English companies in the Netherlands, post-Brexit

In principle, an English company can do business in the Netherlands post-Brexit. However, certain special rules apply in the Netherlands to non-EU companies – a category that now includes English companies.

Questions? We would be happy to advise you.

The Trade and Cooperation Agreement stipulates (Article 129) that EU Member States and the United Kingdom (UK) shall mutually refrain from treating companies incorporated under the law of another country less favourably than their own entrepreneurs and their companies.

 

EU Member States and the UK may therefore apply their own minimum rules. This is a change to freedom of establishment as it applies under the Treaty on the Functioning of the European Union (TFEU) (Art. 49). Under the TFEU, a Member State may not, in principle, impose its own statutory conditions for the establishment of a company formed in accordance with the law of another Member State, even if the conditions of the other Member State are more favourable than its own.

Formal Foreign Companies Act (Wfbv): Dutch rules apply to companies established outside the EU (and EEA)

Dutch rules on annual accounts and the duties and liabilities of directors only apply, in principle, to companies incorporated under Dutch law. These regulations do not apply to companies from another EU Member State, partly because freedom of establishment applies within the European Union (EU). In principle, the Dutch rules also do not apply, though this is subject to an exception, to a company incorporated under the laws of a state outside the EU (and which is also not part of the European Economic Area – EEA).

 

In order to prevent a company that is active almost exclusively in the Netherlands from circumventing Dutch regulations by choosing a legal form provided by a state outside the EU (and the EEA), such a business or company is in certain cases treated as if it were a Dutch company. This is provided in the Formal Foreign Companies Act (Wfbv). This exception may apply to English companies operating in the Netherlands after the UK’s withdrawal from the EU.

 

The Wfbv applies to companies with share capital that are incorporated under the laws of a state outside the EU (and the EEA), that carry out their activities entirely or almost entirely in the Netherlands and that no longer have a real link with the state in which they were incorporated (i.e., so-called formal foreign companies). A real link is assumed if, for example, the head office is in the country of incorporation, the annual accounts are published there, the directors reside there, or board and shareholder meetings are held there.

Annual accounts and liability of officers

A formally foreign company has to keep records in accordance with Dutch legal requirements and has to prepare and publish annual accounts and an annual report every year. If these requirements are not met, the directors (and, if applicable, supervisory directors) may be liable, in the event of the company’s insolvency, for the deficit in the estate. The directors may also be liable according to Dutch standards for distributions to shareholders, repurchase of shares and reduction of the issued capital through share buybacks. And for mismanagement in general. This liability also applies to persons charged with the day-to-day management of the company.

Trade Register report

A formally foreign company must report to the Dutch Trade Register that it qualifies as such. The deed of incorporation and articles of association must also be filed with the Trade Register. The directors are jointly and severally liable, with the company, for any legal acts performed during their management which bind the company in the period before the obligation to register was fulfilled. Failure to comply with this mandatory registration in the Trade Register is also an economic offence and can be punished with a fine of up to EUR 21,750. According to the Brexit Bill, the declaration was to be made no later than 3 months after the UK’s withdrawal from the EU, i.e. no later than 30 April 2020, but it is generally assumed that 31 March 2021 was the final date.

Annual accounts of other foreign companies

An English company with an enterprise in the Netherlands that does not qualify as a formally foreign company as provided in the Wfbv is not subject to the rules on annual accounts and liability discussed above. Such a company does have to file its annual accounts as drawn up and filed in the UK with the trade register in the Netherlands. And such an English company is generally obliged to have certain customary data registered in the Dutch trade register.

Recommendation

The directors of an English limited company registered in the Netherlands should check whether it qualifies as a formally foreign company. If this is the case, the directors should immediately ensure that this information is registered in the Trade Register. It is also advisable for such directors to have the directors’ and officers’ liability insurance cover checked and adjusted for this situation.

More information on Brexit

Our specialists would be happy to answer your questions on the impact of Brexit on your business and provide legal advice on any specific issues.

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