PERMANENT ESTABLISHMENT IN THE NETHERLANDS

11 June 2025

Foreign Businesses and Taxation in the Netherlands: When a Presence in the Country Constitutes a Permanent Establishment or a Fixed Establishment for VAT Purposes

In the context of the international expansion of European businesses, the concept of permanent establishment plays a central role in determining when and how activities carried out abroad may create tax obligations in another country. The Netherlands, often chosen for its strategic location and a tax framework generally regarded as attractive to foreign investors, applies specific rules to determine the taxable presence of non-resident businesses within its territory.

An increasing number of companies operate in the Netherlands without incorporating a separate local legal entity, instead carrying out activities through local personnel or premises used for commercial or logistical purposes. However, even a limited presence in the country may give rise to significant tax obligations. Understanding when a presence in the Netherlands may constitute a permanent establishment or a fixed establishment is therefore essential in order to mitigate the risk of challenges from the Dutch tax authorities.

Permanent Establishment for Direct Tax Purposes

As a general rule, a foreign company is considered to have a permanent establishment in the Netherlands when it carries out business activities on a continuous basis through a fixed place of business located within the country. This definition is based both on Dutch domestic law and on the provisions contained in double taxation treaties concluded by the Netherlands with numerous countries.

Examples of situations commonly considered capable of creating a permanent establishment include:

the presence of an office or business premises;
a warehouse that is not limited to auxiliary or preparatory activities; or
the employment of personnel who operate on a stable basis in the Netherlands on behalf of the foreign company.

Furthermore, where an individual acting in the Netherlands on behalf of the foreign enterprise has the authority to conclude contracts and habitually exercises such authority, a “dependent agent” permanent establishment may arise, even in the absence of a physical fixed place of business in the country.

Fixed Establishment for VAT Purposes

For value added tax (VAT) purposes, the relevant concept is that of a fixed establishment, which shares certain similarities with, but also differs from, the concept of permanent establishment applicable to direct taxation.

Under European VAT legislation, as interpreted also by Dutch administrative practice, a fixed establishment exists where a taxable person has in the Netherlands a structure characterized by:

a sufficient degree of permanence; and
human and technical resources suitable for receiving and/or supplying services independently.

By way of example, the presence of local employees and premises used for meetings with clients, demonstrations, or storage of goods may, in certain circumstances, lead to the qualification of a fixed establishment, with the consequent obligation to register for VAT purposes in the Netherlands.

Operational Considerations and Conclusions

Determining whether a permanent establishment or fixed establishment exists in the Netherlands may have significant tax implications extending well beyond simple local registration requirements. In addition to the taxation of profits attributable to the permanent establishment, obligations relating to withholding taxes, VAT, social security contributions, and tax filings may also arise.

It is therefore advisable to assess in advance the intended operational structure in the Netherlands in order to mitigate potential uncertainties or exposure to tax risks, carefully analyzing:

the nature of the activities carried out locally;
the presence of resident personnel;
the use of premises or facilities within the territory; and
the actual role performed by employees or representatives.

Indeed, the presence of a foreign company in the Netherlands, even if initially structured as a limited or supporting operation, may in practice constitute a permanent establishment for direct tax purposes or a fixed establishment for VAT purposes, thereby triggering the related tax obligations. Although technically distinct concepts, permanent establishment and fixed establishment share a common objective: ensuring that economically significant and sufficiently autonomous activities are taxed in the jurisdiction where they are effectively carried out.

Understanding these mechanisms allows businesses to operate in compliance with local tax regulations and represents a fundamental condition for developing effective international expansion strategies.

Avv. Emma Riccomi

The information contained in this article is provided for general informational purposes only and does not constitute, and is not intended to constitute, legal advice or any other form of professional advice. The content does not take into account the specific circumstances of any individual case and should not be relied upon as a basis for making decisions without obtaining appropriate professional advice.