Many international companies use the Netherlands as a ' gateway to Europe' . They deliver goods from outside the European Union to the European market via a warehouse or depot in the Netherlands. Although such a warehouse or depot in the Netherlands is often just a stopover in your transport chain, you as an entrepreneur must remain alert to your fiscal position. Especially for a growing company, transit through the Netherlands can sometimes lead to taxation sooner than you expect.
What if you are going to perform other activities in the Netherlands in addition to storing goods? Our experts discuss a number of forms of growth and the fiscal consequences that this can bring about.
Understanding Branch Structures in the Netherlands
Setting up a branch office in the Netherlands is a smart choice for foreign companies looking to expand. You’ll need to register with the Chamber of Commerce to get into the trade register. Unlike subsidiaries that stand alone, branches rely on the parent company for liability. If you dive into significant business activities, prepare for corporate income tax and VAT obligations. Keeping up with local regulations is a must, from accounting to reporting annual financial statements.
A warehouse for distribution that doesn’t engage much might not require registration, but generating income or other extensive functions will change that. Foreign businesses should also keep an eye on double tax treaties to stay savvy with taxation. Opening a Dutch banking"bank account, getting a VAT number, and knowing about the UBO register are all important steps for a successful journey in the Dutch market.
The Netherlands as a transit country: storage and transhipment via third party
If you import goods from outside the European Union into the Netherlands, for example via the port of Rotterdam or Schiphol Airport, you will immediately be confronted with customs obligations and and VAT consequences . You will also have to check whether there is a . You will also have to check whether there is a permanent establishment for VAT purposes .
If you have a company established in the Netherlands, for example a private limited company (BV), the company is almost always subject to Dutch corporate income tax (CIT).
If you do not have a Dutch entity, store the goods with a third party and also outsource further transport to other countries, then from a corporate income tax perspective you will not quickly be considered a taxable company.
Expansion of activities: when does a taxable permanent establishment arise?
When the business in the Netherlands grows, it is sometimes necessary to expand the activities in the Netherlands. For example, by purchasing your own building, offering after-sales services or hiring salespeople. What changes in your tax obligations and when does a permanent establishment for corporate tax arise?
A local taxable presence of a foreign entity is also called a 'permanent establishment'. The Netherlands wants to levy tax on the results that the foreign company achieves with the Dutch permanent establishment. Whether the Netherlands can actually levy tax depends on tax treaties , among other things .
Whether there is a permanent establishment for corporate income tax purposes depends on the specific facts and circumstances, but the following generally applies:
Business establishment and business activities: usually a permanent establishment
Business establishment and business activities: usually a permanent establishment
Do you have a business establishment in the Netherlands, such as an office building or business premises, with which you carry out business activities? Then this almost always leads to a permanent establishment, and therefore a taxable presence in the Netherlands. Whether you buy or rent the business establishment is usually not relevant.
But please note: there is an exception for a number of activities
Exception logistics, storage and support services: usually no permanent establishment
Exception logistics, storage and support services: usually no permanent establishment
If the activities of your foreign company consist only of logistics and storage, then there will be no permanent establishment. Despite the fact that you may have a Dutch business establishment at your disposal for this. If, in addition, only supporting activities are carried out in the Netherlands, there will usually be no permanent establishment. Supporting activities include market research or advertising.
Turning point in growth or expansion: a permanent establishment after all
Turning point in growth or expansion: a permanent establishment after all
When activities in the Netherlands increase, you must keep a close eye on your fiscal position. Are you expanding the storage of goods in the Netherlands with activities such as sales activities, customer service or production? In certain cases, there will no longer be activities that are only seen as supporting activities. The entirety of activities that are carried out in the Netherlands is considered a (taxable) permanent establishment. The Netherlands will then want to levy corporate income tax on the results that are achieved with the activities of that permanent establishment.
Results of permanent establishment in the Netherlands taxed
The activities of a permanent establishment carried out in the Netherlands must be allocated a result. This allocation must be calculated on business grounds, considering transfer pricing regulations playing an important role. Tax must be paid on this result in the Netherlands. This means that the foreign company must file a tax return in the Netherlands every year.
The result of the foreign company, including the result from the Dutch permanent establishment, will often also be taxed abroad.
Company Law Status of the Branch knows no restrictions compared to the DUtch BV (legally speaking)
In the Netherlands, setting up a branch is a smarter choice for foreign companies looking to operate without the complexities of forming a Dutch BV. Registering a branch is straightforward, allowing businesses to work under their parent company's name with ease at the Dutch Chamber of Commerce. This means less red tape and no need for separate legal setups.
Foreign entities can register without the heavy requirements typical of subsidiaries, such as detailed financial filings or separate bank accounts. There are great benefits here, as companies can begin activities without facing corporate income tax initially, as long as they stay clear of being deemed a permanent establishment. Branches must identify their ultimate beneficial owner in the UBO register but won’t face VAT registration until business activities ramp up. This straightforward approach allows foreign businesses to tap into the Dutch market effectively while keeping their operations lean and manageable.
Legal Framework for Branch Operations
Establishing a branch office in the Netherlands involves registering with the Chamber of Commerce and including the ultimate beneficial owner in the UBO register. The branch operates as part of the parent company, without separate legal standing. Registration is mandatory for obtaining a VAT number and opening a Dutch bank account. Continuous business activities may turn the branch into a permanent establishment, which brings corporate income tax and VAT obligations.
Unlike subsidiaries, branches shouldn't directly generate sales. Adherence to accounting rules and regular financial reporting is required. Foreign entities also need to comply with licenses and face closer scrutiny than local firms when entering the Dutch market. Reporting tax liabilities and maintaining diligent records is essential to meet Dutch regulations.
Familiarizing oneself with these elements can streamline processes related to taxation, hiring, and legal frameworks in the Netherlands, promoting efficient business endeavors.
When does a warehouse or sales rep. transform into a permanent establishment?
A warehouse or sales representative may establish a permanent presence in the Netherlands when their activities exceed basic storage or marketing tasks. If a branch operates in a manner that generates substantial business activities, it could be subject to corporate income tax and VAT.
For example, if a foreign company frequently sells products from a warehouse, that may lead to this classification. The nature and extent of these activities significantly influence this determination. Continuous and meaningful business operations by a sales rep may also qualify as a permanent presence.
Additionally, the legal ties formed by the foreign company—such as oversight by the parent company—impact this evaluation. Unlike subsidiaries, a branch office does not act as a separate legal entity, meaning the parent company retains direct liability. To avoid unexpected tax obligations, businesses should register with the Dutch Chamber of Commerce and familiarize themselves with the regulations regarding taxation, including corporate tax responsibilities and VAT registration, while ensuring adherence to reporting and other legal frameworks.
Branch Office Reporting Requirements
Liability for the Director
In the Netherlands, directors of branch offices face personal liability if they go beyond their authority, overlook regulations, or miss reporting duties. For instance, making a major business decision without the parent company's green light can lead to risks. A solid corporate governance structure with clear policies and regular oversight reduces exposure to these risks.
Proper registration with the Chamber of Commerce, obtaining a VAT number, and following local company laws can offer protection.
Additionally, keeping precise accounting records, filing financial statements, and following regulations like the UBO register can lessen risks. Consulting legal experts for company formation and grasping the implications of corporate income tax and double tax treaties fosters safer operations. Lastly, securing necessary licenses and understanding the differences between branches and subsidiaries clarifies liability matters for directors managing business activities in the Dutch market.
Companies are legally required to file their annual accounts with the Chamber of Commerce...but what if they don't?
A company is required by law to file its annual accounts with the trade register of the Chamber of Commerce. These are called the publication documents. This legal obligation ensures that financial information is available to anyone who is interested, which is important; anyone who wants to do business with a company (for example as a trading partner or employee) can be warned in good time via this information in the event of impending bankruptcy. Companies that are required to have an audit report must also include an auditor's report in the publication documents. Failure to file the annual accounts on time is an economic offence and can result in a fine that can vary in amount from a few hundred euros to a maximum of 21,750 euros. In addition to this fine, failure to file or filing too late can also have other consequences. If the company goes bankrupt, the directors will be in an unfavourable position compared to the receiver due to the directors' liability.
Another consequence is that a fine leads to a criminal record for the company, which can be relevant for permits, subsidies, tenders and real estate transactions. A criminal record will also cause problems when applying for a certificate of conduct regarding legal entities (VOG RP) and the Certificate of Conduct for tenders (GVA).
Some companies consciously take the risk of a fine because, for example, they do not want to provide financial information for competitive reasons or privacy or security reasons. This also appears to be unwise. In a 2012 court case, the public prosecutor argued that not filing undermines confidence in a company. Personal motives should not play a role here.
Failure by the company to file also affects the accountant
Once the accountant becomes aware that the company is not filing, further action is necessary. If a company does not file its financial information, this can be a threat to the accountant's compliance with the fundamental principles, including professionalism and integrity. Accountants have a responsibility to act in the public interest. By not filing, the company denies society access to that financial information. At the same time, this affects the function of accountants in society, namely ensuring that users can trust financial information.
Failure to file means that the company does not comply with laws and regulations, whether intentionally or not. However, it also sends a signal about the professionalism and culture of the company, and raises questions: what about the attitude of the company ('tone at the top'), and are other regulations also not being complied with? Furthermore, an indifferent or negative attitude of the company can affect the quality of the financial information. The company's conduct can indirectly reflect negatively on the accountant (professionalism and integrity) and on the accountancy profession.
In some cases, failure to deposit can even be a so-called subjective indicator of an unusual transaction (Wwft) or fraud.
Allocation of Profits to the Netherlands
Setting up operations in the Netherlands involves understanding local tax rules that govern profit allocation, especially for branches and subsidiaries. Transfer pricing guidelines dictate how companies assign profits to their Dutch offices, ensuring fairness in transactions between the parent company and local entities. Registration with the Dutch Chamber of Commerce is necessary to create a legal presence, along with fulfilling accounting and reporting duties.
Companies must prepare documentation which includes financial statements and information about the ultimate beneficial owner to stay compliant with regulations. Certain activities may require specific licenses for operation in the Dutch market. For those classified as a permanent establishment, accurate record-keeping is needed to affirm profits associated with the local entity.
Furthermore, opening a Dutch bank account streamlines financial operations and tax management, simplifying the process of adhering to the trade registry’s oversight. Tax obligations on profits are structured to correspond with the branch's liabilities, aligning with the foreign company's operational framework within the Netherlands.
Omitting parts from the publication documents
A similar issue exists if the company omits parts of the publication documents. For example, omitting information about the development of the equity, the average number of employees or the remuneration of directors/supervisory directors. Also deliberately filing too late (for example in the context of an imminent large transaction) results in a similar situation.
Sometimes it happens that the company deposits a 'provisional' annual account. This only has legal consequences if these documents also have a corporate status or if they are deposited. This concerns:
an approved annual statement with other information - including the auditor's report - and management report; or
an annual statement drawn up by the board with the other data - again including the auditor's report.
an approved annual statement with other information - including the auditor's report - and management report; or
an annual statement drawn up by the board with the other data - again including the auditor's report.
In these cases, it must be stated that the annual accounts have not yet been adopted.The company cannot meet the obligation to file by calling the information that the board has had up to that point a 'provisional' annual account and offering it for publication.
If a company fails to comply with the filing obligation, accountants may be expected to point out the possible consequences to the company. Accountants will have to make an effort to persuade the company to file, both now and in the future. The Further Regulations Non-Compliance with Laws and Regulations (NV NOCLAR) also explicitly provide for this (you can read more about this in the next paragraph). If the company does not intend to comply with the publication obligation, the accountant will take this into account when considering whether to continue the ongoing assignment or the relationship with the company. In doing so, the accountant takes into account what an objective, reasonable and informed third party would expect. In this consideration, the accountant also takes into account the experiences with the company and the possible consequences of not filing for stakeholders. If the accountant cannot guarantee his integrity or professionalism, he will have to terminate the relationship.
NV NOCLAR
The NV NOCLAR regulates the conduct in situations of fraud or unlawfulness in which it is likely that society expects action from the accountant. Situations that fall outside the scope of NV NOCLAR are, for example, those in which accountants perform no or other work than a professional service (see box for an explanation). Only accountants who perform a professional service are expected to use their professional competence as an accountant.
If an accountant does not perform a professional service, the principle of professional competence does not apply, but the principle of professionalism does. If an accountant who does not perform a professional service finds it necessary to respond to a non-compliance on the basis of professionalism, he will respond according to the VGBA. In other words: not filing or filing incorrectly is an offence within the meaning of the Economic Offences Act and is therefore a punishable offence. This means that the filing obligation in principle also falls under the NV NOCLAR.
Professional service
The concept of 'professional service' has been elaborated for accountants in the Code of Conduct and Professional Rules for Accountants (VGBA). This concerns accountancy activities for which professional competence as an accountant is or can be used. It does not matter in which field the activities are performed. This could involve performing an audit assignment of the annual accounts, or for example performing a compilation assignment or keeping records. Private transactions can also constitute a professional service. For example, consider activities that the accountant performs for himself or activities in his spare time for people other than clients or his own organisation. It is not important whether others pay for this. Activities performed for free can also be professional services. The determining factor is therefore whether accountants (can) use their professional competence.
The accountant also has an active role to play in checking whether the company has fulfilled its filing obligation
As previously stated, the filing obligation is primarily a responsibility of the company and therefore of the director(s). Based on the compilation, assessment or audit assignment of the annual accounts or publication documents, the accountant does not initially seem to be obliged to investigate whether the company complies with its obligation to file. When it comes to compilation assignments where the accountant supports the company in the area of, among other things, financial reporting based on NV COS 4410, paragraph 5, the accountant complies with the relevant ethical regulations (VGBA). From that perspective, the accountant does indeed have a role here. It is also obvious for the accountant to point out the filing obligation, for example in a cover letter with the publication documents or in a conversation. This is different if the accountant has an additional agreement or assignment to file the annual accounts or publication documents for the client.
Restrictions on Activities a Branch Can Perform
Conducting Business Activities
A branch in the Netherlands offers the opportunity to engage in diverse business functions such as distribution, marketing, and client relations while adhering to local regulations. If significant activity occurs, it may be recognized as a permanent establishment, resulting in responsibilities like corporate income tax and VAT registration. This designation requires the branch to track its income and submit financial documents as mandated by the regulations.
The type of activities undertaken influences the branch’s tax responsibilities, with permanent establishments facing stricter tax treatment compared to those involved in temporary operations. To maintain compliance, foreign companies must register with the Chamber of Commerce, acquire a VAT number, and set up a Dutch bank account. It’s also important to grasp the differences between company law for branches and subsidiaries, given that the parent company is responsible for any debts and obligations incurred by the branch.
Keeping the UBO register current and being aware of any licensing requirements pertaining to particular business activities is also necessary. By following these guidelines, the branch can operate successfully in the Dutch market.
Foreign Investment Regulations
Setting up a branch in the Netherlands requires foreign companies to navigate various regulations. A branch operates under the parent company's liability rather than being a separate legal entity. Registration with the Dutch Chamber of Commerce is essential, where companies will need to obtain a trade register number and a VAT number for tax purposes.
Corporate income tax and VAT apply to branches deemed permanent establishments due to their activities, while non-permanent activities might see different taxation standards. Reporting and accounting standards are also necessary, including the submission of annual financial statements. Furthermore, branches must declare their ultimate beneficial owners in the UBO register. For those planning to hire, adhering to labor regulations and acquiring the necessary licenses is important for success in the Dutch market.
Preparing all required documents for company registration can streamline the process, and opening a Dutch bank account is recommended to manage finances effectively.
Warehouse Operations and Licensing
To operate a warehouse in the Netherlands, foreign companies must register with the Chamber of Commerce if the warehouse also creates extra value for the products in the Netherlands (relevant for VAT). Adhering to local regulations affects how a parent company handles liability and taxation. Frequent or significant activities can lead to a designation as a permanent establishment, which may result in corporate income tax and VAT responsibilities.
A Dutch bank account is also needed for financial transactions related to warehouse operations. Foreign companies must establish a trade register entry through the Dutch Business Register. If the warehouse earns income, annual financial statements may need to be filed.
Additionally, declaring the ultimate beneficial owner in the UBO register is necessary for transparency regulations. A comprehensive grasp of the legal framework, licenses, and obligations is critical for effective warehouse management.
Article 6 of the Dutch Civil Code
Article 6 of the Dutch Civil Code defines the rights and responsibilities of parties in contracts, ensuring fairness in business transactions. When a foreign company registers a branch in the Netherlands, this article affects the liability of directors, making them accountable for the branch's obligations, just as they would be for subsidiaries. Since branches aren’t separate legal entities, the parent company holds the responsibility for any debts linked to the branch's operations.
This regulation works alongside other legal guidelines for foreign investments, requiring overseas companies setting up a branch or representative office in the Netherlands to adhere to local company laws and additional requirements from the Chamber of Commerce. It's important for foreign companies to register with the Dutch business register to secure a VAT number and meet their tax obligations, including corporate income tax and accounting duties.
By grasping these legal frameworks, foreign businesses can navigate the Dutch market effectively and pursue their objectives while managing obligations tied to their investments and operations.
Avoiding Common Pitfalls in Branch Operations
Inadequate Documentation
Inadequate documentation can significantly affect legal compliance for branch offices in the Netherlands. When a foreign business does not register a branch correctly, it risks not being acknowledged as a legal entity by the Dutch Chamber of Commerce and could face difficulties securing necessary licenses and opening a Dutch bank account.
This lack of registration might lead to liability issues for the parent company, especially if the branch is seen as a permanent establishment, which incurs corporate income tax and VAT obligations.
Additionally, insufficient records of business activities may result in unreported transactions, complicating financial statements and accounting. This can make it challenging for the branch to meet VAT registration and corporate income tax requirements, leading to potential fines or penalties. Without proper documentation, assessing financial health becomes difficult and might prevent foreign companies from accessing double tax treaties, limiting their investments and interactions in the Dutch market. Therefore, maintaining comprehensive records is important for compliance, taxation, and overall business success.
Misunderstanding Local Regulations
Expanding your business into the Netherlands? Think again before registering a branch—it's not the same as setting up a subsidiary. A branch isn’t a separate legal entity, which means the parent company is still on the hook for liabilities and taxes. And don't forget to register with the Chamber of Commerce and get that VAT number, as requirements can shift based on what you do. Missed regulations could lead to hefty penalties or tax troubles.
Also, keep in mind the duty to submit annual financial statements and join the UBO register, which can complicate your Dutch venture. To navigate this process smoothly, review the regulations about branch operations, get legal help with your registration, and create a solid business plan. Staying informed about local compliance requirements is the secret to a successful branch setup.
FAQ
What types of activities are typically restricted for a branch?
Typically, branches are restricted from activities like lending beyond set limits, engaging in proprietary trading, or offering investment advice. For example, they cannot approve loans exceeding a certain amount without corporate approval or invest client funds in high-risk instruments without proper oversight.
Are there specific regulations that govern branch activities?
Yes, branch activities are governed by regulations such as the Bank Holding Company Act and state banking laws. Examples include compliance with consumer protection laws, anti-money laundering requirements, and proper reporting practices. Always consult legal counsel to ensure adherence to relevant regulations.
Can branches perform any activities that are allowed at the corporate level?
Yes, branches can perform activities allowed at the corporate level, such as generating sales, customer service, and marketing. For example, a branch can launch local promotions, handle client inquiries, and conduct community outreach, as long as these align with corporate policies.
How can a branch find out about its specific activity restrictions?
Branches can check their specific activity restrictions by reviewing internal guidelines, accessing their compliance manual, or consulting with the compliance officer. For example, they can refer to the intranet for updates or schedule a meeting with their supervisor to clarify any uncertainties.
What are the consequences if a branch exceeds its permitted activities?
If a branch exceeds its permitted activities, it may face sanctions such as fines, operational restrictions, or revocation of its license. For example, engaging in unauthorized lending could lead to monetary penalties and a mandate to cease such operations immediately.
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