Company formation: Doing business in the Netherlands – "Holland"
If your company wants to establish a presence in the Netherlands from where business will be conducted, then it is important to determine which form the company will have.
A subsidiary or a branch office?
A branch is not considered a distinct legal entity from the foreign company, whereas a subsidiary is regarded as an independent Dutch company. From a practical point of view, a branch is more of an extension of the parent company. It can’t act by itself and has no board of directors. Its creation involves less formalities. A subsidiary, on the contrary, is owned by the parent company and is run by the latter. It can act by itself and has its own board of directors and regulations. A subsidiary is required to hold shareholders’ meetings and comply with other corporate formalities.
Arguments for opting either for a branch or a subsidiary
Setting up a subsidiary has the following advantages:
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.
For opening a bank account, signing contracts with organizations, a subsidiary in the Netherlands set up under Dutch law may be required.
Setting up a branch has the following advantages:
No intervention of a Dutch notary public is required for opening up a branch. Only registration in the trade register is required. However due to the optimization of the formation procedure setting up a subsidiary can now be done in a couple of weeks. So the time you can gain with registering a branch instead of setting up a subsidiary is limited.
Dutch corporate law imposes no (or little) requirements regarding the establishment of a board of directors, the distribution of profits or the organization of shareholders’ meetings.