When establishing a company in the Netherlands, investors may choose between setting up a subsidiary or a branch. The differences between these two business forms are substantial and our team of lawyers who specialize in opening branches and subsidiaries in Netherlands can help you determine which one best suit your business needs.
Different circumstances and the company’s interests may ultimately determine the choice between the two legal entities, but certain aspects need to be taken into consideration when making a choice between a branch and a subsidiary in the Netherlands.
You can observe below the main characteristics of branches and subsidiaries in the Netherlands.
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Branches in the Netherlands
A branch is a permanent establishment that forms one entity with a foreign company. It is essentially an extension of the parent company abroad and thus the parent company will need to undertake the liabilities that arise from opening a Dutch branch. This particularity offers both advantages and disadvantages.
The list below summarizes the main characteristics of the branch:
- set up advantages: it is relatively easy to set up and the costs are usually lower compared to incorporating a new legal entity.
- slightly different taxation regime: no withholding tax on remitted earnings and no capital registration tax; the loss of the Dutch branch may be offset against taxes/profits of the head office; the problem of double taxation may arise in the case of a permanent establishment.
- different accounting principles: no need to publish the financial result of the branch (with some exceptions).
- no legal capacity: the branch is not a separate Dutch legal entity, it operates as a foreign company.
- liability: the parent company is fully liable for the debts and obligations of the Dutch branch; also, acceptance may be harder to gain from Dutch nationals because of the foreign identity of the branch.
The branch is generally perceived as a business form that has lighter incorporation and management requirements compared to the subsidiary. The registration with the Trade Registry is still needed for the branch, however, the process is simpler because the foreign company will present its already existing Articles of Incorporation and the decision to set up the Dutch branch. As a comparison, for the subsidiary, the Articles of Association will need to be drafted as new documents. Registration with the Chamber of Commerce will also be needed for the branch.
The documents usually needed to open a branch in the Netherlands in 2023 include the following: the parent company’s constitutive documents such as the Memorandum and Articles of Association, its registration certificate issued by the country of residence, the names and identification documents of its directors, the name and identification documents for the branch representative in the Netherlands (as well as a description of its powers and duties), the decision to establish the branch and details regarding its address and name.
After it is registered with the Company Register, the branch will also need to be registered for tax purposes and for social security purposes as it will hire employees. In terms of taxation, the branch is taxed at the same corporate income tax rate of 20% on the first 200,000 EUR of taxable profits and 25% over this amount. In some cases, the branch may qualify as a permanent establishment in the Netherlands, however, the principle of taxation for a branch is solely on its Dutch-derived profits. One of our Dutch lawyers who specialize in branch and subsidiary creation can help you with detailed information about taxation.
The representative office is another manner in which a foreign company can establish its presence on the Dutch market, however, it is more limited compared to the branch. It can only engage in marketing or promotional activities and cannot derive profits – therefore no registration with the tax authorities is needed. Typically, this business form is only used in some cases and our team of attorneys in the Netherlands can give you more details.
The video below describes the main differences between the two business forms:
Subsidiaries in the Netherlands in 2023
The main advantage of a Dutch subsidiary is the shareholder’s limited liability but other aspects need to be taken into consideration. The main advantages and disadvantages are highlighted in the following list:
- the shareholders have limited liability, to the extent of their contribution to the capital;
- unless agreed otherwise, the parent company is not liable for the Dutch subsidiary;
- intangible assets can be amortized for Dutch tax purposes;
- Dutch nationals may prefer dealing with a subsidiary;
- more complicated to set up ad more expensive;
- withholding tax on remitted earnings;
- medium and large companies must publish their financial statements;
- the appointment of at least one director is required by law.
The incorporation of a subsidiary is perceived as a more complex process compared to the establishment of a branch because although the final registration steps will need to be handled just the same, it is incorporated through a notarial deed and the founders will also need to draw up the Memorandum and Articles of Association. One of our lawyers in the Netherlands can help you draw up the company documents according to the chosen business type. In most cases, this will be the private limited liability company or the BV because it offers advantages both in terms of investor liability (the founders are only liable to the extent of the capital they invest) but also because it has very low requirements for the start-up capital. Public limited liability companies can also be used as subsidiaries in the Netherlands. These will require a substantially larger initial share capital and will also have different accounting and auditing requirements as their shares can be publicly traded.
Foreign investors should consider this list of primary advantages and disadvantages when deciding between a subsidiary and a branch in the Netherlands. Scheduling a consultation with our team of lawyers who specialize in opening branches and subsidiaries in Netherlands can help foreign investors decide which business form will be suited to their business needs. It is advisable to work with our team of lawyers before establishing a legal entity in the Netherlands in order to fully understand the taxation, accounting, and reporting principles as well as liability for each business form.
When a subsidiary engages in trade activities within the EU, it is subject to EORI registration in Netherlands.
In the Netherlands, the subsidiary tends to be a preferred business form in many fields, although in sectors like banking and finance, large international companies will open branches. The subsidiary is able to engage in more than one type of business activity and the fact that it is not limited to one business purpose, the same as its parent company abroad, can be advantageous for some types of business activities. It is useful to know that VAT registration in Netherlands may be required for a subsidiary.
Branch and subsidiary taxation and reporting in the Netherlands
The branch and the subsidiary are subject to the same corporate income tax rate in the Netherlands, however the basis for residence is different, as it depends on where the company has its management office. Our team of lawyers in the Netherlands can provide a complete definition on residence, however, the principle is that resident companies (such as subsidiaries, that have their management in the country) are taxed on their worldwide income while nonresident companies (such as the branch, which is dependent on the parent company abroad) are taxed only on the income sourced from the Netherlands.
Below, we highlight some of the most important taxes:
- 16.5%: the corporate income tax on the first 200,000 EUR of taxable profits;
- 25%: the applicable corporate income tax rate on taxable profits that exceed 200,000 EUR;
- 15%: the dividend withholding tax rate, unless reduced or exempted through a tax treaty or the EU parent-subsidiary directive;
- 0%: the withholding tax rate for interest and royalties applicable both to residents and nonresident companies;
- 21%: the standard value-added tax in the Netherlands, along with two reduced rates of 0% and 9% that apply to certain types of foods and services (foodstuffs, medicines, books, or goods that are exported from the EU).
Adjustments have been made to the job-related investment credit and there is the introduction of a unilateral air passenger tax (to be levied from airport operators). We can provide more information on the Tax Plan Package upon request.
Our team of tax lawyers in the Netherlands can provide complete information on the tax requirements for branches and subsidiaries – which, as seen above, are similar in many aspects. We can offer information on the EU parent-subsidiary directive and we can guide entrepreneurs during the VAT registration process (this is mandatory for companies that provide certain goods and services as there is no registration threshold, all VAT payers must register).
Social security contributions are mandatory both on the part of the employer and the employee and companies are required to withhold tax on the wages paid to their employees. A particularity of the payroll tax in the Netherlands applies in case of foreign employees in the form of a 30% deduction for a period of five years (during this time, a tax-free allowance of 30% of the gross renumeration for these employees is applicable and our lawyers can detail the advantages of hiring foreign employees for a branch or a subsidiary).
As far as accounting and reporting are concerned, the tax year in the Netherlands is generally the same as the calendar year and the accounting principles that apply are the Dutch GAAP, with the possibility to also use the International Accounting Standards and the International Financial Reporting Standards.
Consolidated returns are possible in case of parent companies. This means that, under certain conditions, these companies may be treated as having fiscal unity with one or more subsidiaries, according to which the losses of one company can be offset against the profits of another. For this to be possible, the parent company needs to own at least 95% of the economic and legal ownership of shares of the subsidiary. Moreover, the parent company and the subsidiary in the Netherlands need to have the same financial year. It is possible in some cases for the Dutch permanent establishment of a foreign company to be included for this purpose (be included as a fiscal unity).
Companies in the Netherlands are expected to file a provisional assessment, which is commonly based on information from the previous two years. Monthly installments are used to pay this assessment for the remainder of the year. Corporate income tax returns are filed each year within five months of the end of the tax year – in some cases, an extension is possible.
When filing the corporate income tax return, the company also provides relevant documents such as the balance sheet and the profits and loss account. Administrative penalties apply in case of late filing or incomplete filing. Criminal penalties are also possible if the Dutch authorities prove gross negligence or fraud. Our litigation attorneys in the Netherlands can provide more details.
According to the European Central Bank, Statistical Data Warehouse, there were 1,076 branches of credit institutions providing cash services in the Netherlands in the first half of 2020. Their number was higher in the first half of 2019, at 1,305.
Statistics Netherlands also offers relevant data on foreign direct investment in the country. To highlight some of the trends, our team compiles a set of data to reveal the top investors in the Netherlands:
- In 2020, the United States was the top investor in the Netherlands, with a total of EUR 241 bn; Germany follows, with EUR 186 bn, and Luxembourg with EUR 130 bn; the United Kingdom and Switzerland are also countries that invest in the Netherlands, with EUR 130 bn for the UK and EUR 102 bn for Switzerland;
- In 2018, one in fifty companies were multinationals; that year, the country had approximately 26,500 multinationals, out of which 53% were under foreign control.
The branch can be a convenient manner to enter the Dutch market for foreign companies in the financial sector. In other cases, the Dutch branch can act as a first step, before incorporating a BV or an NV. The faster establishment process can be an advantage for foreign investors, especially in the early stages of doing business in the Netherlands.
If you need more information or need help to decide what type of company is best to establish in the Netherlands in 2023, please contact our lawyers who specialize in opening branches and subsidiaries in Netherlands.