This post is also available in: Nederlands (Dutch)
As an entrepreneur you will be exposed to various business taxes such as VAT, income tax, wage tax and dividend tax. Each type of tax has its specific legislation and set of compliance rules. In the below a brief summary of a few important aspects of the corporate tax regime in the Netherlands is provided.
Corporate income tax
Amongst others all companies of which the capital is divided into shares, and active in the Netherlands, will be taxable in the Dutch corporate income tax (CIT). The applicable CIT rate is progressive and hence depends on the amount on annual profit. The first EURO 200,000 on annual profit is taxed at 16.5%, the additional profit (in excess of EURO 200,000) is taxed at 25% (2020 legislation). The applicable CIT rates will be further lowered the coming years. Losses may be carried forward for 6 years and carried back for 1 year. Interest deduction restrictions are in place and these could require careful tax planning.
Any company that has its management in the Netherlands and, in principle, all companies incorporated according to Dutch civil law are regarded as a Dutch tax resident. Substance criteria have been published by the Ministry of Finance and substance can be established e.g. by making use of a trust company located in the Netherlands. All Dutch trust offices are obligated to have a license provided for by the Dutch National bank. Substance will be required e.g. to make use of the Dutch tax treaty protection.
In principle, every company pays its own corporation tax. If a parent company forms a tax group with one or more of its subsidiaries, however, on request the Tax and Customs Administration will treat the companies as a single taxpayer (so called fiscal unity). The main benefit of a tax group is that a loss incurred by one company can be deducted from the profits earned by other companies in the same group. The formation of a tax group is subject to certain conditions
The CIT offers an avoidance of double taxation by means of a 100% participation exemption (PE). The PE applies to dividends and capital gains derived from shareholdings of at least 5% provided: (1) the subsidiary is subject to a reasonable effective tax rate based on Dutch tax principles (“subject to tax test”); or (2) less than 50% of the assets of the subsidiary consist of “passive” assets based on the fair market value of the assets (“asset test”).
Dividend withholding tax
The Netherlands only knows a withholding tax on dividends, no tax is withheld on royalties and/or interest. However this may change in the near future if royalties and/or dividends are paid out to companies established in low tax countries.
In domestic situations, dividends are exempt from withholding tax if the participation exemption applies or, for corporate income tax purposes, a fiscal unity exists between the dividend payer and recipient. Domestic rules implementing the EU parent-subsidiary directive provide for an exemption from withholding tax on dividends paid to EU parent companies under the same conditions as for distributions to a Dutch parent.
Dividend withholding tax at 15% is, in principle, due on dividends paid to foreign shareholders, but the rate is frequently reduced by way of applicable tax treaties. Under conditions the dividend withholding tax is lowered to nil.
The Netherlands has concluded numerous tax treaties for the avoidance of double tax with the most important countries all over the world. In many cases these tax treaties lead to a benefit over the national taxation, amongst others with regard to the taxation of income and dividends. This large and beneficial treaty network makes the Netherlands interesting for amongst others headquarters of multinationals and (sub)holding companies.
The term ‘transfer pricing’ stands for setting prices for internal transactions between a related multinational group of entities. Transfer pricing may well lead to a tax benefit.
The aim will be to attribute as much profit as possible to these tax friendly countries. In principle the main question when preparing a transfer pricing calculation is what a third party would be willing to pay for a certain service. When an activity contains more risk, the price should be higher. Therefore the sort of activities are of importance to determine the profit margin. Examples of these activities are: production, sales, R & D, distribution and storage. Although all these activities may only lead to one final product, the various internal production stages should be priced separately in order to allocate the profit on the product to these various activities within the group.
To include a strategic entity of the Netherlands in this group of companies offers access to a wide range of tax treaties with other countries. This will make it more interesting when e.g. dividends are distributed from this Dutch company. The Netherlands offer a so called ‘APA’ tax ruling, which will give certainty upfront by the tax authorities regarding the required margins attributable to the Netherlands. There are several methods available to determine a defensible allocation of profits, the entrepreneur is free to choose the most beneficial.
The companies within the group should calculate, and document, businesslike fees for their activities within the group. In some cases the Dutch tax authorities will assist with setting the height of acceptable prices within the group; the benefit is that the group does not have to make their own detailed and costly report to this purpose.
Dutch innovation box regime
Basically the innovation box will – under strict conditions – lower the standard Dutch corporate income tax rates to 7% on profits following from innovative activities (developed intangible assets) which are part of this innovation box. This lowered tax rate only applies once the revenues from this intangible asset have surpassed the deducted (at standard tax rate) cumulated production costs of the intangible asset.
Value Added Tax (VAT)
VAT is levied at each stage in the chain of production and distribution of goods and services. VAT applies on the supply of goods, the rendering of services, the acquisition of goods by businesses and the import of goods. The standard VAT rate is 21% with a reduced rate of 9% applying for certain goods and services. The Netherlands are one of the few European countries that offer a beneficial cash flow mechanism for the import of goods.
The Netherlands also offers some interesting incentives to recruit expat employees by way of an five year long partial wage tax holiday (so called 30% ruling). We are also specialized in employment taxation and can inform you further on all related (inter)national wage tax / social security matters.
For each of the above taxes we have provided some additional information which you can reach by clicking on the below links: