Is a local Dutch director required?
Updated: 5 October 2021
Is a local Dutch director required to incorporate a Dutch BV?
No, it is not a requirement to have a local Dutch director to set up a Dutch BV. In fact, most of our clients are non-Dutch residents.
If you are a small or medium company, or you have a clear goal for your Netherlands business activities. It is likely not so relevant to consider the substance requirements for corporate income tax. We have not seen a case with our clients where substance requirements affected the corporate income tax.
If you expect a profit of above €250.000 per year, we recommend a consultation with one of our tax advisors to determine the best way of structuring your company for tax, director compensation and dividends.
Your VAT situation is determined upon application for a VAT number, sometimes this is automatically accepted. Sometimes you need to answer additional questions. In all cases of actual VAT liable activities in the Netherlands, have we seen our clients been granted a VAT number.
Legal information on substance of a Dutch BV (Where is the Dutch BV officially tax resident?)
Article 2 of The Netherlands corporate Income tax Act states that a BV incorporated in the Netherlands is always ruled to have its residency in the Netherlands. That means that the Dutch BV always has to file corporate tax returns in the Netherlands and publish its annual accounting.
The exception is in cases two countries are claiming the same tax. This can happen in certain specific scenario's whereby a company is incorporated in the Netherlands because of lower taxes, while the activities are still performed in the country of residence of the Director. To settle these disputes and provide clarity on the matter, the Netherlands has made agreements with many countries in the form of Double Tax Treaties.
The Netherlands' tax office is of the general opinion that any corporation incorporated in The Netherlands, is resident here for the corporate tax. We call this the 'principle of territoriality'. Therefore, the seat of the company is always deemed to be based in The Netherlands, even in double tax treaty disputes.
We have not seen any cases before amongst our clients where double tax treaties and substance is relevant for corporate tax. If you earn more than €250.000 per year, we in any case advise a consultation with our tax advisors. Our tax advisors can consult you about: Director fees, tax optimization, the best corporate structure for you, double tax treaties, dividend tax and much more.
Then why do I hear about the Dutch director substance requirements?
Certain Dutch firms cater their services aimed at multinational corporations and companies which use the Netherlands as a holding company or intermediary holding. The holding can be of intellectual property, royalties or shares. One of the primary purposes of such structures often is the usage of the extensive tax treaties the Netherlands has with other countries.
For example: A company, like Starbucks.
Starbucks might decide to collect the dividends from all their worldwide subsidiaries through a holding company in The Netherlands. Since the Netherlands has the most extensive double tax treaty system in the world. Thereby avoiding costly double-taxes when distributing the dividends.
If your firm is not relying on such a double tax treaty. You are likely unaffected for the corporate income tax if you are a non-Dutch resident director.
Many tax advisors have little experience with the day-to-day reality of small- and medium-sized entrepreneurs. Where the substance regulations rarely effect them. The tax legislation is aimed mostly at letter-of-the-law situations where real abuse of the tax treaties occurs, such as with certain multinational companies with tax structures that lack meaningful substance.
In short, if you want to be 100% sure that your company is taxed in The Netherlands, the level of substance and activities in The Netherlands would need to substantiate that. However, you are unlikely to be affected by the substance requirements, unless you make significant profits.
Substance requirements for big corporations (Tax treaty protection)
Some big firms rely for a Dutch entity only on a tax treaty. To be 100% sure that the Netherlands tax substance is sufficient, stock listed and large multinational firms, royalty holdings and similar corporations tend to hire a Dutch director for a minimum of 50% of the board of directors.
In our experience, in 99% or more of the cases, smaller companies, trading companies and others are unaffected by the 'substance' requirement to have a local director. We have worked with over 1000+ companies of all sizes.
If you are in doubt if your firm has to find a local director. It is perhaps best to for a consultation with one of our tax advisor on topics such as ''Double tax avoidance'', ''Transfer pricing'', ''At Arms Length principles'', and ''Advanced Tax Rulings''.
Other cases a Dutch resident director might be helpful
It may prove useful to have a Dutch resident director for applying for a local bank account or a local VAT number. In by far the most cases where actual business activity takes place in the Netherlands, this will prove successful without a local director.
Substance for VAT
The VAT regulations (to apply for a VAT number) is not covered by the same regulations as the corporate income tax. The tax inspectors will make their own decision based on each individual company. In our experience, this should not prove a problem in case you have actual VAT-liable activities and operations in the Netherlands.
Relevant aspects an inspector will consider for the VAT application:
- What is the company activity? (For example, buying agricultural goods in the Netherlands and shipping them all over the world).
- Where does this activity take place? (Are goods or services sent to or from Dutch suppliers, or to or from Dutch customers?)
- What substance does the company have in the Netherlands? (Staff? A warehouse? Suppliers? Customers? An office? Servers for its website? Etc.)
- Where is the company operated from? (Does it have a (virtual) office in the Netherlands?)
- Where is the director located? (Does it make sense for this company to be operated remotely?)
- Is the company activity considered a risk category for VAT fraud?
- Why is this company based in the Netherlands?
Foreign VAT number registration in The Netherlands
If your company is considered not to be based in The Netherlands, for the VAT. You will be able to obtain a VAT number for foreign (controlled) companies. What this mean and how does this affect your company?
Your foreign VAT number can be registered under the address of your foreign holding company, or the address of your director.
The foreign VAT number will be treated the same in the following situations:
- Selling goods and services in The Netherlands and Europe
- Buying goods in The Netherlands and Europe for trade
The foreign VAT number will be treated differently in the following situations:
- The foreign VAT number will be treated differently when buying services for your Netherlands company.
- The foreign VAT number will be treated differently when you are buying (for example) a company laptop.
The result is that your suppliers need to invoice you at 0% VAT when providing you with services.
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