The Netherlands is well known for its open and strong economy. Known for centuries as a nation of successful traders, the Dutch are internationally oriented by nature. This is also reflected in the Dutch company and tax legislation. For instance, Dutch company law does not make a difference between Dutch nationals and foreigners: companies created under foreign law are free to operate in the Netherlands. They can be party to a contract, participate in partnerships and establish Dutch legal entities.
Dutch tax law features a lot of incentives which are especially aimed at foreign companies doing business in the Netherlands.
6 reasons to invest in the Netherlands:
For non-EU companies, an additional reason to invest in the Netherlands is that the Netherlands, being part of the European Union offers access to the European Union in which people, goods, capital and services can move freely.
2. Business law in the Netherlands
Compared to other countries, the Netherlands has a flexible and liberal legal framework for the organization of enterprises by non-resident companies. There are no special restrictions on foreign-owned companies that wish to start a business in the Netherlands or set up a Dutch legal entity. The incorporation of a Dutch legal entity is a quite easy and straightforward procedure and is not very expensive. Dutch legal entities are internationally regarded as sound and generally respected. Furthermore there are usually no objections to the employment of specialist staff in the Netherlands.
Foreign entrepreneurs that want to start a business in The Netherlands can do so by setting up a Dutch entity or by way of a branch. For foreign investors the most important types of entities include a private limited liability company (Besloten Vennootschap, BV) and a public limited liability company (Naamloze Vennootschap, NV), both forms of legal persons.
Private limited liability company (Besloten Vennootschap, BV)
The BV is a legal person with an authorized capital divided into shares. The shareholders are in principle only liable for losses of the company to the amount of their share capital. The BV is a suitable vehicle for an individual or a small number of interested parties, who wish to operate with limited liability, to carry out a business. The incorporation of a BV is a very quick and straightforward procedure. This entity is often used as holding company in the Netherlands for tax purposes due to the elaborate Dutch tax treaty network.
Public limited liability company (Naamloze Vennootschap, NV)
The general characteristics of an NV are similar to those of the BV. Unlike the BV, the NV can issue bearer shares. This makes the NV the usual form of business to adopt when capital is to be acquired through public offerings. There is no restriction to the amount to be raised and the shares of an NV are freely transferable.
A branch is a business operation that is carried out in the Netherlands by a foreign entity directly, without setting up a separate Dutch entity. A branch is easier and less expensive than a Dutch entity but since it has no legal personality the foreign entity conducting the branch is fully liable for all of its obligations. Like the BV and the NV a branch must be entered in the trade register of the Chamber of Commerce. Generally, no financial accounts need be published.
All new business, whether carried out in the form of a branch or a legal entity, should be registered at the Chamber of Commerce Trade Register and all important changes in the company must be registered here. Also, all businesses starting in The Netherlands must register with the Dutch Tax Department.
Russo Van der Waal can advise you on how to best organize your business activities in the Netherlands and assist you to comply with all legal and tax obligations in the Netherlands.
3. Taxation in The Netherlands
For centuries, the Netherlands has been a nation of traders. In order to keep Dutch economy strong and internationally competitive, the Dutch government has created a tax regime that stimulates entrepreneurship and foreign investment in The Netherlands.
The most important taxes for companies becoming active in the Netherlands are:
3.1 corporate income tax
3.2 personal income tax
3.3 value added tax
3.4 customs duties
In the below overview you will find a brief description of these taxes as well as the incentives that are available for each of these taxes.
3.1 Corporate income tax
A profit-generating company pays corporate income tax.
The Dutch Corporate Income Tax Act distinguishes between resident entities and non-resident entities. The following entities listed in the Corporate Income Tax Law are subject to Corporate Income tax:
The above entities are subject to Corporate Income tax on their worldwide income if they are established in the Netherlands. Non-resident entities of similar description are subject to tax insofar as they derive certain types of Netherlands-source income.
Companies established in the Netherlands are resident taxpayers, they pay corporate income tax on their worldwide income. Companies that are not established in the Netherlands but which do derive income from the Netherlands are non-resident taxpayers. These companies only pay corporate income tax on their income from the Netherlands.
From January 1st 2013 the corporate income tax rate is 20% on profits up to EUR 200.000, 25% on the excess.
A dividend withholding tax is levied from companies on outgoing dividends. As of 1 January 2007 the withholding tax on dividends is reduced from 25% to 15%. Generally this dividend tax is credited against the recipient’s corporate income tax liability or an exemption for dividend tax applies.
There is no withholding tax on interest or royalties.
3.2 Personal income tax
Individuals resident in the Netherlands are liable for personal income tax on their worldwide income. The income tax is levied together with an individual’s national social security contributions. Non-residents are only liable to Dutch personal income tax on certain elements of income deriving from Dutch sources, like income from employment within the Netherlands.
The personal tax act that came into force in 2001 distinguishes three types of income that are subject to personal income tax, and classifies them under so-called boxes. Each of these three boxes has its own rules for determining the tax base and its own tax rate. Each form of income is taxed in one box only.
Box 1: taxable income from work and dwellings
Taxable income from work and dwellings is the aggregate amount of:
The tax rate of Box 1 is a progressive rate up to 52%. The effective tax burden can be strongly decreased by making use of the tax incentives which are available under Dutch tax law.
Box 2: taxable income from substantial interest
Income from shares in case of substantial interest of 5% or more. A taxpayer is regarded to have a substantial interest in a company if he, either alone or together with his partner, holds, directly or indirectly, at least 5% of the shares. For non-residents, income from a substantial interest is only subject to tax if the substantial interest is in a company resident in the Netherlands.
Taxable income from a substantial interest is taxed at a flat rate of 25%.
Box3: taxable income from savings and investments
The tax levied on income from savings and investments is based on the assumption that a taxable yield of 4% is made on the net assets, irrespective of the actual yield. This 4% yield is taxed with a fixed rate of 30% resulting in an effective tax burden of 1,2%. Net assets that fall in box 3 are:
Taxpayers are entitled to a tax-free threshold for income from this box for € 20.661.
The personal income tax provides for levy rebates, which is in effect a discount on the amount of tax to be paid and deductible items, such as medical expenses, study costs both of which reduce the amount of tax to be paid.
In general the wage withholding tax constitutes a prepayment of personal income tax which all employers in the Netherlands are obliged to withhold from payments to their employees.
3.3 Value added tax
Value added tax (VAT) is a general tax on the consumption of goods and services in the Netherlands. The principles and structure of VAT are contained in EU law. EU member states retain some discretion in certain areas however, such as the rates of the tax. For this reason the VAT in the various member states of the European Union is very similar.
Persons (natural persons and legal persons) carrying on a business are liable for VAT. In its simplest from, a business will charge VAT on its sales but will be entitled to deduct the VAT it has to pay on its purchases. Any business that makes supplies of goods or services in the Netherlands is in principle liable to register and to account for VAT. When registering for VAT in the Netherlands the business will receive a so-called VAT number.
Combinations of taxpayers forming a single financial, organizational and economic entity may be deemed to be a fiscal unity for VAT purposes: the supply of goods and services within the fiscal unity is not subject to VAT.
The following transactions are taxable with VAT:
The general VAT rate is 21%. A reduced rate of 6% applies to the supply of essential goods and services, such as foodstuffs, pharmaceuticals and the entrance to museums. A zero rate applies to exports and so-called intra-community supplies.
Certain clear defined transactions are exempt under VAT law, this means that no VAT should be calculated on these transactions. Exempt transactions and zero rated transactions differ in that input VAT on costs associated with exempt transactions is not deductible.
VAT is levied on the basis of self-assessment, the entrepreneur is obliged to file tax returns. Tax returns may be filed monthly, quarterly or annually. The amount of VAT an entrepreneur pays will determine the period for which a tax return must be filed. All VAT returns must be filed electronically.
3.4 Customs duties
The Netherlands is one of the six founding members of the European Union. At its birth, the EU was made up of distinct national economies. Goods moving across borders were stopped for paperwork and to pay custom duties. Today, by contrast, the EU is essentially a single market economy. Goods can now move freely across the national borders of the 27 member states of the European Union and customs duties at internal borders are abolished. The customs union consists of a uniform system for taxing import only at the EU’s external borders.
EU import duties have to be paid when goods are brought into free circulation within the customs territory of the European Union.
4. Tax incentives
In comparison to other countries, the Netherlands is known for its very competitive tax climate. The Dutch tax system has a number of features that make it attractive for foreign companies, such as:
Each of these features is explained more clearly below.
If you are interested to start up business activities in the Netherlands there are always some tax incentives that can be of interest for you. Russo Van der Waal can assist you in conducting your activities in such a way that you benefit the most from them.
4.1 The participation exemption
The participation exemption is one of the reasons a lot of companies choose The Netherlands to locate their top holding. It consists in a total exemption of all benefits deriving from qualifying participation companies, in or outside the Netherlands. These benefits comprise all kinds of dividends as well as capital gains.
In principle a participation is regarded to exist if:
Any costs associated with a shareholding are deductible. Losses arising from liquidation of a shareholding may be set off under certain conditions.
In case the subsidiary company is taxed at a rate of less than 10% in its home country according to Dutch tax law standards and the assets of the subsidiary consist of more than 50% of ‘free investments’ the so-called holding compensation applies. Free investments are defined as investments which are no part of the core business of the subsidiary.
The holding compensation provides for a partial relief for the parent company for income deriving from its subsidiary.
4.2 Treaty network
The Netherlands has a superior treaty network for the avoidance of double taxation and has signed treaties with more than 60 countries. Most tax treaties lower the withholding tax on outgoing dividends. In addition, dividends received by resident companies that qualify for the participation exemption are exempt from Dutch taxation. Because of this large treaty network,the Netherlands can be interesting to locate your business or to locate a holding company for the mere use of the benefits of the tax treaty.
4.3 Group treatment
Under certain conditions a parent company may be taxed as a group together with one or more of its subsidiaries. The main advantages of group taxation are that the losses of one company can be set off against profits from another group company, and that fixed assets may in principle be transferred tax-free from one group company to another.
Furthermore, only one tax return needs to be filed instead of a tax return for each single member of the group. Group treatment may be terminated upon request.
4.4 Absence of withholding tax on outgoing royalties and interest
Dutch tax law does not provide for any withholding tax on outgoing royalties and interests. Unlike the Netherlands most jurisdictions do withhold taxes on outgoing interest and royalty payments. The withheld taxes can be moderated by the applicable tax treaty, if any.
The lack of any withholding tax on these payments in combination with some other facilities of Dutch tax law make the Netherlands a very attractive country for tax planning involving royalty schemes and for the financing of group companies.
4.5 Absence of capital duty
The capital duty, which was levied at 0,55% on the contribution of capital to a company is abolished as from 1 January 2006. This means that the contribution of capital to a company upon formation and any later expansion of the share capital is no longer taxed.
4.6 Advance tax ruling
A major advantage of the Dutch tax regime is the possibility of obtaining tax rulings. These are agreements from the tax authorities on the tax consequences of a proposed structure or activity. Generally, an advance tax ruling takes the form of a determination agreement between the tax authorities and the taxpayer in advance that binds the tax authorities to tax the activities of taxpayer in a certain way. In particular, advance tax rulings may deal with the way in which the arm’s-length remuneration for cross-border activities can be determined, taking into consideration the location of functions, intangibles and risks.
The main advantage of the advance tax ruling for the tax payer is to obtain upfront clarity about the tax consequences of a transaction or investment. Generally, tax rulings are drafted and negotiated by specialized Dutch tax advisors. At Russo Van der Waal we have large experience in obtaining tax rulings. We can optimize your negotiating position and make sure your ruling request is dealt with as soon as possible by the tax office.
4.7 The 30% Ruling
The Netherlands has a special facility for expatriates who come to work in the Netherlands, the so-called 30% ruling. The facility allows the employer to grant a deemed lump-sum tax free allowance of 30% of the employee’s remuneration. The underlying reason for this is to cover the employee’s extraterritorial expenses in the Netherlands.
The 30% ruling is either applicable to employees with scarce specific expertise that have been recruited for a job in the Netherlands while still abroad, or to middle or high rank employees who have been job rotated within a group of companies to a Dutch employer. The 30% ruling is granted for a maximum period of ten years. However, foreign employees that have previously been staying and/or working in the Netherlands within the last ten or fifteen years before their (new) employment in the Netherlands may be granted a maximum period of less than ten years. Their period of previous work or stay will be deducted from the ten year period. Under the 30% ruling the employee can opt for partial non-residency status, as a consequence foreign assets in box 2 or box 3 are not taxed in the Netherlands.
4.8 Group interest box
The group interest box is the successor of the highly successful Dutch group financing regime which was aimed at attracting head offices and intra group activities to the Netherlands.
The group interest box provides for an option to have the balance of interest income earned and interest expenses in relation to loans from and to group companies taxed at an effective tax rate of 5%. The request to apply the group interest box must be issued by all group companies.
4.9 Patent box
The so-called patent box provides for a tax rate of only 10% for qualifying income from self developed intangible assets. The special low tax rate of only 10% is available on request and can be applied as from the beginning of the tax year in which the request is made. The Patent Box regime applies to all income generated with the intangible asset, whether intra-group or from third party. The production costs of self developed intangible assets can directly be deducted from taxable income.
The Patent Box regime applies to income from intangible assets in as far as such income exceeds the deductible expenses made for the intangible asset.
4.10 VAT and custom duties on import of goods
Also when it comes to importing goods in the Netherlands the Dutch tax system has a number of vantageous features to offer for entrepreneurs.