A Commodity Trading Entity in the Netherlands

A producer that sells at the mine gate or free on board gets the origin price for the cargo. The buyer then earns the margin between the origin price and the delivered price in Europe. For many African and Middle Eastern producers, this margin is larger than it seems. The buyer earns it again on every shipment.

With its own trading company in the European Union, the producer keeps that margin within the group. The producer sells to its own European company. That company sells to industrial buyers, blenders and distributors at delivered prices. The group then earns the trading profit itself. We help you set up that trading company and plan where its profit is taxed and how it goes back to your group.

What a trading entity does

A European trading company usually has:

• Commercial contracts with European industrial buyers, at delivered prices.
• Ownership of the goods while they are in Europe, and the risk for the goods in that period.
• The import registrations, such as the EORI number, the VAT registration and the Article 23 licence. With this licence, the company reports import VAT in its periodic VAT return.
• Working capital arrangements, because a European company with European receivables can get trade finance on European terms.
• Inventory and logistics coordination through Dutch terminals and warehouses.

Some producers pay much more for loans at home than they would pay in Europe. For these producers, the difference in the cost of working capital can be larger than the trading margin itself. A European company with receivables from creditworthy European buyers can borrow on European terms.

Why the Netherlands

Rotterdam is the largest port in Europe by volume, and Amsterdam is the largest cocoa port in the world. Both ports have large tank storage, warehouses and blending capacity. Around the ports, many companies offer commodity trading services, such as inspection, quality control, trade finance, insurance and arbitration. These companies have long experience and work in English.

International trading partners know Dutch corporate law well. The Netherlands Commercial Court hears its cases in English. You can therefore take a dispute about a cross-border commodity contract to a Dutch court in English.

For VAT, the company can use the Article 23 licence. With this licence, the company reports import VAT in its periodic VAT return and deducts it in the same return.

Substance and pricing

A trading company makes its profit by doing the trading work. This work must take place in the Netherlands. Commercial decisions are taken here, and contracts are signed here. Staff or directors have the authority to bind the company. The books are kept in the Netherlands. With these facts, the company can show the Tax Administration that the trading takes place in the Netherlands.

The producer and its European trading company use the prices that independent companies would agree on. This is called the arm's length principle. The prices are recorded in transfer pricing files. The Dutch Tax Administration and the tax authority in the country of origin can both check these files. A specialist sets this up before the first cargo is shipped. We bring in this specialist as part of the plan.

Setting up

A notary sets up the Dutch BV by deed and registers it with the Chamber of Commerce. You sign a power of attorney, so you can do this from abroad. The company then gets its VAT and EORI numbers and applies for the Article 23 licence.

Banks check commodity businesses with goods from Africa and the Middle East with extra care. We start the talks with the bank at the same time as the incorporation. This way, the company can start trading within a realistic time.

Further reading: a European entity for critical raw materials, joint venture structures and fiscal representation and Article 23.

Read more about a Dutch BV for suppliers to the Rotterdam energy corridor. You can also read about setting up a Dutch BV from the UAE, Saudi Arabia or the Gulf.

Frequently asked questions

Why establish a trading entity in Europe?

A producer that sells at origin leaves the margin to the buyer. This is the difference between the origin price and the delivered price in Europe. With its own European trading company, the producer keeps this margin within the group. The trading company is also the importer and arranges the working capital.

How does a European entity improve access to trade finance?

A European company with receivables from creditworthy European buyers can borrow on European terms. Some producers pay much higher interest at home than companies pay in Europe. For them, the difference in interest costs can be larger than the trading margin itself.

What substance does a Dutch trading entity need?

The company must do the trading work in the Netherlands. Commercial decisions are taken here, and contracts are signed here. Directors or staff with authority to bind the company work here. The books are kept in the Netherlands. With these facts, the company can show the Tax Administration where the trading takes place.

How is pricing set between the producer and its trading arm?

The producer and its trading company use the prices that independent companies would agree on. This is called the arm's length principle. The prices are recorded in transfer pricing files. The Dutch Tax Administration and the tax authority in the country of origin can both check these files. A specialist sets this up before the first cargo is shipped.