What is a Permanent Establishment or Branch Office?

At Intercompany Solutions, we strive to help foreign entrepreneurs with Dutch company establishment in every possible way. If you would like to expand your business presence to a highly respected and stable European Member State, starting or expanding your business in the Netherlands is actually one of the best options out there. The country offers many interesting benefits, such as direct access to the European Single Market, a highly innovative and thriving business atmosphere and a very stable economy, to name but a few. We have assisted thousands of foreigners with Dutch company establishment, making it possible for them to profit from all the Netherlands has to offer. 

We also specialize in many extra services, such as legal advice, financial assistance and opening a Dutch bank account. We have an extensive network of professionals within the field available to us, making it possible to set up and incorporate a Dutch company in just a few business days. Whether the business type you choose is a Dutch BV, a subsidiary or a branch office depends on your specific needs and the way you would like to establish a presence here. If you would like personalized advice, feel free to contact us anytime. We will gladly assist you in making the best possible choice, so your business can thrive overseas as well. We offer expert advice for affordable and fixed fees, depending on your specific situation.

Many well-known companies and starting foreign entrepreneurs have already established a presence in the Netherlands

The Netherlands is currently one of the most favorable countries to establish a business and presence in. It might be small, but it offers many exciting opportunities in fields such as international trade and export and import, creative businesses, health, innovation, pharmaceuticals, water management, a broad range of tech subjects and many other industries. Since the Netherlands is very welcoming towards foreign entrepreneurs and investors, you will find many other businesses from all over the world that are already settled here in some way or another. This might also provide you with lucrative partnership opportunities to expand your company and continually grow. There is a very long list of famous international companies that have already established a presence in the Netherlands, ranging from Google and Meta to Panasonic, Tesla and Discovery. You can also be a part of this list of successful companies, if you want to achieve success with your company. 

What business type do foreigners generally choose?

In general, almost all company establishment requests we receive are to incorporate a Dutch BV. This is by far the most fitting legal entity for Dutch company establishment, due to many interesting tax benefits and, of course, the limited financial liability that goes with it, In simple terms, this means that you will not be held liable personally for any debts you might create with the company, although we strongly advise avoiding such scenarios as much as possible, if you want to do business stress-free. 

Next to a Dutch BV, you can also opt for a so-called holding construction, in which you own multiple BVs that fall under one umbrella company, This can be profitable because you can allocate profits in several ways, which makes you less vulnerable to losing money in any way. This is also an extra safeguard against financial issues. Next to that, you can choose a Dutch subsidiary, which is actually also a Dutch BV, but the difference is that it falls under a foreign company that you might have already established. Lastly, you can also open a branch office in the Netherlands, which is also known as a permanent establishment. We will discuss the differences between these company types below.

The differences between a Dutch BV, a subsidiary and a permanent establishment

The distinction between a Dutch BV, which is the same as a private limited company, a Dutch subsidiary under a foreign parent company, and a permanent establishment (PE) revolves mainly around topics such as the legal structures of all types, any relevant tax implications, the liability that goes with the type and operational control. Below, we have listed a breakdown of each entity type for your convenience, so you know what you are dealing with when choosing the best fitting option for you and your company.

1. The Dutch BV 

A Dutch BV (in Dutch known as the “Besloten Vennootschap”) is a legal entity that is entirely independent of its owners, and it is one of the most common structures for businesses in the Netherlands. The fact that it is a separate entity is also why you have to incorporate this type of business with the help of a notary. It offers limited liability, meaning the company’s debts and liabilities are separate from the personal assets of its shareholders.

Some key features of the Dutch BV:

Separate Legal Entity

A Dutch BV is its own legal entity, distinct from the shareholders and directors. It can enter into contracts, own assets, and incur liabilities.

Ownership and Control

The ownership of the Dutch BV is divided into shares, and shareholders are entitled to vote on major decisions. The company’s daily management is handled by directors, who form the board and can be appointed by the shareholders.

Limited Liability

Shareholders’ personal assets are protected. In case of business failure, they are only liable for the amount they have invested in the company.

Taxation

The BV is taxed separately from its shareholders and is subject to Dutch corporate tax. The standard corporate tax rate is 19% for profits up to €200,000, and 25.8% for profits over €200,000. The BV is also subject to Value Added Tax (VAT) if it sells taxable goods or services.

Capital Requirements

A Dutch BV requires a minimum capital investment, though the capital requirement is extremely low since the introduction of the ‘Flex-BV’ (€1 for nominal capital), making it accessible to many (starting) entrepreneurs and therefore a lucrative choice.

Compliance

A Dutch BV must adhere to local corporate governance regulations, file annual accounts, and undergo audits if applicable.

Possibility of establishing a holding structure

You can also choose to establish a holding structure in which you have one parent company, and one or more subsidiaries. This will greatly help you to mitigate financial risks and also offers very interesting tax benefits, such as tax-free dividend payments under certain conditions.

A Dutch BV is ideal for entrepreneurs that want to establish a fully-fledged operation in the Netherlands and manage the company independently, separate from a possibly already existing foreign parent.

2. A Dutch subsidiary under a foreign parent company

A Dutch subsidiary is essentially a separate company established in the Netherlands but owned (partially or fully) by a foreign parent company. It can take the form of a Dutch BV or other legal structures such as a Dutch NV (which is “Naamloze Vennootschap” in Dutch and comparable to a public limited company) if a larger company is involved. If you opt for a Dutch BV subsidiary, the legal entity is actually exactly the same, with the difference that your already existing company is its holding company.

Some key features of the Dutch subsidiary

Separate Legal Entity

A subsidiary is a distinct legal entity from its parent company. This means it has its own legal status, responsibilities, and liabilities.

Ownership

The foreign parent company owns shares in the subsidiary (either partially or fully). The parent company typically has significant control over the subsidiary, but the subsidiary operates as a separate business entity. The parent company might therefore also be the Ultimate Beneficial Owner (UBO) and needs to be registered as such in the UBO register,

Taxation

Like a Dutch BV, the subsidiary is subject to Dutch corporate tax. However, any income or profits from the subsidiary might be subject to withholding taxes if paid to the foreign parent company in the form of dividends, royalties, or interest. Double tax treaties (including between the Netherlands and the parent company’s country) may reduce the overall tax burden.

Liabilities

The subsidiary has limited liability, meaning that the parent company’s personal assets are separate from the subsidiary's operations. This is comparable to the Dutch holding structure.

Operational Independence

The subsidiary can operate with a high degree of independence, but strategic decisions are typically made at the parent company level.

Legal Structure

Most foreign parent companies establish their Dutch subsidiaries as a Dutch BV, but a Dutch NV might be used for larger companies with more shareholders.

Capital Requirements

The minimum capital requirement for a Dutch subsidiary is the same as that for a Dutch BV, with a nominal minimum investment required. Keep in mind that establishing a Dutch NV involves a substantially larger minimum capital requirement, namely a minimum of 45,000 euros.

Setting up a subsidiary in the Netherlands allows for operational independence, greater flexibility in handling Dutch market needs, and the potential tax benefits of having a presence in the country, such as access to Dutch innovation tax incentives or tax treaties.

3. A permanent establishment (PE)

A permanent establishment refers to a fixed place of business that operates in a specific country, but is not considered a separate legal entity. It’s typically established by a foreign company to conduct business activities in the Netherlands without fully incorporating a new company. This can be a very easy option if you would like to establish a presence here swiftly. You can always convert it into a Dutch BV or subsidiary at a later stage.

Some key features of the Dutch PE

Not a separate legal entity

Unlike a BV or subsidiary, a PE is not an independent legal entity. It is simply a part of the foreign parent company, operating in the Netherlands, without forming a new company.

Physical presence

The PE is often a physical location, such as an office, branch, or factory, that conducts business activities in the Netherlands. It may also refer to a situation where an agent or representative has the authority to negotiate and conclude contracts on behalf of the parent company.

Taxation

A PE is taxed on its profits derived from activities conducted within the Netherlands. The Dutch Tax Authorities treat the PE as a part of the foreign parent company for tax purposes, meaning that the income generated by the PE in the Netherlands is subject to Dutch corporate tax (currently 19% for profits up to €200,000 and 25.8% for profits over that threshold, just like the Dutch BV).

Liabilities

Since the PE is not a separate legal entity, it does not offer the same liability protection as a Dutch BV or subsidiary. The foreign parent company is ultimately responsible for the debts and liabilities of the PE.

Limited Scope

A PE does not have the same operational flexibility as a subsidiary. It is typically used for more limited activities like sales or marketing, and thus, not for a comprehensive or ongoing business operation.

A PE might be an office or a sales branch in the Netherlands, where the foreign company does not wish to form a separate legal entity. It might also include situations where agents or representatives are in charge of concluding contracts on behalf of the company. A PE is suitable for foreign companies wanting to have a presence in the Netherlands to conduct certain business activities such as marketing, sales, or contract negotiations, but do not want to establish a fully independent legal entity like a BV or subsidiary. It is typically more cost-effective and easier to set up than a full subsidiary.

More detailed information about the permanent establishment

A permanent establishment (PE), which is also known as a branch office, is a business location (in the Netherlands) that has sufficient facilities to operate as an independent enterprise. From this location, goods or services are provided to third parties. Examples of a permanent establishment include:

• A store or other fixed sales outlet
• A workshop or factory with an office

The following business locations do not qualify as a permanent establishment:

• Storage space
• Any type of Goods depot
• A location where only supporting activities take place, such as research, advertising, or providing information
• A holiday home intended for rental

A permanent establishment in the Netherlands refers to a fixed place of business through which a company conducts its activities, fully or partially. If you plan to operate a business in the Netherlands, establishing a PE may be necessary, depending on the structure and the scope of your business operations. Below, we will list some main things that you should know about setting up a permanent establishment in the Netherlands.

1. What constitutes a permanent establishment?

According to Dutch tax laws and international treaties, a PE is defined as a fixed place of business that gives rise to tax obligations. This can include:

• Offices or branches, which can be defined as an office where your business conducts operations
• Factories or workshops, like locations where manufacturing, assembly, or other production activities take place
• Warehouses or storage locations with operational activities, in the case that you need to store inventory or goods in the Netherlands and reallocate these as well
• Construction sites, which include any building or construction activities that last for more than a certain period (typically 12 months)
• Agency or representative offices, which is necessary if you have agents or representatives in a certain country who can conclude contracts on behalf of the business
• Retail locations, in cases in which you operate a store or shop selling goods to customers

If you want to know whether your presence in the Netherlands would qualify as a permanent establishment, please do not hesitate to contact us for further information and professional advice.

2. When do you need a permanent establishment?

You typically need a PE when you have significant activities in the Netherlands. Think of hiring employees or contractors, for example. If you hire employees or contractors in the Netherlands to work for your business, this can create a PE. Next to that, whenever you need a physical presence. If you have a physical office or operational presence in the Netherlands, such as managing a team or carrying out business activities that go beyond simple sales or marketing. Furthermore, you also need a PE is you are concluding contracts. If your business’s representatives or agents have the authority to sign contracts in the Netherlands on behalf of your company, this might create a PE.

3. Setting up a permanent establishment in the Netherlands

If you decide to establish a PE in the Netherlands, here’s a brief overview of the process. Business registration is the typical first step. You'll need to register your business with the Dutch Chamber of Commerce. This involves selecting a legal structure, such as a branch office, representative office or something similar, and obtaining a Dutch VAT number. After registering with the Chamber of Commerce, you’ll be required to inform the Dutch tax authorities (Belastingdienst) about your business activities. They will provide you with the necessary tax information, including your tax ID and instructions on VAT obligations. 

You will also need to open a business bank account in the Netherlands to conduct transactions, manage cash flow, and handle any local payments.  If you plan on hiring staff, you must also keep in mind that you need to register as an employer with the Dutch tax authorities. You’ll be required to withhold income taxes and social security contributions for your employees, amongst other things. And lastly, you need to take actions to adhere to Dutch laws. Your business must comply with Dutch labor laws, data protection regulations such as the GDPR, and other relevant business regulations.

4. Benefits of owning a permanent establishment in the Netherlands

The Netherlands is often an attractive location for foreign businesses due to its favorable business environment and strategic location within Europe. Some benefits include the direct access to the European Union’s Single Market. The Netherlands is a key gateway to the European Union, providing access to a market of over 450 million consumers. The country is also a highly respected member state, which will do wonders for your company image. The country also offers a stable and favorable tax environment, with a competitive corporate tax rate, tax treaties to avoid double taxation, and beneficial regimes for international businesses such as the Innovation Box regime, which provides tax incentives for innovation-driven companies. You also profit from a highly educated, multilingual workforce, making it easier to find skilled talent. International trade is also made easy since The Netherlands is a global logistics hub, with excellent transport infrastructure, ports (like Rotterdam), and air connections.

5. Managing a Dutch permanent establishment

Once your PE is established, managing operations involves ongoing activities such as legal compliance, which involves ensuring compliance with Dutch laws, including financial regulations, employment laws, and data protection. Laws regarding financial reporting require you to keep accurate financial records, file tax returns, and paying taxes as required by Dutch authorities. As your business grows, you may expand the scope of your activities in the Netherlands, such as hiring more employees or opening additional locations.

6. Alternatives for a Dutch permanent establishment

Instead of establishing a PE, some businesses opt to set up a subsidiary. As we already mentioned above, a subsidiary is a separate legal entity that provides more flexibility, protection from liabilities, and potential tax benefits, especially if your business intends to have significant operations in the country. A subsidiary allows for more control over the company structure but requires more formalities and administrative overhead compared to a PE. You can also opt for a Dutch BV or holding structure, if you want to set up an entirely new company.

In short, establishing a permanent establishment in the Netherlands provides businesses with a foothold in the European market, but it also comes with certain tax and legal obligations. It is important to understand the specific requirements, benefits, and implications of a PE, and consult with local experts such as Intercompany Solutions, to ensure your business operates smoothly and complies with Dutch laws.

Is it necessary to pay Dutch taxes when you own a Dutch permanent establishment?

If your business has a permanent establishment in the Netherlands, you must pay taxes on the profits made there, even if the head office is located abroad. The location of the head office does not matter in this case. What matters is where the activities are carried out, because this means you owe taxes to that country. The key taxes involved are:

• Corporate Income Tax (CIT): The business will be subject to Dutch corporate income tax on the profits it generates within the Netherlands.
• Value Added Tax (VAT): If your business sells goods or services in the Netherlands, VAT obligations will apply. The standard VAT rate is 21%, with reduced rates for certain goods and services.

Withholding Taxes: If your company makes certain payments to foreign entities (such as dividends, interest, or royalties), withholding taxes may be applicable. We will provide you with more details about this topic below.

Sufficient substance

If a permanent establishment has sufficient substance, it is required to file a Corporate Income Tax (CIT) return. The term substance refers to the economic activities carried out by the PE in the country and whether it meets the tax authority's requirements for tax liability.

Sufficient substance includes (but is not limited to):

• Whether you have personnel, so the actual employees working in the PE
• If you have any valuable assets, such as physical or intangible assets, in the country
• The process of decision-making also plays a role, meaning the ability to make strategic decisions and operate independently.
• And whether there is an actual physical presence, such as a physical office or workspace

If the PE has sufficient substance, it is considered liable for taxes and must file a CIT return. The tax authorities will determine this and will send you an invitation letter to do so.

Value Added Tax (VAT)

If your business has a permanent establishment in the Netherlands, you must also pay VAT on the sales made there. Even if the head office is located abroad, VAT must be paid in the Netherlands on the goods or services sold from the PE.

Which company type might be best for you?

It might be difficult to choose which company type is the best suitable option for your business in the Netherlands, especially if you don’t already own a business and are just starting. In such cases, a subsidiary or PE is not an option since there is no parent company. The subsidiary and PE might only be an option, if you first establish a parent company in your country of current residence. This is something that you will have to evaluate for yourself. Below, you can find a list of all aspects and differences between a Dutch BV, a Dutch subsidiary and a Dutch permanent establishment.

Key differences between a Dutch BV, subsidiary and permanent establishment
Company type	Dutch BV	Dutch Subsidiary (under a foreign parent company)	Permanent Establishment (PE)
Legal Status	Separate legal entity	Separate legal entity	Not a separate legal entity
Liability	Limited liability	Limited liability	Parent company liable for liabilities
Taxation	Subject to Dutch corporate tax	Subject to Dutch corporate tax	Subject to Dutch corporate tax on PE income
Ownership	Owned by shareholders	Owned by foreign parent	Foreign parent owns and operates the PE
Flexibility	Full operational flexibility	High flexibility with parent oversight	Limited operational flexibility
Capital Requirements	Low minimum capital investment (€1)	Low minimum capital investment (€1)	No capital requirement
Control	Full control by shareholders and directors	Parent company has significant control	Parent company has full control
Use Case	Ideal for businesses wanting to operate fully in the Netherlands	Ideal for foreign companies seeking independent local operations	Suitable for limited business presence (e.g., sales) in the Netherlands

If you would like to receive personalized advice, we are always here to assist you. We can also inform you about all the necessary documents we will need for the establishment of a Dutch company, how long the procedure will take and what other actions you will need to carry out to directly start doing business in the Netherlands.

The many services we can offer you

Intercompany Solutions has assisted hundreds of foreign entrepreneurs from over 50 different nationalities. Our clients range from small one-person startups to multinational corporations, and everything in between. Our processes are aimed at foreign entrepreneurs and, as such, we know the most practical ways to assist with your company registration. We can assist with the full package of company registration in the Netherlands:

• Company establishment in the Netherlands
• Opening of a local bank account
• Application for VAT or EORI number
• Application for a variety of permits
• Application for a visa or start-up permit
• Startup assistance
• Financial services
• Administrative services
• Secretarial services
• Legal assistance
• Tax and financial services
• Media
• General business advice

We are constantly improving our quality standards to continually deliver impeccable services. 

How Intercompany Solution can assist you in the establishment of a Dutch company or branch office

With many years of expertise and the successful establishment of thousands of companies, subsidiaries and branch offices, we can assure you that your company is in good hands with us. We profit from an extensive network of professionals within the field, which makes it possible for us to establish any company type in just a few business days. Since a permanent establishment doesn’t involve an incorporation procedure with a notary, this option is much cheaper than the establishment of a Dutch BV or subsidiary. Keep in mind though, that you miss out on interesting tax incentives if you choose a branch office. Next to that, you also don’t enjoy limited liability, which can be tricky. If you would like to know what we can do for you, please feel free to contact us directly for personalized advice and a clear quote. We will happily assist you with any questions you might have.

Sources

https://www.belastingdienst.nl/wps/wcm/connect/bldcontenten/belastingdienst/business/payroll_taxes/you_are_not_established_in_the_netherlands_are_you_required_to_withhold_payroll_taxes/when_must_you_withhold_payroll_taxes1/when_you_are_under_the_obligation_to_act_as_a_withholding_agent1/you_have_a_permanent_establishment_in_the_netherlands