Starting a business in the Netherlands as a foreigner has its challenges. Some are tax related, some are more practical.
Starting a business in the Netherlands as a foreigner
Being a foreigner implies you are not a Dutch resident tax payer. That is important to understand. You are a Dutch resident tax payer if you have your central point of life in the Netherlands, then you also report your world wide in come and assets in the Netherlands.
The moment you do not have your central point of life in the Netherlands, but you do own more than 5% of the shares of a company in the Netherlands or you own property in the Netherlands, you are a non resident tax payer in the Netherlands.
Substance and Dutch tax
A foreigner is in this article the non resident tax payer. You need a legal entity to operate in the Netherlands and this entity needs to have substance in the Netherlands.
Example. If you incorporate a Dutch BV company, with a Dutch address, but you do not move your central point of life to the Netherlands and you are the director of the Dutch BV, then there is no substance in the Netherlands. This implies the BV is a tax resident for corporate income tax and value added tax in the country where you are a tax resident. Due to the nature of the BV, a Dutch corporate, you are to file a Dutch corporate income tax return. And you do need to publish with the Chamber of Commerce, but the result of the BV is taxed in the country where you are a resident.
This substance issue is a true issue. You solve this issue by appointing a Dutch resident tax payer as director of your Dutch BV company. Mind you, the Dutch director can be held liable personally, hence not every individual is keen to be appointed as director.
Practical issues due to lack of substance
A practical issue by incorporating a Dutch BV company where the director is you, living abroad is the business bank account. In the Netherlands no business bank account can be opened if the director of the BV is not a resident in the Netherlands. This is an instruction by the Dutch National Bank based on the anti-money laundering act.
The moment the Dutch BV company has no bank account, the share capital cannot be paid. The limited liability of the Dutch BV company only starts the moment the share capital has been paid up. The lack of substance makes the liability is not limited.
Value Added Tax
The day the BV company is registered with the Dutch Chamber of Commerce, is the day the Dutch tax office issues automatically a Value Added Tax (VAT) number to the company. You need to be aware that infact, due to the lack of substance, there cannot be a business in the Netherlands and therefore no VAT obligation.
If this is not reported with the Dutch tax office, which it never is, the company starts its business. Over the turnover the VAT is collected and paid to the Dutch tax office. Over the costs the VAT is reclaimed. Costs such as the rent of the address, the accountant, maybe some communication services, investments.
The VAT act states that if you collect VAT on the invoice, you are obliged to pay the VAT to the tax office, even if you are no VAT entrepreneur. On the other hand, you cannot reclaim VAT, even if the invoice was correctly addressed to the BV company.
This is dangerous territory, as often a VAT audit is done over a 5 year period. That is rather late to learn you indeed have to pay the VAT over the turnover, but the reclaimed VAT you need to pay back over this 5 year period.
Starting a Business in the Netherlands as a Foreigner – What can you do? – Branch registration
You can chose to register a branch of your foreign limited company in the Netherlands. This is an identical registration of your foreign company. The result is that upon registration with the Chamber of Commerce this branch registration becomes equal to the BV company with respect to the obligations. There is a corporate income tax obligation and if a business is conducted in the Netherlands, VAT is a genuine obligation.
Still no bank account can be opened, but neither does the director of the foreign entity need to be a Dutch resident tax payer. Employees do not need to act as director, they can create substance by doing business. The bank account abroad can be used for the payments, the website abroad can be used for the Netherlands.
The branch gives the company at a low profile the opportunity to learn the Dutch market. The moment it is interesting enough to appoint a director, hence incorporate a Dutch BV, the branch can be replaced by the BV.
Tax is exciting
We think tax is exciting. It is also exciting to start doing business in the Netherlands. Tax is part of the journey. Issues should not be part of this journey, hence this article. Opening a BV in the Netherlands does not solve some issues. We also experience persons that think they can skip the IND (immigration ) process by incorporating a BV company, that is also not the case. The branch registration is often not considered as it is unknown. We think that is a perfect way to test the waters in the Netherlands
