Due to our focus on international tax law, we regularly receive enquiries about the advantages and disadvantages of transferring a company’s seat to the Netherlands. For most companies, this question is triggered by the ongoing uncertainty about the Brexit. As soon as the United Kingdom no longer belongs to the EU, it will become more difficult for English companies or partnerships to participate in European business activities. But also German entrepreneurs often enquire about the possibilities of relocating their GmbH to the Netherlands. Frequently stated reasons are the low corporation tax rate, the high level of education and the good infrastructure.
There are various ways of transferring a company’s seat. Here it should be noted that corporations both have a place of management and a registered office, that may be located in different countries. In the following parts we will look at the differences between these two terms and explain the advantages and disadvantages of a cross-border transfer of your company‘s seat.
A company’s place of effective management has been defined as the place where the key managerial and commercial decisions necessary for conducting the enterprise’s business are taken. Transferring the place of management is possible in withing the European Union since the European Court of Justice’s Centros judgment of 9 March 1999, case 212/97. The transfer of the place of management only has tax consequences. If, for example, the place of management of your German GmbH (German limited liability company) is relocated to the Netherlands, the company becomes subject to unlimited taxation there and you are obliged to file a Dutch corporate income tax return. Under commercial law, however, the company remains a GmbH: the articles of association are still based on German company law, the annual financial statements must be prepared in accordance with German commercial law, and still operates under the name “GmbH″.
It is essential that the place of effective management is not only the result of formal decisions or the location of shareholder‘ meetings. The company must be able to prove the presence of substance in the Netherlands. In practice this means an office or shop should be rented from where the company is managed. The company also has to prove that it conducts business the Netherlands and has not only been relocated for tax purposes.
The disadvantage of this alternative is that a corporation tax and trade tax return must also be filed annually in Germany, because the company was founded under German law. This obviously leads to additional costs. Therefore, one could also consider a transfer of the company’s legal seat.
The legal seat is governed by the national law of the state in which a company was incorporated. Consequently, the legal seat of a GmbH is in Germany, of a Dutch private limited company, a Besloten Vennootschap (B.V.), in the Netherlands and of a UK Limited in the United Kingdom. This law determines, for example, how high the minimum share capital should be, how directors are appointed and what requirements are placed on the annual accounts.
Due to European case law it is possible to transfer the legal seat of a company to another country. This was first ruled in het ECJ’s judgment VALE (12 July 2012, C-378/10) and confirmed later in the Polbud – Wykonawstwo sp. z o.o. case (25 October 2017, C-106/16). In this last proceeding it was clarified that a transfer of a company’s legal seat is possible, even if the place of management or part of the business remains in the state where the company was incorporated. This for example is an advantage if your company has a German branch.
In the course of the transfer, your GmbH will be transformed into a Dutch B.V. This means that the entity will adopt a statute in accordance with Dutch law and changes his name ending into „B.V.“. This also means that annual financial statements must be prepared in accordance with Dutch commercial law. As a consequence, the company will completely vanish from Germany. Here lies the advantage compared to transferring the place of management: after the seat transfer no German corporation and trade tax return have to be filed and no German annual accounts have to be prepared.
For many companies the forthcoming Brexit is a reason to transfer their seat to the Netherlands. In case of a transfer of the place of effective management the company only moves its tax residency; with regard to company law there will be no changes. In addition, tax returns and annual accounts will need to be prepared in both countries.
In case of a transfer of the legal seat your company will be converted into a B.V. If no activities remain in the state of incorporation, tax return and annual accounts preparation is no longer required.
Advice at an early stage prepares you for the future! We can advise you and your company regarding the transfer of its legal seat or place of management. Contact one of our English, German and Dutch-speaking consultants. Please fill out the contact form and we will get in touch with you as soon as possible.