Permanent establishment risk in the Netherlands
When you start doing business in the Netherlands as a company or as a freelancer from abroad, there is always a permanent establishment risk. For example, if a foreign subcontractor is hired, the subcontractor might be triggered for several taxes in the Netherlands.
Based on OECD rules / tax treaties, the Dutch tax authorities consider an entrepreneur from abroad quite easy as being subject to Dutch corporate income tax. We assist foreign businesses and/foreign self-employed entrepreneurs with avoiding excess costs and unexpected corporate and income tax risks when they would like to start doing business in the Netherlands.
Permanent establishment risk / permanent representative risk
When a foreign company is managed effectively from abroad, there is a permanent establishment risk in the Netherlands by means of a permanent establishment (branch) or a permanent representative. If this is the case the Dutch tax authorities will say there is a taxable presence for Dutch tax purposes.
In most tax treaties a permanent establishment is considered as a fixed place of business through which the business of an enterprise is wholly or partly carried on. It includes specifically:
- a place of management;
- a branch
- an office
- a factory
- a workshop
- a mine, an oil or gas well;
We note that a building site or construction or installation project (f.e. install windmill, install oil pipes) can also be seen as a permanent establishment risk.
A permanent representative can also trigger a permanent establishment risk in the Netherlands. A permanent representative is a person acting on behalf of the company, who habitually exercises, in one of the states an authority to conclude contracts in the name / on behalf of the company.
For example appointing a sales representative: when a foreign company plans to expand its operations to the Netherlands, it is convenient to appoint a sales representative. Especially, in the beginning this arrangement provides flexibility. However, appointing the sales representative triggers the risk of permanent establishment.
Consequences – permanent establishment in the Netherlands
In case of a taxable presence in the Netherlands, the tax consequences for having a permanent establishment / permanent representative results in becoming subject to Dutch corporate income tax at a rate of 20% / 25%. Also, the permanent establishment must register at the Dutch chamber of commerce and the Dutch tax authorities and file tax returns on a annual basis.
How to avoid having a permanent establishment in the Netherlands?
There are several ways to avoid having a permanent establishment in the Netherlands, several solutions are:
- The signed contracts must be concleded outside the Netherlands
- Make sure the business cards and letterheads show your foreign company name
- The company website does not show any Dutch address.
Please keep in mind that every situation is different. There are much more factors which can trigger the Dutch tax authorities
Dutch wage tax considerations:
For Dutch wage tax purposes there is a permanent establishment in the Netherlands, in case an employer has employees who are providing services in the Netherlands to a third party.
Furthermore, based on most tax treaties income received from employment in the Netherlands may be taxed in the Netherlands. However, this income will be taxed in the country of residence in case:
- The recipient is present in the Netherlands for a period not exceeding the 183 days; and
- The remuneration is paid by or on behalf of an employer who is not a resident of the Netherlands; and
- The remuneration is not borne by a permanent establishment which the employer has in the Netherlands.
In case there is a branch for Dutch wage tax purposes, a payroll administration must be set up and maintained. Based on the facts and circumstances we can determine if there is a permanent establishment or not.
Would you like more information about a permanent establishment risk?
Do you want more information about permanent establishment risk in the Netherlands because you are planning to do business in the Netherlands as company or as freelancer, or would you like more information about subcontracting? You can contact us through our contact form or call 085 00 30140 from within the Netherlands, or +31 (0)20 2615615 from abroad.
See also the English website of the “belastingdienst”.