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What is Substance and why do I need it?

A lot of companies want to make use of the favorable Dutch treaty network. In the past few years, many measures were taken against companies with little to none substance in The Netherlands. Certain companies’ main reason to being established in The Netherlands is to avoid taxes. These measures made it harder to get access to the treaty network and make it harder to have a successful market entry. Being more compliant gets rewarded. We can help you to test if you have enough substance to get to access the treaty network with your Dutch B.V. In our free whitepaper we elaborate more about this subject.

Substance in a nutshell

One of the measures for Dutch B.V.’s is to have a minimum amount of substance. Meaning that a company has the appropriate amount of tangible assets and personnel in The Netherlands. If a company does not match the substance requirements, particular advantages, such as access to the favorable Dutch treaty network, will be denied.

Substance requirements

The substance requirements are mostly relevant for conduit companies (a holding company formed to avoid paying tax on income to two different countries). These companies are mainly (group)financing companies or license companies who want to make use of the favorable tax treaty network of The Netherlands. Since the introduction of this measure it didn’t only become harder for conduit companies, but also for regular companies to prove themselves.

Example of a conduit company:

The Dutch B.V. is often established because direct funding from Mother to Daughter will result into withholding tax on the interest income. The favorable Dutch tax treaty network prevents these withholding taxes in most cases. Companies with enough substance will get access to the treaty network. Companies with insufficient substance won’t.

Minimum amount of substance

The Dutch secretary of state has secured the minimal amount of substance for Dutch B.V.’s registered with the Dutch Chamber of Commerce. This minimum consists of the following:

At least half of the statutory and decision making board has to either live or has to be established in The Netherlands;

  • The Dutch board members have to have sufficient professional knowledge to carry out their tasks;

  • The board has to be able to make decisions;

  • The Dutch company has to have qualified personnel;

  • Board decisions have to be made in The Netherlands;

  • The main bank account has to be kept in The Netherlands;

  • The administration has to be kept in The Netherlands;

  • The company satisfies her obligation to declare taxes;

  • The company address has to be in The Netherlands;

  • The company has to have sufficient equity.

Read more about this matter in our blog "Considering Substance Requirements" Or Download our Free Whitepaper on Substance.

If more requirements are met you will get access to the treaty network of The Netherlands, but it will also become much easier to open up bank accounts, get permits etc.

We are more than happy to help you with all of the above mentioned requirements, so your company is compliant and gets all the advantages it is entitled to. Get in touch via the button below or reach out to us directly.

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