Having a Dutch limited liability company known as BV company does not imply this BV company is always regarded a Dutch resident company. Under what circumstances is the BV not regarded a tax resident and how can this be solved?
Corporate income tax liability
In article 2 of the Dutch corporate income tax act is stated that a Dutch BV company is regarded always to have its residence in the Netherlands, an accepted fiction. That implies a corporate income tax return is due, but it does not imply actual corporate income tax to be paid, should the BV company be residing abroad.
Value added tax liability
The Value Added Tax (hereafter referred to as VAT) legislation does not know the fiction as known with the corporate income tax. You either are or are not a VAT entrepreneur in the Netherlands, based on services rendered or goods sold.
Wage tax liability
The wage tax act is based on an employee actually working in the Netherlands, hence subject to wage tax and social premiums.
What determines whether a BV company is residing in the Netherlands?
A BV company is residing in the Netherlands when the formal representative of the company is residing in the Netherlands. The formal representative is the managing director. And only if this managing director is fully authorized to act on behalf of the company, this is regarded the crucial person determining where the company is residing.
That implies when the company only has one managing director and this director lives abroad, the BV company is residing abroad. A rather strange situation, but they do occur. Based on the fiction the BV company is exposed to Dutch corporate income tax. The result however will be nil. Abroad the BV company needs to file its corporate income tax return.
This situation could be an undesired situation. You might have come across well known organizations having their holding company in the Netherlands, and at the same time you are convinced that none of the managing directors are living in the Netherlands. So how do they do that?
In the Netherlands we know Trust companies. Trust companies provide substance in the Netherlands and act as managing director. By using the services of a Trust company the BV company becomes a Dutch resident company, should it have resided abroad.
It is not a given that in every case the services of a trust company will be sufficient. The crucial factor is that the managing director is fully authorized and takes all important decisions. If that managing director position is performed by the trust company and at the same time the physical person instructing the trust company is also acting on behalf of the company, this is a conflict. In such a case the BV company is still residing abroad. Hence trust companies maintain strict rules and they are under strict control and can only operate a trust company under license issued by the Dutch Government.
Tax issues when the BV is not residing in the Netherlands
The tax issues that occur are in the field of the VAT and the wage tax.
Value Added Tax
If the company has issued invoice with VAT using their Dutch VAT number on the invoice, this VAT amount is due. The reason is that the company to whom this invoice was send deducted the paid VAT in their VAT return. However, if the company is residing abroad, for instance Belgium as the managing director is living in Belgium, then Belgium VAT should have been charged over the invoice. That implies the Belgium tax office will make a claim for the VAT as well. Two times VAT.
The claimed VAT, being the VAT charged to the not resident BV company, needs to be repaid to the Dutch tax office, as the company was not at that time a VAT entrepreneur.
How is it determined where the company is residing? Tax audit.
In the Netherlands everything is done online or via forms. That implies that at no moment in time the residence is put up for discussion. VAT returns are processed, payroll is done and corporate income tax is being filed.
The tax audit is the moment this issue is brought up. The tax auditors start with simple questions such as what is the company doing, where is the company located. Who is the managing director, where is he or she living. Is this the only managing director. These tax auditors are very hands on, streetwise and experienced. Their immediate response will be that the company is not residing in the Netherlands. From that moment onwards the issues as addressed above will take their effect.
Orange Tax Services
We receive a lot of requests to assist with the incorporation of BV companies. We always inquire if it actually is a BV company that meets the demand, or that a branch company would be sufficient as well. The moment we learn about the managing director living abroad or no presence at all in the Netherlands, we refer the prospect to a trust company.