We are frequently contacted by foreign companies to assist them in setting up a Dutch resident BV company. Our immediate question is where the managing director will be living. Often the reply is, that the director stays abroad. In that situation there is no Dutch resident BV company.
How does it work?
A notary in the Netherlands can incorporate under Dutch law a limited liability company we refer to as a BV company. This BV company is registered with the Dutch Chambers of Commerce and the Dutch tax office will also issue a corporate income tax number. Often this is accompanies by a Value Added Tax number and if applied for, a wage tax number.
In article 2 of the Dutch corporate income tax act the BV company is always subject to Dutch corporate income tax. Whether it is actually operating in the Netherlands or not.
A BV company is a genuine Dutch tax resident when the managing director is living in the Netherlands.
Value Added Tax
The problem in a BV company with the managing director living abroad is found in the Value Added Tax. Value Added tax is levied over goods and services sold / provided in the Netherlands. The invoice requirements make that you need to mention on the invoice the VAT you charged. The VAT legislation states that if you charged VAT, you need to pay this amount of VAT to the Dutch tax office. No matter what.
If you are a VAT entrepreneur, you can claim paid VAT. So you paid VAT over your telephone invoice, rent invoice and office purchases. These amounts you can claim back.
It is clearly stated that both the selling of goods and the providing of services need to be done in the Netherlands. When the director is not living in the Netherlands, neither is done in the Netherlands.
It is true that the tax office does not inquire about the residence of the director, it is true that the VAT tax filing is accepted by the tax office. But it is also true that during an audit the tax office will first ask who is representing the BV company on a daily basis and where this person is living.
The moment it turns out that the director is living abroad, the audit is soon concluded. The VAT claimed for the past couple of years will be reclaimed by the Dutch tax office. The VAT paid to the tax office cannot be reclaimed, as invoiced VAT is to be paid. At the same time a VAT obligation exists for this BV company in the country where the director does have its residence.
Dutch tax treaty aspects
The moment a Dutch BV company operates by a director living abroad, goods will be sold abroad and services provided abroad. If for that purposes the director uses an office abroad or makes himself known as a representative abroad, then under the tax treaties the Netherlands has with most of the countries in the world, the income derived from the activities will be allocated to this foreign office or address that is used as contact address.
That makes that the income of the BV company is taxed under a foreign corporate income tax rate.
Wage tax aspects
In tax treaties is determined that a director income, salary income, is taxed in the country where the company is registered. A director living abroad will be taxed under Dutch wage tax legislation for his salary income.
Dutch resident BV company
The above mentioned aspects are the more obvious aspects, but the non synchronized situation where a BV company is ran by a director living abroad can yield much more issues. Issues for which there is no solution.
You might have learned in the news over the past years about the Trust services the Netherlands provides. Big rock bands have a trust officer in the Netherlands, that makes that their profit can be friendly taxed in the Netherlands. Officially these rockers are the directors, living all over the planet, but they appointed a director in the name of a Dutch Trust company that acts as a Dutch resident director, which makes that the rock band can use the Dutch tax facilities.
Also big coffee selling companies, shipping companies and many other world wide operating companies who’s director does not live in the Netherlands, make use of Trust services, to have the Dutch company use Dutch rules and regulations.
Operating as a trust company is only possible under strict licenses, rules and regulations. A license we do not have.
Orange Tax Services
When a company contacts us about setting up a BV company, while the director remains living abroad, we give our negative opinion about setting up the BV company. Nearly always the response is a surprising response as nobody had informed them about this aspect. Neither do official Dutch websites mention this aspect of a BV company.
We on the other hand think that we have an expertise in the fiscal field that not everybody has. Moreover, our standpoint is confirmed by the number of Trust companies we have in the Netherlands.
A side effect, but a substantial effect nevertheless, is that Dutch banks will not open a bank account for a BV company where the shareholder/director is living abroad. Such rules are instructed by the Dutch national bank, for unknown reasons to us. But a company without a local bank account is difficult to operate.
The solution is either to open a branch office, that solves the tax issue, as a branch does not require the director to live in the Netherlands. But a bank account is still difficult. Or you can use the services of a trust company. The moment you learned about the costs of a trust company, you might consider moving to the Netherlands.
The moment you move to the Netherlands and you would like to incorporate a BV company, we will be pleased to assist you in setting up the BV company, in running the administration for you, the tax filings for the VAT, wage tax and corporate income tax. On our website you find our rates (bottom page).