The Ultimate Guide to Creating Substance for a Netherlands Entity in 2026

You've just been told your company needs "substance" in the Netherlands. Maybe it came from your tax advisor during a restructuring conversation. Maybe your CFO raised it after reading about EU anti-abuse rules. Or maybe a board member asked a pointed question about your Dutch holding company that nobody could answer confidently.

Here's the thing: understanding what creating substance means for a Netherlands entity isn't just a tax technicality. For mid-market companies scaling across Europe, it's the difference between a structure that works and one that unravels under scrutiny. The Dutch tax authorities, EU regulators, and treaty partners are all asking the same question: is your Netherlands entity a real business presence, or just a mailing address?

This guide breaks down Dutch substance requirements in practical terms for HR, Finance, and Legal leaders who need to make real decisions about entity establishment, employment models, and governance, not just pass a tax exam.

Key Takeaways on Dutch Substance Requirements for a Netherlands Entity

• Economic substance in the Netherlands is a tax concept that evaluates whether a Dutch entity has real decision-making, people, premises, and risk-bearing capacity in the Netherlands, rather than existing mainly on paper.
• Dutch tax benefits like the participation exemption and dividend withholding tax relief assume sufficient local substance; weak substance risks denial of these advantages and deeper audit scrutiny.
• Substance is a phased journey, not a day-one checkbox. Your decisions on EOR, contractors, or a Netherlands entity should anticipate how substance expectations will evolve as your Dutch operations grow.
• EU anti-tax avoidance rules and OECD standards are raising the bar, particularly for holding, financing, and IP structures that route income through the Netherlands.
• Mid-market European companies in regulated sectors expanding into the Netherlands are squarely in scope for substance scrutiny, even if they're not multinationals.
• Teamed advises mid-market companies on calibrating their Netherlands structure against their risk appetite, drawing on in-market legal expertise across 180+ countries.

What Creating Substance Means for a Netherlands Entity

A Netherlands private limited company (BV) is a Dutch corporate legal form that provides limited liability and is commonly used to employ staff, hold assets, or act as a holding company within an international group. But incorporating a BV is just paperwork. Substance is what makes it real.

In practical terms, economic substance in the Netherlands means your entity has genuine presence: management that actually manages, people who actually work, premises where activity actually happens, and risks that are actually borne and controlled locally. Tax authorities assess this factually. They look at where directors live, where strategy is decided, where employees sit, and whether there's a commercial logic for the entity beyond tax efficiency.

The core aspects of Dutch substance include:

• Management: Key strategic decisions are taken in the Netherlands by directors who live there and have real authority.
• People: Local staff with capacity and qualifications to run the entity's stated functions.
• Premises: Office space proportionate to the entity's activities, not just a registered address.
• Risk and control: The entity bears genuine business risks and has the capability to manage them.

A shell company in the Netherlands is a Dutch entity that has minimal business activity, limited local decision-making, and insufficient resources to perform the functions and bear the risks attributed to it. Authorities are increasingly skilled at spotting the difference between a functioning operational hub and a conduit that exists mainly to route profits or dividends.

Consider a European fintech with 400 employees across six countries. They establish a Dutch BV to hold their EU subsidiaries. Proportionate substance for this mid-market group might mean two Dutch-resident directors who lead investment decisions, a small Amsterdam-based finance team, and board meetings held quarterly in the Netherlands with detailed minutes. It doesn't require a 50-person office, but it does require more than a brass plate.

Why Dutch Substance Requirements Matter for Tax Benefits and Anti-Abuse Measures

Dutch tax benefits and treaty access assume your Netherlands entity has real economic substance. Without it, you're exposed to challenges that can unwind years of planning.

The participation exemption, which allows Dutch holding companies to receive dividends and capital gains from qualifying subsidiaries tax-free, is one of the most valuable features of the Dutch tax system. Dutch dividend withholding tax relief under EU directives and tax treaties is another. Both can be denied if your structure is deemed artificial or mainly tax-driven.

Dutch anti-abuse measures give authorities the power to look through arrangements that lack genuine commercial rationaleDutch anti-abuse measures give authorities the power to look through arrangements that lack genuine commercial rationale, with EU companies considered at risk of being a "shell" if they have over 75% passive income and more than 60% cross-border activity. The Principal Purpose Test (PPT), embedded in many of the Netherlands' tax treaties through the OECD's Multilateral Instrument, can deny treaty benefits when obtaining that benefit was one of the principal purposes of an arrangement and the outcome conflicts with the treaty's intent.

For mid-market companies, the consequences of weak substance are concrete: denied treaty benefits, unexpected tax bills, and deeper audits at a time when you likely don't have dedicated internal tax bandwidth to manage them. A Dutch BV treated as a formality can erode the very advantages that made the Netherlands attractive in the first place.

Minimum Substance Requirements in the Netherlands for Tax Purposes

These aren't corporate law rules. They're tax-practice indicators that improve your position but don't guarantee immunity from challenge.

Dutch tax authorities look for several minimum substance indicators when assessing whether a Netherlands entity has sufficient presence:

• Board composition: A majority of Dutch-resident directors with demonstrable authority over the entity's strategy, budgeting, and key decisions., with financing and licensing conduit entities specifically requiring at least 50% of board members to reside in the Netherlands.
• Decision-making location: Board meetings held in the Netherlands with detailed minutes evidencing local decision-making.
• Bank account: A Dutch bank account used for day-to-day transactions, not just a dormant account.
• Office space: Premises appropriate to the entity's activities, whether that's a dedicated office or a credible serviced space.
• Local staff: Employees proportionate to the entity's functions, with job descriptions and reporting lines that reflect real Dutch responsibilities.
• Risk management: The entity bears genuine risks and has qualified personnel to manage them, with documentation supporting local control.
• Capital: Appropriate equity and debt structure for the entity's activities.

Meeting these minimums strengthens your factual position but doesn't create absolute protection. For holding, financing, and treasury entities, expectations are stricter because these structures often receive passive income that attracts heightened scrutiny.

A European group with a Dutch holding company should plan for at least one senior Dutch-based director with real decision-making authority, plus modest local support staff proportionate to the entity's scale and functions.

Economic Substance Requirements for Dutch Holding Companies and Treaty Benefits

Holding companies that rely on treaties or EU directives for dividend, interest, or royalty flows face the sharpest substance scrutiny.

Consider a UK parent that inserts a Netherlands BV between itself and EU subsidiaries to access treaty benefits. The difference between a weak conduit and a robust holding comes down to where decisions are made and who controls the income.

A weak conduit looks like this: income flows through immediately, no risk or control is retained locally, and the Dutch board rubber-stamps decisions made elsewhere. A robust holding looks different: Dutch-resident directors lead acquisition and divestment decisions, manage elements of group strategy, retain risk and control, and document their decision-making in the Netherlands.

The expectations for Dutch holding company substance include:

• Real decision-making on investments, disposals, and group strategy happens in the Netherlands.
• Beneficial ownership of income is demonstrable, meaning the Dutch entity isn't just a pass-through.
• There's a functional connection between the shareholding and actual Dutch business activity.
• Heightened caution applies if the Netherlands entity is interposed mainly for treaty benefits without adding commercial function.

A Dutch tax resident company is a company considered resident in the Netherlands for tax purposes because its place of effective management and key strategic decisions are in the Netherlands. If your directors live in London but your holding is in Amsterdam, you have a residency problem that substance indicators alone won't solve.

How European Tax Rules and Anti-Abuse Trends Shape Netherlands Substance Requirements

Dutch substance requirements don't exist in isolation. They're shaped by EU and OECD frameworks that are tightening expectations across Europe.

The EU's Anti-Tax Avoidance Directive (ATAD) requires EU Member States, including the Netherlands, to apply a General Anti-Abuse Rule that targets arrangements which are not genuine and are put in place mainly to obtain a tax advantage. This makes Dutch substance evidence more important for treaty and directive-based relief., with the Netherlands codifying a written GAAR in 2025 as part of its Tax Plan. This makes Dutch substance evidence more important for treaty and directive-based relief.

The proposed "Unshell" directive, which would have created explicit minimum substance tests for EU entities, was withdrawn. But its focus on decision-making, staff, and premises still influences administrative practice and cross-border cooperation. The direction of travel is clear: authorities expect more, not less.

Pillar Two global minimum tax rules apply to multinational groups meeting the €750 million consolidated revenue threshold. These rules increase sensitivity to where payroll and tangible assets sit, which can reward real Netherlands investment for groups above the threshold. Even below that threshold, the principles are filtering into enforcement attitudes.

Information exchange and joint audits mean cross-border comparisons make low-substance strategies harder to defend. If your Netherlands entity looks thin compared to your operations elsewhere, expect questions., with the Netherlands having exchanged 568 tax rulings with other jurisdictions in 2023 alone. If your Netherlands entity looks thin compared to your operations elsewhere, expect questions.

Teamed was founded in 2018, which means over seven years of operating through successive waves of EU and OECD anti-abuse and transparency developments affecting substance expectations. That experience informs how we advise mid-market companies on building defensible structures.

Substance Considerations for UK and EU Companies Establishing a Netherlands Entity

If you're a UK or EU company considering a Netherlands entity, substance expectations should shape your planning from day one.

The Netherlands is attractive as a European hub, but authorities expect visible economic substance, not a mailbox presence. Early decisions matter: where will leadership sit? Which roles can credibly be based in the Netherlands? Will the entity hold IP, run financing, or function only as an employer?

Board and executive residence outside the Netherlands can weaken your substance story if strategy sits elsewhere. For UK-headed groups, UK company residency principles also focus on central management and control, so a Netherlands BV with UK-based directors must manage dual risk: it can weaken Dutch substance and create UK tax residency exposure if effective management remains in the UK.

Phasing matters too. You don't need to build a full Dutch operation on day one. Start with a smaller Netherlands team performing clearly defined, aligned functions, then scale intentionally as your Dutch activities grow.

Before incorporating, ask yourself:

• Where will strategic decisions be made and documented?
• Which roles can credibly be based in the Netherlands in year one versus year three?
• Will the Netherlands entity hold IP, finance the group, or stay as an employer-only hub?
• How will board composition and director residency support Dutch tax residency?
• How do remote and hybrid work patterns affect the substance narrative and permanent establishment risk?

For EU groups with remote-first leadership, permanent establishment risk in other European jurisdictions can increase when senior executives habitually conclude contracts or make key decisions outside the Netherlands. This can undermine the narrative that the Netherlands entity is the true decision-maker.

How Mid-Market Companies Should Decide Between EOR, Contractors, and a Netherlands Entity

An Employer of Record (EOR) is a third-party organisation that becomes the legal employer for workers in a specific country, handling payroll, taxes, benefits, and employment compliance while the client company directs day-to-day work. Contractors are individuals or companies engaged on services contracts, not employees.

Each model has different substance implications.

EOR works well for early testing and low headcount. The provider bears employer obligations and has its own substance. It's defensible short-term while your plans are uncertain, and you're not creating a Dutch entity that needs its own substance story.

Contractors offer flexibility but risk misclassification and permanent establishment if used for core roles. They can sidestep substance questions in a way that attracts scrutiny if your Dutch activities grow.

Your own Netherlands entity gives you greater control and tax planning potential but requires building and maintaining economic substance. Once you employ people and hold assets, authorities expect substance to build progressively in line with your activities.

Mid-market companies are commonly defined as organisations with 200 to 2,000 employees, and Teamed uses this employee-range definition in its mid-market positioning for global employment strategy. For companies in this range, the decision often comes down to timing: start with EOR or contractors, then incorporate a BV near mid-double-digit Netherlands headcount when scale, regulatory, or client drivers warrant direct employment.

Choose an EOR in the Netherlands when you need to hire in-country within weeks and you cannot credibly locate senior decision-making or operational leadership in the Netherlands during the first six to twelve months. Choose a Netherlands BV when you expect sustained Dutch headcount growth and you can appoint at least one Dutch-resident director with real authority over the entity's strategy, budgeting, and contracting decisions.

Substance Strategy for Mid-Market European Companies Graduating from EOR to a Netherlands Entity

A typical mid-market regulated business evaluating a Netherlands entity should plan a 12 to 24 month window to implement governance, staffing, premises, and documentation changes that make Dutch substance defensible, according to Teamed's operational playbooks for entity readiness.

The graduation path usually follows this sequence:

1. Start on EOR while testing the Dutch market and building initial headcount.
2. Incorporate a BV when scale, regulatory requirements, or client expectations warrant direct employment.
3. Appoint Dutch-resident directors with real authority, not just nominee directors who sign what they're told.
4. Add local roles in finance, HR, or commercial functions as headcount and Dutch revenue grow.
5. Transfer contracts, IP, and risks from EOR to BV coherently, ensuring the substance story matches the legal structure.
6. Document everything: board minutes, decision rationale, intercompany agreements, and job descriptions that reflect real Dutch responsibilities.

Teamed's service coverage includes in-market legal expertise across 180+ countries, which is relevant when a Netherlands substance plan must be coordinated with permanent establishment and employment compliance risks in other European jurisdictions. We design substance roadmaps matched to growth and risk appetite, benchmarking across markets so you're not building in isolation.

Operational Steps to Create Economic Substance in the Netherlands

Translating substance theory into a 12 to 24 month action plan requires coordination across HR, Finance, and Legal.

Governance

Appoint Dutch-resident directors with actual authority, not just signing power. Hold regular board meetings in the Netherlands with detailed minutes evidencing local decisions. If your CFO says "I want board packs that show decisions were taken in Amsterdam," you're thinking about this correctly.

People

Hire Netherlands employees aligned to the entity's functions. Ensure reporting lines confer genuine local authority. Consider where key managers live, because a Dutch GM who commutes from Berlin raises questions about where decisions are really made.

Infrastructure

Secure appropriate Netherlands office space, proportionate to your activities. Open a Dutch bank account and use it for day-to-day transactions. Register for corporate income tax and other relevant taxes as needed.

Documentation

Maintain intercompany agreements, transfer pricing support, job descriptions, and policies reflecting real Netherlands responsibilities. Ensure consistent narratives across documents. If your transfer pricing file says the Dutch entity controls IP licensing but your board minutes show decisions made in London, you have a problem.

Teamed can help prioritise the steps that most improve audit defensibility, drawing on experience across regulated sectors where compliance failures end careers.

Checklist for Mid-Market Companies to Demonstrate Substance in a Netherlands Entity

Use this as an execution-ready review, not a re-explanation of concepts.

Management and governance

• Do we have a majority of Dutch-resident directors with demonstrable authority?
• Are most board meetings held in the Netherlands with detailed minutes?
• Are key strategic decisions documented as taken in the Netherlands?

People and skills

• Do local staff have capacity and authority to run the entity's stated functions?
• Are job descriptions and reporting lines aligned to Netherlands responsibilities?

Premises and infrastructure

• Do we maintain Dutch office space proportionate to activities?
• Do we operate a Dutch bank account for day-to-day transactions?

Commercial activity and risk

• Does the Netherlands entity bear real risks and manage them locally?
• Is there clear commercial logic for the entity within the group?

Documentation

• Are intercompany agreements, transfer pricing files, and commercial rationale current and consistent?

Review cadence

• Do we review this checklist at least annually as the business evolves?

If multiple gaps appear, seek independent advice rather than piecemeal fixes. Substance is assessed holistically.

How Mid-Market Leaders Can Get Strategic Counsel on Dutch Substance Requirements

Substance sits at the intersection of tax, legal, and employment, which makes it challenging for HR and Finance leaders to coordinate without dedicated expertise.

Teamed advises mid-market companies on timing of entity establishment, near-term reliance on EOR or contractors, and designing a proportionate substance plan for size and risk profile. We draw on experience across 180+ countries and regulated sectors including financial services, healthcare, and defence to anticipate enforcement trends and pitfalls.

Strategic questions we help answer:

• When should we move from EOR to our own Netherlands entity?
• What board composition and leadership footprint support Dutch tax residency?
• Which functions should we base in the Netherlands now versus later?
• How do our IP and financing flows align with our substance story?
• What is a proportionate minimum viable substance for our risk appetite?

For mid-market international hiring, Teamed's execution model cites onboarding in 24 hours rather than multi-month implementations, which can materially change the timeline for moving from EOR to an owned Netherlands entity when business drivers accelerate.

If you're making six-figure decisions about Dutch entity establishment without independent counsel, talk to the experts.

FAQs About Creating Substance for a Netherlands Entity

How long does it usually take to build sufficient substance in the Netherlands?

Timelines depend on your model and growth trajectory. Plan substance as a staged programme over several planning cycles, not a one-off action. Most mid-market companies need 12 to 24 months to build a defensible position.

How much does it typically cost to create and maintain substance for a Netherlands entity?

Costs come from people, premises, and advisory support. Budget proportionately to the scale and risk of Dutch operations. Avoid fixed-amount estimates that don't account for your specific situation.

Can a fully remote team satisfy Dutch substance requirements for tax purposes?

Yes, if management and key employees are genuinely Netherlands-based. You still need evidence of local decision-making, risk management, and commercial activity. A remote-only structure with directors living elsewhere is harder to defend.

How do Dutch substance requirements interact with transfer pricing and group IP structures?

If the Netherlands entity owns IP or books significant profits, local substance must support those functions and profit levels. Misalignment between transfer pricing documentation and actual Dutch capabilities is a common audit trigger.

Can the same Dutch executives count as substance for several group functions at once?

Possible if commercial reality and capacity support it. Authorities will question claims where a very small team is said to run many high-value functions. Be realistic about what your people can credibly manage.

What is mid-market?

Mid-market companies are commonly defined as organisations with 200 to 2,000 employees, or revenue between £10 million and £1 billion. This segment's growth profile makes Dutch substance decisions especially consequential because you're large enough to attract scrutiny but may lack enterprise-scale internal resources.

When should we involve external advisors to review our Netherlands substance position?

At initial planning, before restructurings, and when Netherlands headcount or revenue becomes strategically significant. Build substance intentionally, not reactively after a challenge arises.or