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1. Tax liability for corporate entities
/\Virtually all corporate entities established and residing in The Netherlands are subject to Dutch corporate income tax for their worldwide profits. Branches of foreign corporate entities are in general terms only subject to Dutch corporate income tax for certain categories of Dutch source income, like Dutch real estate or a Dutch permanent establishment.
2. Tax liability for branches of non-resident corporations /\
According to Dutch domestic tax law, the profits allocable to a Dutch business establishment of a foreign corporate entity are subject to Dutch corporate income tax. The taxable base as well as the tax rates is in essence the same as for Dutch corporations. No special rules apply for the calculation of the taxable profits of permanent establishments; in particular no special "branch tax" is imposed. There is no Dutch (withholding) tax imposed on the remittance of profits by the permanent establishment to its foreign head office.
Under most tax treaties the tax liability is limited to profits attributable to a qualifying permanent establishment. The tax treaty generally provides for a definition of the concept "permanent establishment". Under most tax treaties, activities of an auxiliary, preparatory or supporting nature are excluded from the definition of taxable permanent establishment and are therefore not subject to Dutch corporate income tax.
For more information we refer to the page Investing in the Netherlands -Taxable branch or non-taxable branch.
3. Tax liability for Dutch subsidiaries of foreign corporate entities /\ Dutch subsidiaries of foreign entities are treated the same way as Dutch owned corporations. A Dutch subsidiary BV will be subject to Dutch corporate income tax on its worldwide profits and capital gains if it is either incorporated in The Netherlands or if it is managed and controlled from The Netherlands. There are no special tax requirements or restrictions for foreign ownership of Dutch corporations. It is noted that foreign corporations holding shares in a Dutch corporation may be exposed to a Dutch withholding tax on dividends. For more information about the levy of dividend withholding tax we refer to the page "International tax planning - The tax cost of repatriating profits from the Netherlands". For an overview of the Dutch dividend withholding tax rates under applicable tax treaties we refer to the page " 4. Tax year /\
The standard tax year is the calendar year, but a deviating year is allowed. A company may for instance use its parent's fiscal year or accounting year as its tax year.
The tax year used by a parent and a subsidiary do not necessarily have to coincide (except for some special tax provisions to be invoked).
The tax year must generally coincide with the statutory year. Upon incorporation a BV can have an extended book year.
5. Tax rate /\
We refer to the page "Doing business in The Netherlands - Dutch tax rates for corporations".
Portfolio investment income received by a company that has obtained the status of "Fiscale Beleggingsinstelling" (a so called Fiscal Investment Company) can qualify for a 0% tax rate. In order to qualify for this regime various conditions are to be met with regard to amongst others the shareholders, the activities, the funding and the distributions of profits. It is also noted that despite this 0% rate, the Dutch tax authorities take the standpoint that such a company is subject to tax and as such it should qualify for the benefits (i.e. reduced withholding tax rates) provided for by the Dutch tax treaties.
As from 1 August 2007, there is a special regime introduced for portfolio investment companies. Under certain conditions a BV (or similar corporate entity) which main activity consists of managing portfolio investments on behalf of its shareholders may opt for a full exemption of Dutch corporate income tax and dividend withholding tax. This exempt BV is referred to as a "Tax Exempt Investment Company" or "Vrijgestelde Beleggingsinstelling".
A Tax Exempt Investment Company has in essence no treaty access and may thus not enjoy treaty benefits.
6. Taxable profits /\
Corporate income tax is assessed on taxable profits.
Taxable profits are determined on the basis of book profits calculated according to Dutch accounting standards adjusted with some adjustments for tax purposes. These adjustments can result in temporary or permanent differences between the book profits and the profits for tax purposes.
In general, all expenses incurred in the ordinary course of business are tax-deductible. Certain costs however are not deductible (including costs relating to criminal activities, fines and penalties). Regular profit distributions (dividends), corporate income tax and certain profit-sharing payments are not deductible as well.
7. Capital gains /\
Capital gains and losses are treated similarly to other income and as such are included in the taxable profits.
As a general rule of sound business practise, capital gains are in general not taxed until realized while on the other hand capital losses can be deducted on an accrual basis.
Dutch tax law provides for various possibilities to defer taxation over capital gains. See the following paragraph Tax exemptions.
8. Tax exemptions /\
The Dutch corporate tax system provides for various income exemptions, either in the form of a permanent exemption or as a roll-over relief (in fact deferral of taxation).
Permanent exemptions do amongst others include exemption of:
·
dividends received from and capital gains realised on the shares in qualifying Dutch or foreign subsidiaries (the Dutch participation exemption);Temporary exemptions do amongst others include a roll-over in relation to:
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the profits and capital gains in relation to qualifying legal mergers, de-mergers, spin-offs, share mergers (share for share) or business mergers (assets for shares);9. Dutch participation exemption /\
Dutch corporate tax law provides for an exemption of dividends and capital gains on shares in subsidiaries if the following conditions are met:
· ownership of at least 5% of the issued share capital of the subsidiary;In certain specific situations, a lower percentage of ownership than the aforementioned 5% can suffice.
Condition 2 relates to low taxed subsidiaries owning portfolio investments or providing financial services within the group, explicitly defined in the law. If the activities of the subsidiary consist for more than 50% of free portfolio investments or financial services within the group and the subsidiary is not taxed in its state of residence at a minimum rate of 10% (as determined in accordance with Dutch standards,) it is considered a "low taxed portfolio investment participation". Financial services within the group include group financing and licensing activities. It is noted that qualifying real estate companies are explicitly excluded from the definition of portfolio investment participation.
If the participation exemption does not apply because the subsidiary is regarded as a low taxed portfolio investment participation, the Dutch corporate tax payer is granted a (limited) credit for the underlying corporate income tax borne by the subsidiary.
The participation exemption applies to dividends and capital gains, and possibly also currency exchange and hedging results as well as the interest income on certain categories of profit participating loans.
When the participation exemption applies, losses in relation to the participation are in general not tax deductible, with the exception of true liquidation losses.
Expenses and interest costs allocable to the acquisition of foreign subsidiaries are tax deductible. For the deduction of interest a maximum debt/equity ratio of 3-1 may apply (thin capitalisation rules)
).For certain specific situations anti-abuse provisions apply.
For more information on the Dutch participation exemption we refer to the page The Dutch paticipation exemption.
10. Group Interest box /\A new special tax regime is pending for group financing activities, called the "Group Interest Box".
This regime allows corporate tax payers to enjoy a 5% effective tax rate on the (positive) balance of interest received from loans granted to group companies and the interest paid the group companies on borrowings.
The Group Interest Box, has been enacted in the law but it is entry into force was made dependent on the approval by the European Commission, which recently occurred. It is now expected that the new regime will become effective (at the soonest) as from the tax year 2010.
For more information about the Group Interest Box we refer to the page "International tax planning - The Dutch Finance Company".
11. Patent Box /\
To encourage innovation and investments in research and development, for income from innovations an effective tax rate of 10% is introduced ("Patent Box") per 1 January 2007.
This (optional) regime can in essence only be applied in connection to income derived from intangible assets which are patented in The Netherlands or abroad. Income from trademarks, logos and other similar assets are excluded from the Patent Box.
For more information about the Patent Box we refer to the page "International tax planning - The Dutch Licensing Company".
12. Investment deductions /\
For certain investments, the taxpayer is allowed to an extra tax deduction on top of normal depreciation. This includes the:
General investment deduction
Companies are offered the possibility to deduct a percentage of the total amount of investments made in a year, insofar the total amount of investments exceed an amount of EUR 2,200 and do not exceed an amount of EUR 240,000 (figures 2009). The percentage declines (in brackets) from 25% to 1%.
Energy Investment deduction
For investments in qualifying energy saving assets a deduction is available. The deductible percentage in a tax year can amount up to 44%. The investment threshold is € 2,200 and no investment allowance is granted for investments exceeding € 113,000,000 in a tax year (figures 2009).
Environmental Investment allowance
The deductible percentage in connection with qualifying environmental-friendly assets amounts to 15-40% in a tax year, depending on the assets. The investment threshold is € 2,200 (figures 2009).
13. Tax incentives /\
The Dutch Corporate Income Tax Act provides for incentives, such as:
Tonnage taxation for shipping companies Research and development deduction (wage tax reduction) Free depreciation and amortization 14. Tax losses /\ As per 2007 loss compensation facilities have somewhat been restricted. In general, tax losses can be carried back to be offset against the taxable profits of the previous year and can be carried forward for a period of nine years. Before 2007, the carry back period was three years while the carry forward period was unlimited. For existing losses, a transitional provision applies. : all losses up to and including 2002 will be considered losses of the year 2002 which can be compensated with profits up to and including 2011. For Dutch holding and finance companies special rules apply. Certain anti-abuse rules are provided for in legislation which aims to prevent the "trade" in tax losses. 15. Thin capitalization rules /\ As a general rule, the capitalisation of a Dutch company should be in line with normal business practise. As from the year 2004 thin capitalisation rules apply which can provide for a limitation of tax deduction for interest paid on group loans. The maximum debt/equity ratio is set at 3:1, although a higher ratio may under certain circumstances be allowed if it can be proven that the group as a whole has a higher leverage. Apart from the thin capitalisation rules Dutch tax law provides for various other limitations for tax deduction of interest on group loans depending on concrete situation. 16. Transfer pricing /\ Dutch corporate tax law contains the provision that intra-company pricing for goods and services must be at arm's length. Also specific rules apply with regard to the documentation of intra-group transactions. Guidelines for inter-company pricing are given by extensive policy. In general it is possible to obtain advance tax rulings on transfer pricing issues. Special rules and guidelines are provided for intra-group financial services companies, which include group financing and royalty companies. For more information about these rules we refer to the pages 17. CFC legislation /\
Shipping companies established in the Netherlands can choose to be taxed on the basis of the net tonnage of the vessels owned (tonnage taxation), rather than on the basis of the taxable profits actually made. For more information about this subject we refer to the page Investing in the Netherlands - Dutch tonnage tax regime.
For certain categories of assets, free depreciation is allowed e.g. assets that are important for environmental protection, assets that have a high technological value, assets which are used for production in certain areas, investments to improve labour conditions, etc.
The Netherlands do in essence not have CFC legislation, although restrictions apply for the ownership of foreign investments or passive investment companies.
18. Group taxation /\
The Dutch corporate income tax act provides for the possibility of a consolidate tax regime, referred as "fiscal unity".
A fiscal unity, which is optional, is a combination of parent and subsidiary companies, whereby formally the parent (owning at least 95% of all of the issued share capital of the other company) is the entity that is taxed for the consolidated profits of the fiscal unity.
The advantages of a fiscal unity are that profits and losses of group companies can be offset against each other. This means that transactions between group companies can be eliminated for tax purposes and hence assets can under certain conditions be transferred within the group without triggering taxable capital gains.
Within a fiscal unity reorganisations can be carried through without triggering corporate income tax, although various anti-abuse provisions will have to be considered.
Typically, the fiscal unity concept can be used to facilitate the acquisition of a Dutch target company by setting up a separate Dutch holding company for purchasing the target company. If the purchase is loan-financed, the fiscal unity regime allows within certain restrictions the interest expense to be deducted from the operating profits of the target company.
19. Withholding taxes on outbound payments /\
Under Dutch domestic tax law no withholding tax is levied on (genuine) outbound interest and royalties payments.
Dividend distributions are in principle subject to 15% Dutch dividend tax at source. However, under applicable tax treaties, the rate for inter-company dividends is often reduced, in many cases even to nil percent. Within the EU conditionally a 0% rate applies.
Furthermore, the extensive treaty network provides for low withholding taxes on dividends, interest and royalties payable to a Dutch company. For the Dutch withholding tax due on account of the re-distribution of foreign dividends, an indirect tax credit may be available.
For more information on withholding taxes on outbound payments we kindly refer to the page Investing.
20. Tax treaties /\
The Netherlands have concluded tax treaties with more than 80 countries worldwide.
With this extensive treaty network, the Netherlands is a preferred location to establish holding companies, finance companies and licensing companies.
For an overview of the Dutch treaty network we refer to the page "Overview of tax treaties concluded by The Netherlands". For specific information about withholding taxes we refer to the pages "Overview interest withholding tax rates under Dutch tax treaties", "Overview royalty withholding tax rates under Dutch tax treaties", "Overview dividend withholding tax rates under Dutch tax treaties". 21. Foreign tax credits /\ The extensive Dutch If foreign withholding taxes are incurred, a Dutch resident taxpayer can by virtue of applicable tax treaties or the Dutch unilateral rules for the avoidance of double taxation, in many cases claim a tax credit for foreign withholding taxes incurred. Such a tax credit allows the taxpayer (under certain conditions) to reduce the Dutch corporate income tax imposed on the grossed up income with the amount of foreign withholding tax incurred. Upon election of the taxpayer, foreign withholding taxes may be treated as a tax deductible item instead. Under certain conditions a Dutch branch of a foreign corporation (non-resident for Dutch tax purposes) can claim the tax credits provided for in Dutch tax treaties. By virtue of a new EU-Directive, as from 1 January 2004 no foreign withholding taxes should become due on interest and royalties paid by companies, which are resident in other EU countries. We refer to the page "The EU exemption for interest and royalties. "
22. Tax rulings /\ The Netherlands has an extensive, efficient and reliable advance ruling practice. In 2001 the ruling practice is restructured into an Advance Pricing Agreement ("APA") and Advance Tax ruling ("ATR") practice. Advance rulings can be obtained on the tax consequences of certain transactions or corporate structures. The new policy did not create new or change existing tax laws. It merely gives written guidelines for obtaining advance tax rulings. An APA provides certainty in advance regarding the arm's length pricing of cross border inter-company transactions, including financing or licensing activities and the provision of services (this relates to amongst others the tax treatment of Foreign Sales Corporations, foreign finance branches, cost contribution arrangements, and cost-plus activities in general). An APA can either be unilateral (between tax payer and Dutch tax authorities), bilateral (Netherlands and another State) or even multilateral (involves more than two States). An ATR provides certainty in advance regarding the tax consequences of certain international structures and/ or transactions. An ATR can be requested for amongst others: · For more information on the Dutch ruling practice we refer to the page
· international structures in which hybrid financing forms or hybrid legal forms are involved;
· the (non) existence of a permanent establishment in The Netherlands.