Hard or soft Brexit, a Brexit is coming and basically nobody knows what that implies. Hence we experience many British companies setting up business already on the continent, to prevent their company being blocked from doing business with Europa in the post Brexit era.
What pre Brexit move to the Netherlands can be set up?
We have two flavours. One is the UK company setting up a Dutch BV company. The other is the UK company registering an identical company with the Dutch Chambers of Commerce referred to as branch.
What is the difference between a BV company and a Branch?
From a tax point of view there are not many differences. Both companies are subject to Value Added Tax if they are a VAT entrepreneur, Corporate tax for the result. Between the shareholder (UK company) or head office (UK company) both companies need to trade at arms’ length. That implies services need to be charged as if done for a third party company.
Example. The Dutch company/branch makes costs for rent, advertising etc. This is done for the UK shareholder/head office why else. Hence the Dutch company/branch needs to invoice the UK company with a mark up for the costs made. The result will be a small profit to be taxed in the Netherlands.
So what is the difference? The difference is in the director. A BV company is only an entrepreneur for VAT purposes in the Netherlands when the director of the company is a tax resident in the Netherlands. This requirement is often overlooked. Initially there is no issue, but when the tax office does an audit a couple of years later, all the claimed VAT or 0% EU transactions are reclaimed by the tax office, plus a penalty. Such a claim by the tax office is done over a 5 year period, resulting in a substantial claim.
A branch office does not have a director, as the director is in the head office. Hence no VAT issues.
Are VAT issues that important?
Yes they are, as the Dutch tax office has the standpoint that not filing and paying the correct amount of VAT is money laundry and money laundry is a criminal offence.
Orange Tax Services
The frequently asked question is what is the better option, the BV company or the Branch? That is an entrepreneurs decision. Tax wise not much difference. Working with an Ltd registration in the Netherlands may bring some eyebrows up with business relations whereas the BV company does not have such responses.
We can fully assist you with either setup, we can process the bookkeeping, tax returns. If you start with the branch and would like to turn that into a BV company after all, we can assist you as well. Feel free to contact us.