Fictitious permanent establishment for foreign company

13 December 2017 – Recently, the District Court of Den Bosch concluded in a judgment that activities of a Belgian BVBA in the Netherlands qualified as temporary agency work, rather than as contracting work. This means that the BVBA has a fictitious permanent establishment in the Netherlands, which means it is obligated to withhold and pay wage tax. As a result of that, it owes wage tax from the first day work was performed in the Netherlands.

Temporary agency work vs. contracting work

In this case, a Belgian BVBA had had its employees install sprinkler installations on the instruction of a Dutch client. The Belgian employees of the BVBA performed this work in the Netherlands. According to the BVBA, the work had taken place on the basis of a contract for services. Work is considered to be temporary agency work (hiring or leasing personnel) if an employer makes an employee available to a third party to perform work under the third party's supervision or direction.

However, on 16 November 2017, the inspector and the District Court of Den Bosch concluded that, in fact, the BVBA had assigned workers. In this case, they came to this conclusion based on the following facts:

  • The BVBA's employees performed their work under the direction, supervision and control of project leaders of the Dutch client.
  • There is no written agreement between the BVBA and the client.
  • The BVBA's employees were assigned to the same projects as the Dutch client's own employees.
  • The BVBA's employees worked together with the employees of the Dutch client.
  • The BVBA's employees were predominantly borrowed in connection with capacity problems with the Dutch client.
  • The invoices sent were based on the number of hours worked, rather than on a contract price.

The fact that the foreign company performed temporary agency work means that it has a fictitious establishment in the Netherlands. As a result, the foreign company is obligated to withhold and pay Dutch wage tax for income tax.

Right to levy tax vested in the Netherlands

The court subsequently answered the question of which country had the right to levy tax on the employees' wages. According to the main rule of the tax treaty between Belgium and the Netherlands, the Netherlands has the right to levy tax. The only situation in which this does not apply is where the conditions of the 183 days scheme are met.

As this situation involved temporary agency work, the District Court of Den Bosch concluded that not all the conditions for the exception of the 183 days scheme were met. In a situation involving temporary agency work, the hirer qualifies as the "material" employer for the purposes of the tax treaty, as the employees' wages are paid by or on behalf of the hirer.


This judgment underlines once again that the facts and circumstances are a determining factor in the question of whether a situation is one of temporary agency work or one of contracting work. Therefore, it is very important for foreign companies that work in the Netherlands on the basis of contracting work to ensure that this is actually the case, or they may be faced with taxation with retroactive effect.

Foreign companies that are going to assign workers to the Netherlands are liable to pay taxes in the Netherlands from day one. To this end, the company must register with the Tax and Customs Administration and keep payroll records.

For hirers and clients, it is important that the consequences are determined as well, as the Dutch Wages and Salaries Tax and National Insurance Contributions (Liability of Subcontractors) Act (Wet ketenaansprakelijkheid – Wka) stipulates that they can be held liable for unpaid wage tax and national insurance contributions. It is important to limit this liability by making indemnifying payments on the G account. In fact, liability can be completely prevented if the foreign company has a NEN 4400-2 certificate.

What can Mazars do for you?

Are you a foreign employer active in the Netherlands? Or are you a hirer or client of foreign companies? If so, it is important to determine whether the work qualifies as contracting work or temporary agency work. Mazars can help you determine this. In addition, we can assess contracts, help you register with the Tax and Customs Administration or keep payroll records for you.

More information?

If you would like more information on tax liability of foreign companies that work for Dutch companies in the Netherlands, please contact Sander van Dijk by email or Marco Zimmerman by email or by telephone at +31 88 277 21 00. They would be happy to help you.