The fiscal system in The Netherlands can currently be summarized as follows:
Corporate Income Tax
Dutch companies are subject to Corporate Income Tax at a maximum rate of 25% on income generated in The Netherlands. Income generated abroad is protected by the participation exemption, by tax treaties and by a unilateral rule to avoid double taxation on the profits of permanent establishments.
Participation Exemption Regime
Under participation exemption rules, income from dividends and capital gains connected with qualified shareholdings is exempt from taxation in The Netherlands. This exemption is granted provided: 1) the participation is at least 5% of the nominal paid-up capital of the subsidiary; and 2) the subsidiary does not qualify as a low-tax portfolio investment company subject to an effective tax rate of less than 10%. The “Motive Test” can be applied as an additional test to prove that the structure does not concern a passive portfolio investment.
Capital gains are not subject to tax in The Netherlands provided the participation exemption rules are satisfied. If not, a maximum tax rate of 25% applies.
Dividend income is not subject to tax in The Netherlands provided the participation exemption rules are met. If not, a maximum tax rate of 25% applies. Withholding tax on dividends in the jurisdiction of the remitting party is determined by either the EU Parent-Subsidiary Directive or the applicable Double Tax Treaty (DTT).
Interest income is taxed at maximum 25%, but normally there is an offsetting interest expense from a shareholder’s loan. In general, the amount taxed in The Netherlands is the spread of approximately 1/8%. Withholding tax on interest payments in the jurisdiction of the remitting party is determined by the EU Parent-Subsidiary Directive or the applicable DTT. The Netherlands does not levy withholding taxes on interest payments.
Royalty income is taxed at maximum 25%. Normally, there is an offsetting royalty expense from a license agreement, and the amount taxed in The Netherlands is the spread. The percentage of the spread depends on the size of the amounts. Withholding tax on royalty payments in the jurisdiction of the remitting party is determined by the EU Parent-Subsidiary Directive or the applicable DTT. The Netherlands does not impose withholding taxes on royalties paid.
Withholding tax on outbound dividends
The Netherlands levies a withholding tax of 15% on outbound dividends. This may be reduced if shares in the Dutch company are held by a holding company that has a DTT with the Netherlands, or are held by a company within the EU (e.g. Cyprus), or held by a Dutch Cooperative.
Interest deduction limitations
The Netherlands has thin capitalization rules and interest on excessive debt (3:1 ratio) is not deductible. These rules rarely apply in practice because interest paid on loans used to finance participations is not tax deductible. Value Added Tax (VAT) In the Netherlands, the VAT rate is 21%. Like in all EU Member States, Dutch holding, financing and royalty companies need custom-made VAT advice.
Double Tax Treaties (DTTs)
The Netherlands has one of the largest network of DTTs in force, including DTTs with most jurisdictions with high tax rates. Because The Netherlands is a EU Member State, Dutch companies may receive tax-free dividends from their EU subsidiaries where the Parent–Subsidiary Directive applies. This is subject to anti-avoidance provisions in the jurisdiction of the paying company. Under certain conditions, interest and royalties may be exempt from withholding taxes under the EU Interest and Royalties Directive.
The minimum required share capital of EUR 18,000 for B.V. companies has been abolished as at 1 october 2012. Shares in B.V. companies may be issued in registered form only and different classes of shares are permissible. Dutch N.V. companies may also issue bearer shares.