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You have a company outside the Netherlands and you plan to expand. In order to operate on the Dutch market, you can open a branch in the Netherlands, also referred to as a permanent establishment. You will not require a notary public or starting capital for opening a branch.
What are your required to do?
The legal identification rules also apply on setting up a branch of a foreign company. In order to open and register the branch in the Netherlands, many identification and other documents are required, both of the main office / plant and its management. Collecting the documents often takes lots of time. In addition to this administrative burden, there is the language barrier to deal with. All registration documents are to be submitted and signed in Dutch. This is why it is advisable and practical to hire the services of a Dutch advisor able to complete, translate and submit the documents for you, who is aware of the official requirements.
A branch is not a legal entity and is unable to enter contracts independently. The branch’s customers therefore actually enter into transactions with the main office / plant.
In terms of tax, the branch is treated the same as a company. They are subject to the same rules and obligations, i.e.:
The main office / plant is severally liable for the tax liabilities of the branch.
Compared with establishing a company or holding, opening a branch can be completed quicker and cheaper. This mainly depends on the various documents supplied by the main office / plant.
Furthermore, the taxation method of the foreign branch in the country of origin of the main office / plant and the tax treaty between these two countries may play a role. For example, sometimes the branch’s losses may be deducted directly from the main office / plant’s profit.
Compared to having a legal entity in a different country, the main legal disadvantage of a branch relates to liability. The shareholders of a legal entity are generally liable only up to a maximum of their investment in the Netherlands. In the case of a branch, the main office / plant is jointly liable for the branch’s contracts and debts. Limited liability of a company is often the reason of choosing a company.
If you have to choose between operating via a company or via a branch, you should also factor in the taxation system in both countries.
In legal terms, it is not possible to directly convert a branch into a company. In fact, the main office must establish a new company in which to start up new activities. The new company is issued its dedicated registration number by the Chamber of Commerce and is issued its own tax numbers. The main office / plant may choose to insert the branch’s business into the new company (as a deposit of informal capital). The branch’s contracts will have to be re-concluded by the new company.
The branch will have to deregister from both the Trade Register and the Tax Department. If applicable, tax will have to be paid on the hidden and other reserves of the branch.