31 December 2023 Add expertise tag Add service tag Add country tag
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Lucrative interest participations (carried interest schemes, sweet equity)

Income derived from a carried interest, sweet equity and similar forms of remuneration qualifies as a lucrative interest (in Dutch: 'lucratief belang') and is taxed as other income in box 1 of the Dutch Income Tax Act (article 3.92b Dutch Income Tax Act 2001). In principle, the income from a lucrative interest is taxed at progressive rates. Equity instruments which qualify as a lucrative interest are:

  • Shares in a corporate entity that has issued various classes of share, where the relevant shares of the taxpayer: (i) are a class of shares that is subordinated to such other classes of shares and the paid-up capital of the subordinated class (typically ordinary shares) is less than 10% of the total paid-up share capital of the corporate entity concerned, which includes all other classes of shares (typically preference shares); or (ii) are preference shares bearing an annual dividend of at least 15%; or
  • Loan receivables bearing an interest that is dependent on e.g. the profits or turnover of the business (or other managerial or financial targets); or
  • Rights that, from an economic perspective, strongly resemble the shares or loan receivables set out at the 1st and 2nd condition above, or rights that may increase in value if for example the profits or turnover of the business increases, or if certain managerial, shareholder's or financial targets are met (catch-all provision).

It is possible to escape from Box 1 taxation, if the following two conditions are met:

  • the lucrative interest is held indirectly by a holding company, in which the taxpayer owns a substantial interest (i.e. generally a share interest of at least 5% of the paid-up share capital); and
  • the net income derived by the holding company from the lucrative interest is passed on for at least 95% to the taxpayer within the same year calendar year (article 3.95b Dutch Income Tax Act 2001).

If the taxpayer and/or the holding company are tax resident of the Netherlands and the participation exemption applies, this will result in taxation at a rate of 26.9% (2023) in Box 2 of the Dutch Income Tax Act 2001.