine of the Representative Office to apply for voluntary appointment as a withholding agent for wage taxes because this is a condition for the 30% regulation.
It is noted that the foreign corporation (i.e., the head office) may be obliged to withhold and pay Dutch social security premiums unless an exemption applies. An exemption can follow from the EU Regulations or a social security treaty, based on which employees assigned abroad stay exclusively insured in the country of origin.
We can advise the foreign corporation on the scope of the Dutch income, tax/social insurance liability for the employee, the obligation to withhold wage tax, the possibility of applying for the 30% regulation, etc., and manage all associated registration, payroll, and filing obligations.
Only non-EU nationals assigned to the Netherlands will require residence and work permits. EU Nationals can freely work/live in the Netherlands (beware of the local requirement to register at the place of residence).
The work and residence permits must be applied for, which is usually a very burdensome procedure for “highly skilled employees” assigned within the group; a simplified and accelerated procedure can apply.
We offer advice on the appropriate procedures and coordinate the applications for the foreign corporation.
The (status of) “Representative Office" implies no commercial activities are performed in the Netherlands. This is also a condition for VAT registration. Concluding, a pure Representative Office is not obliged to register for the VAT. This also means it will not be able to obtain a Dutch VAT number, at least not a Dutch taxpayer.
The Dutch VAT incurred by a Representative Office is eligible for a refund to the foreign corporation (i.e., the head office) under certain conditions. The foreign corporation should register as a non-resident entrepreneur and file a periodical request with the Dutch tax authorities for a refund. It will then get a VAT number as a non-resident.
We can provide the VAT registration and prepare the claims for refund of input VAT on behalf of non-EU corporations.
We daily deal with foreign companies considering setting up a Representative Office in the Netherlands and assist with setting up their Representative Office (or Branch or subsidiary) and its maintenance. We gladly put our knowledge and expertise in this field at the disposal of our clients.
Our services include: