Entity Setup
Key Strategies for Entity Setup in the EU Under Pillar Two and DAC9
With DAC9 and Pillar Two reform taking effect, setting up an entity in the EU requires paying attention not just to location or structure—but also to new reporting and tax compliance obligations. Here's what you need to know.
By NomadicTax Research Team • 5-8 min read • August 27, 2026
## Why Entity Setup Matters Now
Recent EU directives, especially **Directive (EU) 2022/2523 (Pillar Two)** and **DAC9**, have introduced top-up tax requirements and streamlined reporting rules. DAC9, adopted in April 2025, complements Pillar Two by enabling a **centralised framework** for the exchange of top-up tax information return, meaning that a multinational enterprise group may only have to file once at the group level instead of separately in each Member State. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/administrative-cooperation-taxation-council-adopts-dac9-2025-04-14_en?prefLang=de&utm_source=openai)) However, Member States must have implemented DAC9 by **31 December 2025**. The first group filings started 30 June 2026. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/administrative-cooperation-taxation-council-adopts-dac9-2025-04-14_en?prefLang=de&utm_source=openai))
To design an EU entity setup that is compliant **and** efficient, businesses must take into account:
- Choosing a jurisdiction with clear Pillar Two implementation and DAC9 reporting capabilities.
- Structuring entities so that they align with Group filing under DAC9 to avoid duplicate or redundant filings.
- Understanding local rules for corporate tax, withholding, and top-up tax where the effective tax falls under 15%.
## Key Elements to Plan For
| Element | What to Check | Potential Pitfall | Best Practice |
|---|---|---|---|
| **Entity jurisdiction** | Do local laws fully implement Pillar Two, including Qualified Income Inclusion Rules (QIIR) and Qualified Domestic Minimum Top-up Tax (QDMTT)? | Partial or delayed implementation may expose to top-up or withholding risk. | Select countries with well-established Pillar Two jurisprudence or guidance, eg, Netherlands, Luxembourg. |
| **Filing structure** | Can group-level entities serve as Designated Filing Entities? Is there an interoperable DAC9 system in place? ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/dbb90387-6bac-4797-8f15-f29fe6076221_en?filename=C_2026_1480_F1_ANNEX_EN_V4_P1_4514028.PDF&utm_source=openai)) | Separate filings at each entity may expose to errors or misalignment. | Build the group entity’s capacity to act as filing entity; centralise tax data systems. |
| **Transfer pricing & APAs** | Are you needing Advance Pricing Agreements? Is your income taxed adequately in source and destination states? | Aggressive attribution or mis-licensing of IP can lead to audit or exclusion from reliefs. | Use formal APAs and maintain substance. |
| **Withholding & double tax treaties** | Check treaties to ensure proper rate on outgoing interest, dividends, royalties under new EU rules. | Treaty shopping or improper payments may trigger STTR or subject-to-tax rule. | Document economic activity; map treaty obligations. |
## Examples
- A **holding company** headquartered in an EU Member State: may file one top-up tax return under DAC9, but if constituent entities are in low-tax jurisdictions without Pillar Two, the group will need to pay the difference at the group level to reach 15%.
- A **subsidiary** taking in payments (interest, royalties) from other group companies: ensure the destination country’s withholding is acceptable under STTR and/or subject-to-tax rule to avoid surprise tax exposure.
## Actionable Steps Right Now
1. **Run a compliance audit**: Evaluate each planned entity’s tax rate vs 15% and look for treaty inconsistency.
2. **Select central filing entity early**, ensure your group can capture financial information necessary for DAC9/GIR filing.
3. **Document substance**: Personnel, premises, decision-making must match tax rights.
4. **Involve local counsel and tax advisers** to map implementation differences; Pillar Two and DAC9 transposition dates may vary.
5. **Monitor updates**: For example, the European Commission in its 2026 Annual Report on Taxation shows many member states introduced reforms in their tax systems, including incentives under the Clean Industrial Deal. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/taxation/economic-analysis/tax-reforms-eu_en?utm_source=openai))
## Conclusion
Entity setup in the EU is no longer just about corporate tax rates. With DAC9 and Pillar Two now in force with real filing obligations—as of mid-2026—structuring for efficient compliance and sound documentation is essential. Choose jurisdictions with clarity, consolidate filings where possible, and maintain substance to avoid risk.