As part of the parent company, a branch (Dutch: "filiaal" or "nevenvestiging") is not a separate legal entity. We already spoke about this subject in another post about ‘branch vs subsidiary’.
However, like other business entities, a branch of a foreign company must be entered in the trade register of the Chamber of Commerce.
A branch may be desirable in the early stages of starting a business in the Netherlands.
Also the speedy formation and the relative privacy of the branch can be advantageous. On the other hand, a disadvantage of the branch is the full liability of its parent for claims caused by actions carried out by the branch. Typically, global entrepreneurs choose to operate through a BV or NV.
In principle, branches are subject to Dutch corporate income tax at the same rate as an NV or BV.
If you want to do real business in the Netherlands we advise you to set up a subsidiary instead of a branch because of the following reasons:
Because the subsidiary and the parent company are distinct legal entities, the parent company is not exposed to any liabilities of its subsidiary. The liability of the Dutch subsidiary is limited to its own assets. By contrast, a foreign investor is always liable for the activities of its Dutch branch. This means execution of the branch’s liabilities can be enforced at the expense of the foreign investor’s assets, even if these are located abroad. So in light of risk management setting up a subsidiary will limit the liability.
From a commercial point of view, a subsidiary will be considered a Dutch or European company rather than a foreign company. Clients in the Netherlands often prefer to do business with a company which is set up according to Dutch law. A Dutch limited company may look more trustworthy to them compared to a foreign Ltd. Clients will know that Dutch law will be applicable and not foreign law.
A subsidiary may enjoy certain tax advantages.
Annual tax filing requirements are less stringent for subsidiaries than for branches. A branch’s annual filing will reveal financial information about the foreign entity that it may prefer to keep confidential.
Besides that a branch can be confronted with double filing obligations of the annual accounts, for the trade register in the Netherlands and the trade register in the country of residence whereby the filing requirements may not be exactly the same.
For opening a bank account, signing contracts with organisations, a subsidiary in the Netherlands set up under Dutch law may be required.
For a single project a branch may be the best option though, since it can be registered quickly.