A person being a permanent establishment causes a tax obligation in the Netherlands. What is a permanent establishment, and which person?
A permanent establishment
A company is subject to taxation of its results in the country where the company is a tax resident. In which country is the company a tax resident? A company is a tax resident in the country where the owner of the company is a tax resident.
Or, when the company is a limited liability company, in the country where the director of the company is a tax resident. Not the shareholder, but the director. As the director is in charge of the daily activities of the company, this person determines where the company is a tax resident.
Opening an office abroad
The limited company can open an office abroad. This is referred to a permanent establishment. Such a permanent establishment then becomes subject to taxation in relation to that office in the other country. The director of the company stays in the home country, hence the full company has not moved to the Netherlands. Only an office was opened.
Owner or director moves resident
The moment the owner of the company or, in case of a limited liability company, the director moves his or her residence. In such a situation the full company stops being a tax resident in the present country and starts being a tax resident in the next country.
We experience on a daily basis that a sole shareholder and director of a limited company accepts a contract in the Netherlands. This person then moves to the Netherlands to work, which nearly always makes this person a Dutch tax resident. That implies the LTD has become a Dutch tax resident.
The latter was never the intention of this person. The intention is to work in the Netherlands, but being taxed in the other country. Unfortunately the presence of the director as Dutch tax resident in the Netherlands makes all Dutch rules apply to the result of the entire company. From corporate income tax, to Value Added Tax and the minimum salary rules.
A person of importance moves to the Netherlands
A person of importance can be the director of the company. It can be a person with the title vice president. It can be a person with no title, but with an authorization to commit the company via contracts.
Such a person of importance creates a permanent establishment in the Netherlands by simply moving its residence to the Netherlands. The obligation then exists of the company needing to register itself with the Dutch Chamber of Commerce. The Dutch tax office will request the company to file a Dutch tax return for the activities of this person.
Tax is exciting
We think tax is exciting. We also understand that not everybody is excited about the rules we have in the Netherlands.
It can happen the rules come upon you unexpectedly by the sequence of events that happened. Such as a move of the director or vice president.
The company is often not aware of the consequence of such a move. Such a move regularly is initiated by personal objectives. We then recommend to resign from the position, which solves the issue. Should that not be an option, we are glad to assist the permanent establishment to comply with the Dutch rules.