taxci_en
 

Dutch corporate tax regime

Last updated: 18-01-2017

 

Tax liability for corporate entities

Tax liability for branches of non-resident corporations

Tax liability for Dutch subsidiaries of foreign corporate entities

Tax year

Tax rate

Taxable profits

Capital gains

Tax exemptions

Dutch participation exemption

Innovation Box

Investment deductions

Tax incentives

Tax losses

Thin capitalisation rules

Transfer pricing

CFC legislation

Group taxation

Withholding taxes on outbound payments

Tax treaties

Foreign tax credits

Tax rulings

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.

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.

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 "Overview of the dividend withholding tax under Dutch tax treaties".

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.

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.

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.

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 practice, capital gains are in general not taxed until realised 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.

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);
  • interest on certain profit participating loans granted by a parent to a subsidiary;
  • certain categories of foreign source income by virtue of applicable tax treaties or the Dutch unilateral rules for the avoidance of double taxation;
  • the profits arising as a consequence of the waiver of debt (under certain conditions).
  • Temporary exemptions do amongst others include a roll-over in relation to:
  • 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);
  • the replacement of certain business assets, including real estate ("replacement reserve").

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;
  • the subsidiary has an equity divided into share capital;
  • the shares in the subsidiary are not held as a portfolio investment.

In certain specific situations, a lower percentage of ownership than the aforementioned 5% can suffice.

The participation may not be held as a portfolio investment. The motive of the tax payer becomes a relevant, although arbitrary, factor. However, the law offers two escapes. If a subsidiary qualifies as a portfolio investment, the participation exemption still applies if either an "asset test" or a "subject-to-tax test" is met.

As the asset test is concerned, the assets of the participation should not consist for more than 50% of free passive portfolio investments (e.g. investments which do not have a business function). Participations of less than 5% are considered to be portfolio investments.

The participation exemption is always applicable if the subsidiary is taxed at a realistic corporate income tax rate. A realistic corporate income tax rate is defined as a regular statutory tax rate of at least 10% unless the taxable base differs significantly from the tax base according to Dutch standards, which could for instance be the case when a special tax regime applies to the subsidiary.

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.

Under the Dutch participation exemption rules, a Dutch (intermediate) holding company is allowed to deduct all costs and expenses (not only general and administrative expenses but also interest expenses related to acquisition financing) incurred in connection with its subsidiaries. However, expenses incurred which relate to the purchase or sale of a subsidiary are no longer deductible

For the deduction of interest, previously limitations applied under thin capitalisation rules. As from the year 2013, a new rule is applicable which aims to deny (part) of the interest expenses and other financing expenses for holding companies if and to the extent these expenses exceed € 750,000 per annum. This rule also limits third party debt financing.

Apart from this rule Dutch tax law provides for various other limitations for tax deduction of interest on group loans depending on concrete situation.

For certain specific situations anti-abuse provisions apply.

Innovation Box

To encourage innovation and investments in research and development, for income from innovations an effective tax rate of 5% is introduced (originally introduced as Patent Box).

This (optional) regime can in essence be applied in connection to income derived from intangible assets which are patented in the Netherlands or abroad. Income from intangible assets such as trademarks, logos and other similar assets is excluded from the Patent Box.

As per 1 January 2010 the scope of the patent box regime has been extended and the conditions have been relaxed. The patent box has been renamed into innovation box. As a result of EU discussion on favorable EU IP regimes and the introduction of minimum rules for preferential IP regimes (OECD BEPS project), as per 2017 the Netherlands has adjusted the Innovation Box regime in order to be compliant. The adjustments relate to the entrance tickets to the innovation box (requires an R&D declaration) and allocation of income that qualifies for the special tax rate of 5%. As per today, the Innovation Box regime has the following relevant features:

1.   R&D Activities

Originally the patent box regime could only be applied to income from registered patents, but has  been extended to include income from R&D projects for which an R&D declaration has been obtained.

From now on distinction is to be made between small and other taxpayers. Small tax payers are companies with worldwide net group sales less than EUR 50 million per year and a gross benefit form IP not exceeding EUR 7,5 million per year. For small taxpayers the R&D declaration would be sufficient to enter the innovation box.

Larger taxpayers not only need to obtain a R&D statement but should have an acknowledged legal access ticket. For larger tax payers only income from patents, utility models, software, plant breeders’ rights, and pharmaceutical certifications qualifies for the innovation box regime. This group of taxpayers will thus be subject to a double test.. A small taxpayer may also include unprotected IP in the innovation box regime.

2.   Maximum of revenues

A restriction is introduced with respect to the level of income that can be allocated to the Innovation Box (“modified nexus” approach). From now on relevant is whether research and development will be performed in-house or not and how R&D costs are divided between related parties. This implies that the more R&D activities are outsourced to related parties, the less profits can be allocated to the intangible resulting from such R&D activities The following formula has been developed to calculate the qualifying income.

{(Qualifying costs*1.3)/Total costs}* overall income from the IP asset

Qualifying costs stands for the qualifying R&D expenditures incurred by a taxpayer to develop a certain IP asset. The qualifying costs are multiplied by 1.3 (to discourage outsourcing of R&D within the group). Total costs stands for the overall R&D expenditures incurred to develop the IP asset. The outcome is to be multiplied with the overall income derived from the IP asset.

3.   Tax rate

The tax rate decreased from 10% to 5%. For illustration purposes, the normal corporate income tax rate in The Netherlands is 20-25%. The effective tax rate of 5% is achieved by using the following formula: 5/25 (regular corporate income tax rate) of the total amount of net earnings stemming from the intangible asset that has been allocated to the patent box is recognized as taxable profit which is taxed at the regular corporate income tax rate.

4.   Tax losses

Losses incurred could be offset fully against taxable profits in any year. This means that the normal loss compensation regime is applicable.

Situations whereby the, period between an application for a patent and the granting of the patent is unusually long are now also covered. Subject to certain conditions, profits that are attributable to the relevant patented asset may, during the period from the year in which the patent was applied for up to the year preceding the year in which the patent was granted, also be brought within the scope of the innovation box.

As of 1 January 2012, a R&D deduction (RDA) is applicable. It is not intended that the rules for RDA and the innovation box can be applied together. Therefore, the R&D deduction cannot be taken into account within the innovation box.

5.   Introduction flat regime

As of 1 January 2013, a new (flat-rate) regime is introduced, which tries to simplify the procedure for the application of the innovation box.

The (flat-rate) regime implies that a taxpayer can apply for a flat-rate regime of which 25% of the profits are qualified as benefits from intangible assets and as such taxed in the innovation box. As such, no threshold should have to be taken into account. However, the amount which can be included in the innovation box is maximized on EUR 25,000. Therefore, this measure is attractive for so-called small and middle-sized companies ("SME"). The company may on an annual basis need to decide whether or not it will apply the (flat-rate) regime. This decision right is not unlimited. If a company wants to apply the (flat-rate) regime, it should meet the condition that the intangible asset which qualifies for the innovation box is developed in the representative year or in the two previous years. This implies that if a company has developed a qualifying intangible asset in 2013, and afterwards has not developed such an asset, can apply for the (flat-rate) regime in 2013 and/or in 2014 and 2015. In that case, it will not be possible to apply the (flat-rate) regime in 2016.

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 2,300 and do not exceed an amount of EUR 312,176 (figures 2017).

The percentage varies (in brackets) from 28% for investments between EUR 2,301 and EUR 56,192, a fixed amount of EUR 15,734 for investments between EUR 56,192 and EUR 104,059 and for investments between EUR 104,059 and EUR 312,176 an amount of EUR 15,734 reduced with 7.56% of the part of the investment exceeding EUR 104,059. In general, investments not exceeding EUR 450, investments in land, passenger cars and private houses may not be taken into account. Investments however in highly fuel-efficient and electric cars are eligible for the allowance, irrespective of their intended use. For assets alienated within five years of the beginning of the calendar year of investment with a transfer price of at least EUR 2,300, a disinvestments addition is due.

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 55.5%. The investment threshold is € 2,500 and no investment allowance is granted for investments exceeding € 120,000,000 in a tax year (figures 2017).

Environmental Investment allowance

The deductible percentage in connection with qualifying environmental-friendly assets amounts to 13.5-36% in a tax year, depending on the assets. The investment threshold is € 2,500. Per investment no more than € 25,000,000 can be accounted for (figures 2017).

Tax incentives

The Dutch Corporate Income Tax Act provides for incentives, such as:

Tonnage taxation for shipping companies

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.

Research and development deduction (wage tax reduction)

R&D activities are stimulated by a wage tax reduction of qualifying R&D related labour costs. The reduction is equal to 32% of the relevant wage costs up to € 350,000 and 16% of any excess. The reduction for start-ups (so called techno starters) amounts to 40% of the first € 350,000 and 14% of any excess.The WBSO does not have limitations be it that the maximum benefit may not exceed the wage sum.

Free depreciation and amortisation

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.

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 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.

Thin capitalisation rules

As a general rule, the capitalisation of a Dutch company should be in line with normal business practice. Thin capitalization rules have been abolished per 2013.

As from the year 2013, a new rule is applicable which aims to deny (part) of the interest expenses and other financing expenses for holding companies if and to the extent these expenses exceed € 750,000 per annum. This rule also limits third party debt financing.

Apart from this rule Dutch tax law provides for various other limitations for tax deduction of interest on group loans depending on concrete situation.

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 Investing in the Netherlands - Dutch ruling practice and International tax planning - Dutch finance company and International tax planning - Dutch Licensing company. (links)

CFC legislation

The Netherlands do in essence not have CFC legislation, although restrictions apply for the ownership of foreign investments or passive investment companies.

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.

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.

Tax treaties

The Netherlands have concluded tax treaties with more than 90 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". (

Foreign tax credits

The extensive Dutch treaty network provides for low or zero withholding taxes on dividends, interest and royalties payable to a Dutch company.

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”.

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:

  • the application of the participation exemption for intermediate holding companies or top holdings;
  • international structures in which hybrid financing forms or hybrid legal forms are involved;
  • the (non) existence of a permanent establishment in The Netherlands.

For more information on the Dutch ruling practice we refer to the page Investing in the Netherlands - the Dutch ruling practice.

If you are interested in our services, please feel free to contact us via e-mail or to call us at our offices in Rotterdam +31 (10) 2010466 or Amsterdam +31 (20) 5709440.