International tax planning - The Dutch Holding Company
In the current international fiscal environment, the Dutch holding company regime is still the most popular holding regime in the world. The primary reason for this popularity is its tax efficiency (mostly 0% tax), the flexibility of Dutch corporate and tax law and its relatively low cost of incorporation and annual maintenance.
We have advised numerous clients on the use of a Dutch Holding Company, helped to set them up and manage their tax compliance from year to year.
Below you will find a summary of relevant legal and tax information which may enable you to determine whether or not a Dutch Holding Company may also be a suitable entity for you.
The Dutch holding company
The Dutch B.V. is still one of the most popular entities to be used as a holding company in international structures.
The main reason for using the Netherlands as the location for a central holding company is the favourable tax regime for holding activities and the excellent legal and financial infrastructure.
Above all, the Dutch holding company offers an efficient exit route for profits of subsidiaries.
Whether you own a subsidiary directly or through a corporate structure, the repatriation of profits may trigger taxation in the country where the subsidiary is located. On top of that, you as a direct shareholder, may get taxed in your own country for the income which you receive directly.
Through the application of tax treaties the Dutch holding company can offer a significant reduction of the tax at source.
Furthermore, the Dutch holding company may create a strictly legal possibility to defer or even avoid taxation in your home country.
We have extensive knowledge and expertise in the area of Dutch holding companies and setting up new BV's or alternative legal entities (like the Coop) and we are gladly prepared to advice you on this subject or guide you to other professionals who can help you in other specialized areas (like international lawyers, accountants or trust companies).
If you are interested in our services, please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
The Dutch Cooperative as Holding Company
During the last couple of years, the Dutch Cooperative has become quite popular as a ‘zero tax holding company’ in international structures.
In The Netherlands the Coop is in essence treated as any other corporation: it is subject to Dutch corporate income tax and it can be eligible for the participation exemption.
The legal form of the Coop is explicitly accepted as qualifying legal form for the application of the Parent-Subsidiary Directive, meaning that the Coop can receive dividends from EU subsidiaries without incurring any dividend withholding tax in the country of the subsidiary.
In general the Coop is also entitled to treaty benefits. In so far, the Coop is comparable to any other corporation, however, if the Coop is properly set up, the profit distributions by a Coop to its members, are not subject to any withholding tax in The Netherlands. It is possible to obtain adavnce tax rulings for this tax exemption of the Coop.
We refer to the page "The incorporation of a Dutch Cooperative" for more details about the legal and tax characteristis of a Cooperative and the incorporation procedure.
The activities of the Dutch holding company
Dutch holding companies do not have a separate status under Dutch tax law.
The tax benefits that are available in general apply to any type of company holding shares in Dutch or foreign subsidiaries.
There are virtually no limitations for the activities of the Dutch holding company.
The Dutch (intermediate) holding company can function as regional headquarters combining various activities such as collecting dividends and receiving interests and royalties from subsidiaries. Hence why, a Dutch (intermediate) holding company can also operate as a Financial Services Company (finance company and/ or licensing company) and holding company at the same time.
Please note the possibility to combine the holding activities (income effectively taxed at 0%) with group financing activities in one and the same Dutch company. See also our comments on The Dutch finance company.
The centralization of activities in a Dutch holding company will also make your structure a whole more robust and resistant to the international tendency to deny tax advantages to purely tax driven vehicles. We refer also to the page The Dutch holding company plus.
The Dutch holding company is also often used as joint venture vehicle between non-related parties.
The benefits of the Dutch holding company
The main benefits of the Dutch holding company are:
Comparison with other European holding regimes
Over the last decade many EU countries have adopted a holding regime, which has created a quite competitive environment for establishing a holding company.
Due to some changes in Dutch tax law per 1 January 2007, the Dutch holding company is without doubt (again) the most favourable vehicle for centralized holding activities.
In particular relevant are the relaxation of the participation exemption regime (in particular in relation to passive subsidaires and foreign real estate subsidairies) and the introduction of a very favourable regime for group finance companies.
With the full dividend withholding tax exemption of the Coop, The Netherlands has become one of the most competative holding regimes in Europa again.
We have extensive knowledge and expertise of the pros and cons of the European holding regimes and we are gladly prepared to advice you on this subject. If you are interested in our services, please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
The Dutch participation exemption
The Dutch participation exemption provides for a tax exemption of all "benefits" (dividends and capital gains) arising from shares in qualifying subsidiaries. Under strict conditions certain categories of profit participating loans may qualify as well.
In order for the Dutch participation exemption to apply, the following conditions need to be met:
Under special circumstances a shareholding of less than 5% can qualify for the participation exemption as well (e.g. indirect ownership of at least 5% through a related party or a lower than 5% ownership as a consequence of a sale of shares in tranches).
Please note that per 1 January 2007 the general "subject to tax requirement" and the "non-portfolio investment requirement" are both abolished which has resulted in a very significant relaxation of the Dutch participation exemption regime.
Qualifying foreign "portfolio investment companies" will only qualify for the participation exemption if they are subject to a normal tax rate of at least 10% (statutory rate unless there are significant deviations from the Dutch tax regime).
Special provisions apply to the shares held in group financing companies. Unless they comply with certain specific substance requirements, the shares in such companies must be qualified as portfolio investments for which the participation exemption does not apply, again also with the exception that the subsidiary is subject to "a normal tax rate" of at least 10%.
We like to emphasize that by virtue of a special provision, shares in qualifying real estate companies will basically always qualify for the participation exemption even if the real estate is held as a portfolio investment and/or the subsidiary is not subject to tax or only subject to a very low tax.
In case there is doubt about the application of the participation exemption it is recommendable to apply for an advance tax ruling. See further Advance tax ruling for holding activities in The Netherlands.
We have extensive knowledge and expertise of the Dutch participation exemption regime and are gladly prepared to advice you on this subject.
If you are interested in our services, please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
Tax deduction of expenses and losses
If the participation exemption applies, expenses in relation to subsidiaries are in general tax deductible. This includes interest expenses on funding loans and local running costs, but it is noted that there are other provisions which may limit the tax deduction of interest expenses.
Losses on subsidiaries are in general not tax deductible, with the exception of "true" liquidation losses.
Since the first of January 2004 limitations apply for the carry forward or carry back of tax losses by holding/financing companies. In essence, the tax losses which originate from a year in which the main activity of the company is the holding of shares or group financing activities may only be carried back or carried forward to tax years in which the company had or has similar activities. Both the nature of the activities and the volume of the activities (balance sheet ratios) are relevant.
Also as from January 1, 2004 a general thin capitalization provision has been introduced. The limitation only applies to interest (and other funding) expenses originating from qualifying intra-group loans. The maximum debt-equity ratio is 3:1, with a general franchise of € 500,000. Special rules apply for calculating the debt-equity ratio.
As from 1 January 2007 the term for carry forward of losses is limited to nine (9) years. The term for carry back is one (1) year.
One of the main advantages of the Dutch holding company is that from a Dutch perspective there are virtually no substance requirements. The holding does not need to have employees.
In most cases a foreign owned holding company is serviced by a trust company, providing for management and domiciliation. For more information about trust companies and the way they operate, we refer to the page Trust and management services in The Netherlands.
It is noted that other countries may demand a certain substance in the Netherlands before they allow tax benefits based on tax treaties or EU Directives (anti-abuse legislation).
Tax treaty benefits
The Netherlands have concluded tax treaties with more than 80 countries worldwide.
For an up to date overview of the tax treaties concluded by the Netherlands we refer to the page Dutch tax treaties.
Specifically for holding activities tax treaties may provide the following benefits:
Tax treaties can be overruled by EU-Directives. Specifically for dividends the Parent-Subsidiary Directive provides for a 0% withholding tax rate for qualifying corporate dividends paid within the EU. For more information we refer to The EU withholding tax exemption for dividends.
The EU withholding tax exemption for dividends
Dividends paid to a Dutch holding company by EU subsidiaries can qualify for a 0% withholding tax rate in the country where the subsidiary is located. The withholding tax exemption is based on the Parent-Subsidiary Directive, but may deviate per country depending ont he implementation laws.
The conditions which must be met by the Dutch holding for applying the 0% dividend withholding tax rate are:
As from 1 January 2007 the one year holding period has been abolished in The Netherlands.
It is noted that the Directive offers the possibility for Member States to implement anti-abuse provisions.
Most EU member states (amongst which since 2007 The Netherlands) have incorporated anti-abuse provisions in their domestic legislation to prevent abuse of the EU withholding tax exemptions for dividend. In general these provisions tend to demand:
Please note however that as a consequence of an EU-Court case in 2006 many EU countries are forced to abolish their anti-abuse rules for foreign shareholders, in particular if no such anti-abuse rules apply to domestic shareholders.
It should be verified country by country what the current status of their anti-abuse rules for foreign shareholders is per today.
The Netherlands has a limited anti-abuse provision. The dividend withholding tax exemption on the basis of the EU Parent-Subsidiary Directive or on the basis of tax treaties may not apply in case of certain dividend stripping scenario's or in case the dividend is paid to a company established in a country with which The Netherlands has concluded a tax treaty which contains an anti-abuse clause which would be applicable in the given situation. An example of a tax treaty which contains an anti-abuse clause is the tax treaty with Malta.
Furthermore, a general exclusion applies to shareholders which do not qualify as the beneficial owner of the income received from the shares in a Dutch company.
Advance tax ruling for a Dutch holding company
The Netherlands have a well-developed tax ruling practice.
It is generally possible to conclude an agreement with the Dutch tax authorities, on the basis of which 100% certainty can be obtained (in advance) on the Dutch tax treatment of a particular structure or transaction. It is also possible to obtain an advance tax ruling for the (dividend withholding) tax exemption of the Coop and its members.
This applies to holding activities, but also to a wide range of other activities, like for instance group financing or royalty activities.
For more information about the Dutch ruling practice we refer to the page The Dutch tax ruling practice. In practice the tax ruling for holding activities relates to one or more of the following subjects (which are in practice the most common areas of doubt for application of the participation exemption):
There are no costs attached to the ruling procedure itself, apart from the costs of professional representation.
We have extensive experience with negotiating advance tax rulings on behalf of our clients and we are gladly prepared to advice you on this subject or to represent you in the ruling negotiations. If you are interested in our services, please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
Currency exchange restrictions
There are no restrictions for bringing money into the country or repatriating funds from The Netherlands. There are however some reporting requirements.
Dutch corporate law
In most cases a Dutch holding company is set up as a BV, a limited liability company comparable with a LTD, GmbH or SARL.
The BV is regulated by Dutch corporate law, which in comparison to the corporate laws of other countries is quite flexible. For more information about the BV and the incorporation procedure we refer to the page The incorporation of a Dutch BV.
In particular relevant for a holding company is that:
For more information about setting up or acquiring a BV we refer to the pages The incorporation of a Dutch BV and The acquisition of a Dutch shelf company.
A Dutch company is under certain circumstances allowed to keep its books and to calculate its taxable profits in an other currency than the EURO. An election should be made before the foreign currency can be applied as functional currency for corporate tax purposes.
Dutch accounting rules for holding companies
A Dutch holding company is subject to the normal accounting, reporting and registration requirements which apply to BVs. For more information we refer to the page Dutch accounting and audit requirements.
Dutch capital tax
The Dutch capital tax is abolished per 1 January 2006.
Before 2006, capital contributions to a Dutch BV, either as payment on shares or as a share premium, were subject to a one-time capital registration tax. The rate was 0.55% (2005).
Dutch dividend withholding tax
Dividends paid by a Dutch BV to its shareholder(s) are generally subject to a 15% dividend withholding tax.
The withholding tax rate can however in most cases be reduced by virtue of tax treaties or the EU Parent-Subsidiary Directive.
For an overview of the dividend withholding tax rates under the Dutch tax treaties we refer to the page Overview of the dividend withholding tax under Dutch tax treaties.
For more information about the EU tax exemption for dividends we refer to The EU tax exemption for dividends.
Profit distributions by a Coop do not qualify as dividends under Dutch tax law and are therefore not subject to Dutch dividend withholding tax. If the Coop is properly set up also no other taxes become due upon profit distributions. For more information we refer to the page The incorporation of a Cooperative.
The remaining Dutch withholding tax which is due upon distribution may under certain conditions be reduced by an indirect tax credit on the basis of Dutch domestic law.
The credit amounts to at most 3% (three percent) of the gross amount of the dividend paid by the Dutch holding company. This is in fact a refund of the withholding tax due in view of redistribution of qualifying dividend income. Formally the full amount of dividend withholding tax is to be withheld by the Dutch company, but the amount of the credit does not need to be paid to the Dutch tax authorities and thus constitutes a net benefit for the distributing company.
Dutch law does not provide for special rules in case of liquidation. If a Dutch BV is liquidated, the fair market value of its remaining assets and liabilities in excess of the amount of paid in capital, will upon distribution constitute a taxable dividend. See also below: The liquidation of a Dutch holding company.
We have extensive experience with advising clients on the subject the dividend withholding tax and we are gladly prepared to advice you on this subject. If you are interested in our services, please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
Dutch VAT for Dutch Holding Company
In essence a Dutch holding company is subject to the normal Dutch VAT regime.
The Dutch VAT rules do however in practice only apply to holding companies which are either actively involved with the management of the subsidiary(ies), or which conduct other activities as well.
In general a passive holding company will not qualify for VAT registration which implies that the holding company:
If the holding company does qualify for VAT registration, it will have to file VAT returns. In these returns the VAT charged to the holding company can be claimed back, and the VAT which it becomes due in view of services rendered becomes payable.
A limitation for the VAT refund can apply to the extent the Dutch holding company provides VAT exempt services (like providing loans to EU parties).
We have extensive experience with advising clients on the subject of VAT issues of holding companies and we are gladly prepared to advice you on this subject. If you are interested in our services, please feel free to to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
The cost of a Dutch holding company
The set up of a Dutch BV as holding company is a relatively easy and quick procedure. The costs of incorporation (including notary fees) starts at approximately € 1,000, but will in most cases be higher when the BV is tailored to the specific needs of the shareholders. The set up costs of a Coop starts at about € 2,500 (with the same reservation).
It is noted that the articles of incorporation are only drafted in the Dutch language. However, in most cases the public notary can provide English translations.
Most of the services which are required for maintaining a Dutch holding company can be provided by so-called "trust companies". This includes domiciliation (registered address plus local director), legal and accounting services.
We work together with trust companies on a day to day basis. For more information we refer to the page Trust and management services in The Netherlands.
The prices of the trust companies can vary significantly. Total annual fees (address, director, accounting) start at an amount of approximately € 5,000 per annum. On top of that the holding company will be incurring the normal corporate costs, such as the annual registration fee for the Chamber of Commerce, which are normally rather insignificant amounts.
The Dutch holding company needs to comply with the Dutch tax filing and registration requirements. We refer to the section below.
We have set up many holding companies for our clients and have extensive experience with this process. We can co-ordinate the set up of your holding company and the engagement of a suitable trust company. If you are interested in our services, please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
Tax compliance for Dutch holding companies
A Dutch holding company needs to comply with Dutch tax filing and registration requirements.
In essence they are the same as for a normal BV, but as a consequence of its specific activities, the tax compliance does require specific expertise. For the Coop special rules apply.
There is an increased scrutiny from the Dutch tax authorities with regard to holding companies (and other tax planning vehicles). Where a couple of years ago, the 0% tax status of a holding company was rarely challenged by the tax authorities, nowadays it is no exception that even passive holding companies are closely scrutinized and subjected to extensive tax audits.
For a Dutch holding company in particular the following is relevant:
We have extensive expertise in the area of holding companies and provide tax compliance services on a professional basis.
We are providing tax compliance services to many foreign based clients. If you are interested in our services please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
The liquidation of a Dutch holding company
The liquidation procedure of a Dutch holding company is in essence the same as for a ordinary Dutch company, BV or Cooperative.
For a description of the general legal and tax procedure of the liquidation of a Dutch BV or Cooperative we refer to the page The liquidation of a Dutch BV or Dutch Cooperative.
The liquidation of a holding company has the folloiwng typical tax implications:
Following the above, a straightforward liquidation of a Dutch holding company can have significant Dutch or foreign tax consequences. Depending on the specific situation one of the following alternatives may give a better outcome:
We have adviced many clients on possible scenario's for the liquidation of a holding company and/or assted them with the actual liquidation. If you are interested in our services please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.
What we can do for you
If you are interested in our services please feel free to contact us via e-mail or to call us at our offices on the number +31 (10) 2010466.