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Permanent establishment (P.E.) in the Netherlands

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Jeroen Mijlof

Jeroen Mijlof

Dutch Tax, Accounting and Brexit Expert

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Permanent establishment (P.E.) in the Netherlands

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Recent changes, originating from the Base Erosion and Profit Shifting (BEPS) project of the OECD, to tax law and tax treaties may have severe consequences for companies working with a broker or agent (employee or contractor) abroad.

These changes target companies making use of foreign agents to serve foreign markets without having to deal with foreign tax and (tax) compliance requirement. By broadening the definition of dependent agent, companies may sooner or later face additional (foreign) tax and administrative requirements which may not only have consequences for the company’s tax liability but also for its employees’.

Below we briefly describe the consequences for a company making use of (sales) agents in the Netherlands and its employees.


A dependent agent, e.g. sales representative, used by a company to serve a foreign market is regarded as a certain degree of presence in that country which the tax authorities recognize as a taxable subject (so-called dependent agent permanent establishment). Profits of the company that are attributable to the permanent establishment are taxable in the country where the permanent establishment is present. These profits are usually excluded from taxation in the country of establishment of the company. Thereby double taxation is prevented, assuming that the tax authorities do not question the allocation ratio.

Prior to the changes it was relatively easy to avoid local representatives being regarded as dependent agents, as activities of preparatory or auxiliary character were explicitly excluded from the definition. Simply stated, a sales agent who performs all its regular activities is not regarded as a permanent establishment as long as the agent is not authorized by the company to enter into contracts on the account of and in name of the company. The contracts were then signed in the country of establishment of the company instead of were the sales representative was active.

Furthermore, as businesses developed preparatory and auxiliary activities into core business, e.g. e-commerce, and businesses became more fragmented, the interpretation of preparatory and auxiliary activities became outdated. Countries had to adept in order to safeguard tax revenues by adjusting their common interpretation of preparatory and auxiliary activities.

Broader scope of dependent agent permanent establishment

The OECD broadened the definition of dependent agent permanent establishments to also include situations in which an agent habitually plays the principal role leading to the conclusion of contracts that are then routinely concluded without material modification by the company. With these changes the OECD chosen for a material approach by prioritizing economic reality instead of a formal approach based on who and where the contract is signed.

By broadening the scope a company is more likely to be liable to tax in the countries in which it carries on its business through its local sales representatives. This oftentimes also adds registration and compliance requirements for the company in that country.

Dependent agents in the Netherlands

For companies making use of agents in the Netherlands that constitute a dependent agent permanent establishment the following requirements may apply:

  • Register in the company register;
  • Register at tax authorities;
  • Separate bookkeeping for dependent agent permanent establishment;
  • File corporate income tax returns;
  • File VAT returns.

Furthermore, a dependent agent permanent establishment in the Netherlands may also effect employees and agents of the company performing activities in the Netherlands. This is due to how tax treaties divides taxing right between countries on income from employment. In the absence of a dependent agent permanent establishment in the Netherlands, an employee working in the Netherlands for a few months is likely to be taxable in his or her country of residence. However, if there is a Dutch dependent agent permanent establishment the remuneration attributable to the Dutch working days may very well be taxable in the Netherlands.

This may result in the following requirements to apply:

  • Company to register as employer in the Netherlands;
  • Company to keep Dutch payroll administration;
  • Company to withhold Dutch wage taxes and file Dutch wage tax returns;
  • Employee to file Dutch income tax return;
  • Employee to claim treaty benefits in country of residence

Going forward

As the changes to the dependent agent permanent establishment rules may have severe consequences to the company and its employees, it is relevant to check the company’s structure for possible dependent agents in markets abroad. Furthermore, the impact on the company and the employees needs to be assessed. Based on the assessment decisions can be made such as adjusting current agent contracts or setting-up a Dutch limited liability company instead of having to register a dependent agent permanent establishment.

Would you like more information? You can contact Jeroen Mijlof here or complete a request form here.

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