Opening a Subsidiary vs. Branch in the Netherlands | Start A Company In Netherlands
The question that many global entrepreneurs ask themselves, is whether they should incorporate a separate legal entity, or register their current HQ as a Branch in the target country. There are many differences between the ‘Branch’ and the ‘Subsidiary’, and in this article, we like to inform you of all the most important differences that you should consider.
We have assisted many international entrepreneurs with their Market Entry. Read more about the way we work here.
You can read more about the Dutch business environment in this document and find our formation process for a Branch.
Overview of Characteristics
easy to (de-)register, without the involvement of a lawyer or notary;
no Annual Reporting requirements (exception apply)
remitted earnings are not subject to withholding tax;
losses of the branch in the Netherlands can be compensated by profits/taxes of the main office;
does not allow issuance of (separate) shares, or profit certificates
does not have a Dutch identity and as such is considered to get less trust/acceptance;
(overseas) HQ is fully liable with respect to the obligations and (tax) debts of its branch in the Netherlands;
double taxation might occur (if no tax treaty is in place)
The Limited Company
allows you to involve investors and different type of (local) shareholders
provides corporate veil for directors and shareholders, limiting liabilities in case of bankruptcy or (legal) claims
asset protection: allows you to protect your assets optimally
incorporation by local laws means that (potential) contracting partners find more comfort in dealing with your firm
easier to ‘restructure’ your company activities or companies at a later stage (including the planning of an exit-scenario)
tax treaties are in place to lower any relevant withholding taxes (standard 15%)
can be incorporated same-day, but the involvement of a notary is required
can apply for ‘Fiscal Unity’ with it’s holding company
Branch first, BV later
Most of the entrepreneurs that INCO assists decide to start a Limited Company straight away since they are focused on growth. Once the company is incorporated INCO will assist them to further develop their business.
However, INCO also regularly assists Startups to register a Branch in the Netherlands. These Startups usually do not expect any income or profits yet in their first year(s) of business. This is a very legitimate reason to start with a Branch because this typically means that there are very little liabilities or assets to protect.
The main advantages for Startup entrepreneurs are:
That they save money on the incorporation, don’t have to worry about local Company Law and have no requirement to publish a separate Annual Report (saving them money again!). However, they do have to file a Corporate Tax Return in the Netherlands, based on the Annual Report of their overseas HQ.
Once ambitions (and market understanding) grow, the needs for investments grow. For which a solid corporate structure is required. Then turnover starts to grow, which means the liabilities of the companies grow along with it. It, therefore, makes sense to anticipate on financing and growth of the company by establishing a Limited Company.
The main advantage of the Branch (as a temporary solution) is that it's cheaper to incorporate (no notary is involved) and it's cheaper to maintain because there is no legal requirement to draft a separate Annual Financial Statement for the Branch.
Getting started with a Dutch Branch
In order to get started with a Dutch Branch, we suggest contacting one of our consultants.
Our Incorporation fees for the Branch are:
750 EUR for Remote Incorporation
450 EUR for Regular Incorporation, for which the director needs to visit the Netherlands for registration.
These fees include a (Tax) Memorandum on the consequences of registering the Branch.
We can register the Branch within approx. 1 week, because we will need to prepare the application carefully.
Our Company Officer Services or Bookkeeping Services are of interest for any type of entrepreneur and any type of legal entity. Get in touch with our Consultants to find out more!
(Overseas) Subsidiary/Legal entity/Limited Company:
When a company will be incorporated as a Private or Public Limited company, according to the local (Netherlands) company laws. For example; when a successful company in the United States is selling goods in the Netherlands and decides to move part of its production and sales activities to the Netherlands. For this purpose, the US company will involve a notary to incorporate a Subsidiary of the HQ (Head Quarters) in the US.
When an existing (typically overseas) legal entity, will get registered at the Chamber of Commerce (and tax authorities) as a Dutch business operation. For example, a United Kingdom Private Limited Company decides to employ a staff member in The Netherlands, and instead of registering a Dutch BV, it registers the UK Limited itself at the appropriate government agencies in order to comply with the business and tax regulations.
Starting your first company in the Netherlands
There is no legal entity to register as a Branch if you are planning to start your first company in the Netherlands, but you aren’t currently operating a legal entity elsewhere. In this case, you might need to consider the ‘sole proprietorship’, of which many of the characteristics are similar to the Branch (due to the fact that it’s not a legal entity, but rather an ‘entrepreneurial tax status’.
Global entrepreneurship - exploring new markets
As a global entrepreneur, you’re already operating one or several companies anywhere in the world. If you’re a global entrepreneur who is looking to expand quickly and in a lean manner, the Branch could be a viable option for you! You are probably experienced in international business and you understand how to separate your worthy assets from your risky liabilities. You will use the Branch to start exploring a new market or to establish a representative or the sales office. The Branch is a very interesting tool to do so!
The Branch is not limited to employ staff members or even apply for a sponsorship status in order to employ Highly Skilled Migrants. Profits of the Branch, if any at all, are easy to allocate to the HQ without any withholding taxes of any kind affecting your profit.
Global expansion - entering a new market
In case you are planning to expand your current business activities and focus to increase your turnover/operations in a new market, it’s most likely that the ‘Subsidiary’ will suit your needs best.
The reason why a separate legal entity is preferred in this scenario is that the new Dutch operation will have its own liabilities and perhaps assets. It’s important to structure your liabilities in such a way that they don’t affect your HQ or holding company. As soon as you are investing in certain assets, like real estate or Intellectual Property, you might even want to consider multiple separate legal entities in the Netherlands to protect these assets from any (creditors/government) claims to your operational company.
The Netherlands has over 150 tax treaties. This means that in case your Subsidiary pays out dividends to the overseas holding company, in many cases the withholding tax on dividends is reduced (from 15% to sometimes zero!). Within Europe, no withholding taxes on dividend apply.
Running independent legal entities
Although the most common structure is a so-called ‘Holding Company Structure’ (in which an HQ owns the shares of an (overseas) Subsidiary) many entrepreneurs decide to operate their overseas activities using independent legal entities nowadays. This means that the legal entities are not connected by a shared holding company. The reason why an entrepreneur would choose to keep the companies independent is typical of a practical nature. For example, it’s easier to incorporate the company in the Netherlands if there is no complex shareholding structure to identify. Furthermore, for the same reasons, it will be easier to open a bank account.
When entrepreneurs do choose for this option, it’s important to know about the possible tax consequences, because in case the Dutch company is making a profit, it can only pay out this profit to the individual shareholder. This can result in a withholding tax, which might have been avoided in a holding company structure.
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