For foreign contractors carrying out projects in the Netherlands, choosing the right business structure is the first strategic step. Will you operate through a Dutch BV, a branch or permanent establishment, or directly from your foreign company? The chosen structure determines your tax position, filing obligations, and administrative requirements. In this article, Exterus explains the key differences, their implications, and how to ensure your project is compliant from day one.
This is part 2 of our blog series on large-scale projects in the Netherlands. In this series, we discuss the key legal, tax and administrative decisions foreign contractors and staffing companies face before and during a Dutch project.
In this series: Part 1: Organizing compliance in advance · Part 2: Choosing the right business structure · Part 3: Contracting for work or supplying workers (coming soon) · Part 4: Permits and project access (coming soon) · Part 5: Work and residence permits (coming soon)
Dutch legal entity, branch, or foreign company: which structure fits your project?
Any foreign contractor or staffing company planning to operate in the Netherlands faces a fundamental question: how should we structure our presence?
The chosen structure determines not only how the company can take on projects, but also where and how taxes must be paid. Making a well-informed decision before work begins can prevent delays, corrective filings, and unexpected tax costs later in the project.
Three ways to operate in the Netherlands
1. A Dutch legal entity, such as a BV
Establishing a Dutch private limited company, a besloten vennootschap or BV, is the most independent and formal way to conduct business in the Netherlands.
A BV is a separate legal entity with its own accounting, corporate income tax, VAT, and payroll tax obligations.
This structure may be appropriate when:
A BV provides legal clarity and creates a clear separation between the company’s foreign and Dutch operations. However, setting one up requires careful preparation, including incorporation through a Dutch civil-law notary, registration with the Dutch Chamber of Commerce, and local accounting and administration.
2. A branch or permanent establishment
Not every company wants to establish a Dutch BV immediately. In some cases, a branch, or a permanent establishment for tax purposes, may be sufficient.
A branch is not a separate legal entity. The foreign company does, however, have a local taxable presence, meaning that corporate income tax is generally due in the Netherlands on profits attributable to its Dutch activities. VAT and payroll tax obligations will often arise as well.
A permanent establishment may exist when a company conducts business in the Netherlands on an ongoing basis from a fixed location, such as an office or warehouse, or through local project management.
A long-term construction or installation project may also constitute a permanent establishment. The applicable threshold is generally 12 months, but this depends on the relevant tax treaty, and some treaties apply a shorter period. In addition, a local project office or local project management may independently create a permanent establishment, regardless of the project’s duration.
For more information, see our previous article on permanent establishments.
Profits attributable to the permanent establishment are taxed in the Netherlands. The company’s home country will then often provide an exemption or foreign tax credit to prevent double taxation.
3. Operating directly as a foreign company
For short-term or occasional projects, a company may be able to operate without establishing a Dutch legal entity or permanent establishment. In that case, the activities are formally managed from the company’s home country, limiting its taxable presence in the Netherlands.
Caution is still required. Once there is a physical presence, personnel working locally, or local management in the Netherlands, the Dutch Tax Administration may determine that a permanent establishment exists after all. This can trigger corporate income tax, VAT, and payroll tax filing obligations.
Tax implications of each structure
| Area |
Dutch legal entity (BV) |
Branch or permanent establishment |
Foreign company without a Dutch entity |
|
Corporate income tax
|
Always subject to Dutch corporate income tax
|
Dutch tax applies only to profits attributable to the permanent establishment
|
Dutch corporate income tax applies only if a permanent establishment is created
|
|
VAT
|
Dutch VAT registration is required
|
A Dutch VAT number is often required
|
Registration may be required for projects carried out in the Netherlands
|
|
Payroll taxes
|
The BV must withhold payroll taxes for its employees. This obligation also often applies to employees assigned to the BV by a foreign group company
|
Payroll tax withholding applies to employees working for the permanent establishment
|
A payroll tax withholding obligation may arise if employees work under the direction and supervision of a client in the Netherlands or if a permanent establishment is created
|
|
Accounting and administration
|
Full Dutch accounting records are required
|
Partial Dutch accounting records are required
|
Administrative requirements may be limited, but an incorrect assessment can result in retroactive tax liabilities
|
Why the right structure matters
In practice, many problems arise because foreign companies do not realize until after a project has started, or even after it has ended, that they have become liable for tax in the Netherlands. This may happen when the nature and duration of the work create a permanent establishment.
Missing registrations can lead to costly corrective filings, penalties, or even a temporary shutdown of operations. Additional administrative requirements and a different tax burden can also determine whether a project is ultimately profitable.
The tax burden in the Netherlands may be considerably higher than in the company’s home country, both at the corporate level and for individual employees. Employee taxation can become particularly expensive when employees are working in the Netherlands under a net salary agreement. In that situation, the employer generally bears the cost of any increase in the employees’ Dutch tax liability.
We will explore this topic in more detail in a future article on payroll.
Proper preparation includes:
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assessing in advance how the Dutch activities will be structured;
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determining whether the activities create a permanent establishment, taking into account the possibility that the project may overrun;
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clarifying whether a Dutch payroll tax withholding obligation will arise;
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applying for VAT and payroll tax registration numbers on time;
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setting up an administrative process that meets Dutch requirements.
A practical example
A German construction company wins a multi-year project in Rotterdam. Without conducting a proper assessment beforehand, the company assumes that only German rules apply and begins work.
However, the company has a local project office, the project is managed from the Netherlands, and the work lasts more than 12 months. Each of these circumstances may provide an independent basis for the Dutch Tax Administration to conclude retroactively that the company has a permanent establishment in the Netherlands.
It is important to note that the 12-month threshold does not always need to be exceeded. A local office or local management may be sufficient to create a permanent establishment in its own right.
The company must pay Dutch corporate income tax, register for VAT and payroll taxes, and maintain partial accounting records in the Netherlands. Its employees may also face tax filing obligations on their employment income in both the Netherlands and Germany, with double tax relief generally having to be claimed under the applicable rules.
Because the Dutch tax burden is higher than the German tax burden, discussions arise about whether the employees should be compensated for the difference.
A proper assessment before the start of the project could have helped the company avoid time-consuming procedures, double tax issues, and delays. It would also have allowed the additional costs to be identified, incorporated into the project budget, and passed on during the tender process.
Conclusion
Choosing between a Dutch legal entity, a branch, and operating directly as a foreign company is more than an administrative formality. The decision determines where profits are taxed, where employees are managed and taxed, and which authorities oversee the company’s activities.
Companies that choose their structure carefully create a solid foundation for both compliance and effective operations in the Dutch market.
In the next article in this series, we will look at a second critical factor: the division of roles and responsibilities. In particular, we will explain the difference between contracting for a defined scope of work and supplying workers to a client. From a legal, tax, and administrative perspective, that distinction can make a world of difference.
Continue reading our series on large-scale projects in the Netherlands
Explore the other articles in this series:
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Part 1: Organizing compliance in advance
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Part 2: Choosing the right business structure (you are here)
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Part 3: Contracting for work or supplying workers? (coming soon)
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Part 4: Permits and project access (coming soon)
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Part 5: Work and residence permits (coming soon)
Next article
In part 3 (coming soon), we examine the difference between contracting for a defined scope of work and supplying workers who operate under the client’s direction and supervision. This distinction affects payroll tax obligations, employment conditions and liability risks.
