Doing business in The Netherlands - Taxable branch versus non-taxable branch
When a foreign company starts conducting business activities in the Netherlands it may become subject to the levy of Dutch corporate income tax. Whether or not this is the case, will in first instance depend on the nature of the activities conducted in the Netherlands and the actual presence of the foreign company in the Netherlands. In technical terms, the activities in the Netherlands must qualify as a "permanent establishment".
Once it has been established that there is a permanent establishment according to Dutch law, applicable tax treaties may still override Dutch law and prevent the levying of tax in the Netherlands in specific cases.
The diagram below provides for general guidelines for determining whether or not a foreign company becomes subject to Dutch corporate income tax in a particular situation. These guidelines are indicative only and are not meant to be comprehensive. Please consult us to determine your specific position.
| Presence of a foreign company in the Netherlands | In general Dutch tax liability | In general no Dutch tax liability |
| Branch: a place to run a business such as an office, a factory, a workshop, a mine or any other place where natural resources are being obtained | A tax liability exists in case business activities are being conducted on a regular basis from a fixed place of business | No tax liability in case the activities are of auxiliary,
preparatory or supportive nature for the foreign head office or if the foreign company is established in a treaty country and the branch activities are: (1) storage, display or delivery of goods; (2) keep a stock for storage, display or delivery of goods; (3) purchase goods or make inquiries; (4) preparation activities or supportive activities; (5) activities limited to a combination of the aforementioned activities |
| Local representative, like a real-estate broker, commission merchant or agent |
A tax liability exists in case the local representative has the authorization of the foreign company to close (sign) contracts or negotiate contracts and the representative exercises this authorization on a regular basis |
No tax liability in case the representative is truly independent and acts for his/her own account and within the framework of his/her own usual business |
| Local employee |
A tax liability exists in case the employer is engaged in one of the abovementioned taxed activities |
No tax liability in case of one of the abovementioned exceptions is applicable or the employee works in a local branch/head office |
| Subsidiary company | The foreign shareholder will under normal circumstances not become subject to Dutch tax for profits generated by the subsidiary company, unless the subsidiary company makes profits which actually, from an arm's length perspective belong to the shareholder (transfer pricing). The foregoing does not include the potential Dutch tax on dividends and capital gains derived from the shares in the Dutch company |
The foreign shareholder will under normal circumstances not become subject to Dutch tax for profits generated by the subsidiary company |
|
Local construction or engineering activities |
A tax liability exists in case the activities exceed a certain duration, in most cases 30 days, depending on the nature of the activities and the wording of applicable tax treaties |
No tax liability in case the activities do notexceed a certain duration, in most cases 30 days, depending on the nature of the activities and the wording of applicable tax treaties |
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