Entity Setup
Entity Setup in the EU Post‐Omnibus: What Digital Platform Businesses Need to Know
With DAC7 and Pillar Two changing, this article guides platform operators through entity choices, VAT, withholding and tax residency issues.
By NomadicTax Research Team • 5‐8 min read • August 31, 2026
## Setting Up a Business Entity When Platform Income Looms
For digital platform companies operating across borders in the EU, recent EU proposals and OECD guidance strongly affect entity structure, reporting obligations, and cross‐border tax leakage.
## Key Influences on Entity Decision Making
- **DAC7 reforms**: Proposed adjustment of thresholds (removing activity threshold, increasing minimum monetary threshold to around **€3,000**) for platform income reporting could mean fewer users need to report or register through platforms. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/a654ad8e-606b-4ad5-a8ff-3309554224d7_en?filename=Executive+Summary+of+Impact+Assessment_DAC_Proposal+for+a+Council+Directive+-+Taxation%E2%80%99.pdf&utm_source=openai))
- **Pillar Two applicability**: Large MNEs (>€750m global turnover) will have to manage Minimum Top‐Up Tax, which interacts with CFC regimes and withholding payments. For entities, this means consideration of **where functions are located**, whether local branches vs subsidiaries, and local tax rules under ATAD. Omnibus proposes harmonization between CFC and GMT to reduce overlap. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?utm_source=openai))
## Entity Location & Tax Residency
- Considerations include where intellectual property is held, where revenue is booked (e.g. if royalties or interest), and how withholding taxes apply under direct taxation Omnibus (e.g. abolition among EU).
- The Omnibus’s proposed removal of withholding taxes between EU members on cross‐border payments of dividends, interest, royalties may allow intra‐EU structure optimization. Entities located in one Member State but owning subsidiaries in others may benefit. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?utm_source=openai))
## VAT, Digital Services Tax & Platform Registrations
- While DAC7 focuses on income from platforms, VAT obligations remain essential—platform operators may need to collect VAT, ensure correct place of supply, or risk non‐compliance in digital sales.
- Platform entities should plan for potential cross‐border VAT registrations, especially in countries where they have users, marketplace presence, or where VAT thresholds are lower.
## Actionable Entity Setup Checklist
- Identify the scope of platform activities and length of operations: does your entity need to be a legal person in a Member State, or could it operate via branches?
- Evaluate whether forming separate subsidiaries per country remains efficient or whether centralized EU hub makes sense—especially considering Pillar Two compliance.
- Compare incorporation costs, corporate tax rate, withholding tax regimes, and local ATAD implementations (some Member States have narrower interest limitation or different default tax treaties).
- Ensure substance: entity needs economic substance (employees, addresses, operations) to benefit from parent‐subsidiary exemptions, avoid being deemed CFC, or under challenge under Pillar Two.
## Practical Example
*A digital platform headquartered in Portugal with users in multiple EU States could avoid DAC7 reporting if most users do not cross the threshold. It might centralize royalty payments to a German entity to benefit from zero withholding once Omnibus proposals are enacted.*
## Watchpoints & Risks
- Proposals are not yet binding—some measures (e.g. withholding tax abolition, DAC6 revisions) may change during legislative negotiations.
- If incorrect assumptions are made about thresholds or scope, entities may face reporting penalties.
- Substance requirements stricter than before—mere paper entities may be challenged under CFC rules or minimum tax enforcement.
**In conclusion**, for platform businesses, entity structure, location of revenues, and readiness for reporting changes are critical. With upcoming simplifications, there are chances to optimize—but only if you plan now versus reacting later.