One of the frequently asked questions in a regular work week by potential clients is for a branch setup in the Netherlands, However, nearly all of them ask for a so called BV company to be setup. Why however? When we ask if the director of that BV will be residing in the Netherlands, the answer is nearly always No. Then we have a problem.
Branch setup in the Netherlands
A branch is basically opening a shop or office for a company outside the Netherlands. The reasons can be various. Some have an import and export company and like to have a Dutch VAT number, some would like to hire an employee and think a branch makes that easier, some would like to defer income to the Netherlands.
The import export company with no presence whatsoever in the Netherlands we recommend to contact a freight forwarder that can act as fiscal representative and have the VAT collected much more efficient.
The foreign employer who thinks making the employee in charge of the VAT filings, wage tax filings, publishing annual report with the Chambers of Commerce, filing the corporate income tax return and be liable for the action of the branch, actually is an efficient way to employ a person, that foreign employer we inform about the possibility of the non-resident employer. Then the employee is a genuine employee and the company is not exposed to any other tax in the Netherlands, than tax on the employment. There are some restrictions. Read more about that in our articles.
Deferring income to the Netherlands for avoiding tax is basically the wrong way around. Most Dutch companies like to get money out of their Dutch limited liability company to a lower taxed country.
Branch setup in the Netherlands – 2 flavors
You have basically two flavors for setting up a branch. One is the so called BV company. That is the Dutch equivalent of the Ltd company. And you can set up an identical registration of your foreign limited liability company.
The BV company is strong from a commercial perspective, but if the director of that BV company is not residing in the Netherlands, then it has no point setting up a BV company.
The director his private address determines where the BV company is a tax resident. The thought is that the director is in charge of the BV and where that is, is where the BV should be taxed. This is immediate effective with for instance Value Added Tax. VAT is paid in the Netherlands over costs like housing, advisors etc. That VAT the BV would like to claim back, but cannot claim this back if the company is not resident in NL. The VAT legislation is made in such a manner that if the BV company sends out an invoice with Dutch VAT, that, regardless of the BV being a resident in the Netherlands, this amount of VAT is to be paid to the Dutch tax office.
The same applies for corporate income tax. The corporate tax law does have an article that a Dutch BV company is always regarded to be subject to Dutch corporate income tax, but if the director lives abroad, in that other country the result is to be taxed.
Branch setup in the Netherlands
The difference with a branch in the manner of an identical registration with the Dutch Chambers of Commerce of the foreign company is that the director does not need to be resident in the Netherlands for the branch to be fully taxed in the Netherlands.
The logic is of course that if the director of the foreign company moves to the Netherlands, the vehicle of that other country will have issues, as the director left the country.
Such a registration solves the tax issue, but is maybe not so strong from a commercial point of view. However, it gives the company time to investigate the market, get a team of employees and then one of them could become the director of the new to be incorporated BV company.
Branch setup and accounting
Till about the year 2012 the at arms length principle what understood not the be applicable to the branch that is an identical registration. But since then it is understood that these rules do apply. Therefore from a tax point of view there is no difference between a BV company and an identical registration of a foreign company.
Tax treaty wise the BV company stands stronger.
Orange Tax Services
If you would like a branch setup in the Netherlands, Orange Tax Services can set this up for you. The setup of a BV company is charged at EUR 1800 ex VAT and we pay for the notary costs. The setup of a branch as identical registration of foreign company is charged at EUR 950 ex VAT. The latter is not a quick process and patience with the client is very much appreciated. The BV can be set up rather quickly if all the documents are in place.
Orange Tax Services can also fully support with the accounting, tax filing and questions the client has about processes in the Netherlands.