Did you know that the Netherlands is one of the five countries in Europe that fall within the world's top fifteen corporate tax havens? And did you know that some of the 2021 changes to the corporate tax rates will make it an even more favourable location for companies? Let's look at what the changes could mean for you and your business.

Changes in corporate tax rates as of 2021

The corporate tax rate on profits onto € 245,000 will remain at 15% in 2021.

Tax rate adjustment
As of January 1, 2020, no corporate tax is charged on corporate income tax if an entrepreneur submits the return for the first day of the sixth month after the period over which the tax is levied (which is usually June 1) and the return filed is correct.

Announced corporate tax measures from 2021
The cabinet also plans to introduce three more measures for corporate tax. These measures will be included in the 2021 Tax Plan.

Increasing the 'rate' of the innovation box
If companies make a profit from certain innovative activities, they have to pay less corporate tax on this profit. The 'rate' of this innovation box is now 7%. This will increase to 9% from 1 January 2021.

Liquidation and strike losses less deductible
Businesses may incur losses if a business operation abroad or a subsidiary ceases. In many cases, they may now deduct these losses from the profit they make in the Netherlands. This so-called liquidation and strike loss scheme is being adjusted. The possibilities for companies to deduct these losses are limited.

No more discount if corporate tax is paid in one go
Companies can now receive a discount under certain conditions if they pay corporate tax in one go. This discount will disappear from 1 January 2021.

Other tax components of the National Climate Agreement are also incorporated in the 2020 Tax Plan. These comprise a rise in tax on fossil fuels such as natural gas but lower taxes on electricity. Moreover, the majority of companies will be subject to a rise in renewable energy surcharge, while private households will enjoy a reduction in this surcharge. Additionally, the time-limited exemption from vehicle purchase tax for electric vehicles, which expires in 2021, is now to stay in place until 2025. However, the private use of electric company vehicle tax will gradually rise from four to eight percent.

Not only has the tax office changed certain regulations. The Dutch companies have changed as well in tax reporting requirements.

Dutch companies have never been more transparent in tax matters
Major steps have been taken by Dutch companies in the past five years to improve transparency and reporting on such a complex and controversial subject as taxes.

According to PwC's Bob van der Made, the report clearly shows that Dutch companies have never been more transparent in tax matters than they are now. The companies scored an average of 43 percent on the six good tax governance principles and Oikos. This is considerably higher than the measured 25 percent in 2015.

Van der Made said that the Tax Transparency Benchmark has 'undeniably contributed to this result since 2015 through the balanced and objective approach of this annual survey. The ranking has even now been considered by the management of some companies as a useful, annually recurring benchmark for where they stand with regard to tax transparency, sustainability strategy, socially responsible behaviour and tax governance.'

There is a clear need to catch up on country-by-country reporting and third-party tax assurance. In its final verdict, the jury also emphasized that most Dutch companies can still make significant improvements in the country-by-country reporting components (making it clear that the business activities correspond to the tax payments in the relevant countries) and third-party tax assurance. (This involves having the internal processes and implementation of the tax strategy checked by an accountant so that an independent party can supervise it).

According to Van der Made, the report made it clear that country-by-country reporting and third-party tax assurance are not self-evident for most companies. He also drew attention to the special recommendations in the report for various stakeholders, namely: policymakers, politicians and tax authorities, NGOs, tax advisors, investors and universities.

The Netherlands tax office (Dutch source). 

On 1 January 2019, the new tax package came into force, including The Netherlands anti dividend stripping legislation. The latter is part of the EU Anti-Tax Avoidance Directive (ATAD 1) and, therefore, applies to all current EU member states.

Just over a year before, the Dutch Senate passed the 2019 tax package which was initially published by the Ministry of Finance with amendments on 15 October 2018. The tax package came into force on 1 January 2019 and comprises several alterations to the existing legislation surrounding Dutch corporate income tax:

Implementation of the EU Anti-Tax Avoidance Directive (ATAD 1), especially the Netherlands anti dividend stripping rule and controlled foreign company (CFC) laws;
A tapered lowering of the corporate income tax rate;
A reduction in the loss carry forward timescale and amendments to the laws concerning the depreciation of buildings.

The original proposals to put an end to the present dividend withholding tax and bring in a withholding tax on intercompany dividend distributions to low-tax jurisdictions and certain other circumstances, such as abusive situations were taken out.

Interest deduction limitation rules
Restrictions on interest deduction rules as called for by ATAD 1 were introduced as suggested in the initial proposal. The directive demands EU member states to launch an earnings stripping rule, under which excess (net) borrowing costs, such as currency exchange results and interest expenditure, will only be tax-deductible up to 30 percent of a taxpayer’s tax-based earnings before tax depreciation, interest, tax, and amortization (EBITDA). Any sum larger than this amount will be classed as nondeductible but may be carried forward to the next financial year, despite the fact that all interest is deductible up to the threshold of EUR 1 million (net). The Netherlands has formerly chosen to apply a EUR 1 million threshold, so that EUR 1 million of interest expense is always deductible, even if the amount is higher than the 30 percent threshold.

The 30 percent EBITDA rule comes into effect on the basis of a fiscal unity and no exception applies to groups. In 2020, a specific minimum capital rule will be introduced for financial institutions, such as insurance companies and banks.

Linked with the introduction of the earnings stripping rule, other rules were simultaneously abolished from 1 January 2019, in particular, the acquisition financing rule and the excessive participation financing rule.

Case study: interest deduction restrictions

My investor in USA is loaning me 100.000 USD for operating my business in Europe? Can I expense the interest payment pre-tax? What are the things to look out for? Any special considerations on interest rate?

With regard to interest deduction restrictions, a new regulation was introduced from 1 January 2019, the EBITDA rule. The EBITDA rule is a so-called generic interest deduction limit. This means that the EBITDA rule does not make a distinction between money borrowed from a third party (bank) or money borrowed from a group company (as is the case with another existing interest deduction limitation, the profit drainage rule is the case). The EBITDA rule limits the deduction of net interest in a financial year to the highest of:

1) 30% of income before deduction of interest, taxes, depreciation of assets and depreciation of loans / goodwill (tax EBITDA); and

2) EUR 1,000,000.

 Net interest is the interest costs and equivalent costs of the taxpayer minus the interest income and equivalent income. The amount not deductible in a year can be used in later years if there is room for that in that year. There is no time limit for the utilization of these losses.

 So if you have a loan of EUR. 100.000,- the interest will never be higher the EUR 1.000.000, so the interest will normally be deductible.

There could me other limitations for interest deductions, but for that it is important to know if your investor has shares in de Dutch BV (and if so which percentage%). Also, it can be important what you will do with the loan.

Updated: 5 October 2021

Is a local Dutch director required to incorporate a Dutch BV?

No, it is not a requirement to have a local Dutch director to set up a Dutch BV. In fact, most of our clients are non-Dutch residents.

If you are a small or medium company, or you have a clear goal for your Netherlands business activities. It is likely not so relevant to consider the substance requirements for corporate income tax. We have not seen a case with our clients where substance requirements affected the corporate income tax.

If you expect a profit of above €250.000 per year, we recommend a consultation with one of our tax advisors to determine the best way of structuring your company for tax, director compensation and dividends. 

Your VAT situation is determined upon application for a VAT number, sometimes this is automatically accepted. Sometimes you need to answer additional questions. In all cases of actual VAT liable activities in the Netherlands, have we seen our clients been granted a VAT number.

Legal information on substance of a Dutch BV (Where is the Dutch BV officially tax resident?)

Article 2 of The Netherlands corporate Income tax Act states that a BV incorporated in the Netherlands is always ruled to have its residency in the Netherlands. That means that the Dutch BV always has to file corporate tax returns in the Netherlands and publish its annual accounting.

The exception is in cases two countries are claiming the same tax. This can happen in certain specific scenario's whereby a company is incorporated in the Netherlands because of lower taxes, while the activities are still performed in the country of residence of the Director. To settle these disputes and provide clarity on the matter, the Netherlands has made agreements with many countries in the form of Double Tax Treaties. 

The Netherlands' tax office is of the general opinion that any corporation incorporated in The Netherlands, is resident here for the corporate tax. We call this the 'principle of territoriality'. Therefore, the seat of the company is always deemed to be based in The Netherlands, even in double tax treaty disputes.

We have not seen any cases before amongst our clients where double tax treaties and substance is relevant for corporate tax. If you earn more than €250.000 per year, we in any case advise a consultation with our tax advisors. Our tax advisors can consult you about: Director fees, tax optimization, the best corporate structure for you, double tax treaties, dividend tax and much more.

Then why do I hear about the Dutch director substance requirements?

Certain Dutch firms cater their services aimed at multinational corporations and companies which use the Netherlands as a holding company or intermediary holding. The holding can be of intellectual property, royalties or shares. One of the primary purposes of such structures often is the usage of the extensive tax treaties the Netherlands has with other countries.

For example: A company, like Starbucks.
Starbucks might decide to collect the dividends from all their worldwide subsidiaries through a holding company in The Netherlands. Since the Netherlands has the most extensive double tax treaty system in the world. Thereby avoiding costly double-taxes when distributing the dividends.

If your firm is not relying on such a double tax treaty. You are likely unaffected for the corporate income tax if you are a non-Dutch resident director.

Many tax advisors have little experience with the day-to-day reality of small- and medium-sized entrepreneurs. Where the substance regulations rarely effect them. The tax legislation is aimed mostly at letter-of-the-law situations where real abuse of the tax treaties occurs, such as with certain multinational companies with tax structures that lack meaningful substance.

In short, if you want to be 100% sure that your company is taxed in The Netherlands, the level of substance and activities in The Netherlands would need to substantiate that. However, you are unlikely to be affected by the substance requirements, unless you make significant profits.

Substance requirements for big corporations (Tax treaty protection)

Some big firms rely for a Dutch entity only on a tax treaty. To be 100% sure that the Netherlands tax substance is sufficient, stock listed and large multinational firms, royalty holdings and similar corporations tend to hire a Dutch director for a minimum of 50% of the board of directors.

In our experience, in 99% or more of the cases, smaller companies, trading companies and others are unaffected by the 'substance' requirement to have a local director. We have worked with over 1000+ companies of all sizes.

If you are in doubt if your firm has to find a local director. It is perhaps best to for a consultation with one of our tax advisor on topics such as  ''Double tax avoidance'', ''Transfer pricing'', ''At Arms Length principles'', and ''Advanced Tax Rulings''.

Other cases a Dutch resident director might be helpful

It may prove useful to have a Dutch resident director for applying for a local bank account or a local VAT number. In by far the most cases where actual business activity takes place in the Netherlands, this will prove successful without a local director.

Substance for VAT

The VAT regulations (to apply for a VAT number) is not covered by the same regulations as the corporate income tax. The tax inspectors will make their own decision based on each individual company. In our experience, this should not prove a problem in case you have actual VAT-liable activities and operations in the Netherlands.

Relevant aspects an inspector will consider for the VAT application:

• What is the company activity? (For example, buying agricultural goods in the Netherlands and shipping them all over the world).
• Where does this activity take place? (Are goods or services sent to or from Dutch suppliers, or to or from Dutch customers?)
• What substance does the company have in the Netherlands? (Staff? A warehouse? Suppliers? Customers? An office? Servers for its website? Etc.)
• Where is the company operated from? (Does it have a (virtual) office in the Netherlands?)
• Where is the director located? (Does it make sense for this company to be operated remotely?)
• Is the company activity considered a risk category for VAT fraud?
• Why is this company based in the Netherlands?

Foreign VAT number registration in The Netherlands

If your company is considered not to be based in The Netherlands, for the VAT. You will be able to obtain a VAT number for foreign (controlled) companies. What this mean and how does this affect your company?

Your foreign VAT number can be registered under the address of your foreign holding company, or the address of your director. 

The foreign VAT number will be treated the same in the following situations:

• Selling goods and services in The Netherlands and Europe
• Buying goods in The Netherlands and Europe for trade

The foreign VAT number will be treated differently in the following situations:

• The foreign VAT number will be treated differently when buying services for your Netherlands company. 
• The foreign VAT number will be treated differently when you are buying (for example) a company laptop.

The result is that your suppliers need to invoice you at 0% VAT when providing you with services.

The income included in Box 2 for foreign taxpayers includes the eligible Dutch income (calculated in the same way as for residents) from local companies, except in cases where the shareholding belongs to an enterprise’s equity.
Fiscal partners are subject to special requirements.

The income that must be declared in Box 2 includes the capital gains and/or dividends (main income items) obtained by a foreign taxpayer with substantial interests (>5% shareholding) in a resident company minus any losses related to the shareholding and monumental building tax deductions.

The deductions and personal allowances (“persoonsgebonden aftrek” in Dutch) do not apply for foreign taxpayers that only have income qualifying for Box 2.

The Dutch rollover/tax deferral for eligible legal mergers/demergers and share mergers is not applicable to foreign taxpayers in case the surviving/acquiring company is established outside of Holland. If a Dutch corporation changes its tax residence, then its relocation is considered as a (taxable) substantial shareholding transfer.

An entity established under foreign jurisdiction that has qualified as a resident corporation in Holland for a minimum period of five years but has relocated to another country for the purposes of taxation is considered a resident corporation in Holland for another ten years.

In case the total amount in Box 2 is a negative number, the income is considered as a substantial shareholding loss for foreign residents. Such losses are deductable and can be compensated (loss carryforward or carryback) following the same rules as for resident taxpayers. These losses can be aggregated with any qualifying losses from tax liabilities for resident taxpayers.

The taxable base is determined by special rules if the taxpayer emigrates or the Dutch corporation where he/she is a substantial shareholder transfers its tax seat to a different country.

Our Dutch specialists in taxation can provide consultancy on your tax position. We can prepare and submit your yearly income tax report and take care of other matters related to tax compliance. Please, contact us, if you need further information or tax-related assistance.

In Holland a professional investor may use various vehicles on the funds market. UCITS (Undertakings for Collective Investments in Transferable Securities) and AIF (Alternative Investment Fund) are the most common vehicles that can be marketed in the European Union.

Taxation is among the main considerations in investment fund set-up. In this respect Holland is a very attractive jurisdiction.

If you need further information on the taxation of investment funds in Holland, please, contact our advisors in company formation.

Tax treatment of investment funds (IFs) in Holland

Dutch IFs can qualify for one of three tax categories:

1. tax-exempt IFs;
2. fiscal IFs;
3. tax-transparent IFs.

Each category brings particular tax advantages.

Tax exempt Dutch IFs

Under particular conditions hedge funds and open-end retail funds may be exempt from withholding and corporate income taxes. A main requirement that needs to be fulfilled is the issue of a license by the National Authority for the Financial Markets (AFM).

Fiscal IFs taxation in Holland

Fiscal IFs are not subject to corporate income tax. A withholding tax of 15% applies to the dividends distribution, unless provided otherwise by a treaty for double tax avoidance signed by Holland. In order to receive such tax treatment, the fund has to be incorporated as a public or private Dutch company with limited liability.

Our local registration agents can assist foreign investors in establishing Dutch investment funds.

Tax-transparent IFs in Holland

For the purposes of taxation, a Dutch IF may be deemed transparent if:

1.  the IF is not considered a legal entity with respect to withholding and corporate income tax;
2. the IF is a closed-end fund for mutual account (in Dutch : fonds voor gemene rekening, FGR);
3. the IF or its managers do not have a registered Dutch seat;
4. the IF is not licensed by the National Authority for the Financial Markets.

If you need further information regarding the tax requirements for Dutch investment funds, please, contact us

Tax on income generated by substantial shareholding (Income tax box 2)

If a resident of the Netherlands has a “substantial shareholding” (“aanmerkelijk belang”) with respect to an eligible foreign or Dutch corporation, then the income generated by this shareholding needs to be declared in Box No. 2 of the tax return form for personal income.

In case a taxpayer holds directly or indirectly a substantial share of a corporation, then any income obtained from loans or asset provisions to the corporation is taxable and needs to be reported as derived from other labour in Box No. 1 of the tax return form for personal income.

Read more on Box 2 for Foreign shareholders.

What is a substantial shareholding?

Taxpayers are considered as substantial shareholders if they own, indirectly or directly, alone or with their fiscal partners:

1.  a minimum of 5% of the company’s total share capital (except repurchased shares that will be cancelled);
2. have the rights to acquisition of ≥ 5% of the shares mentioned above;
3. profit shares (or “winstbewijzen” in Dutch) giving entitlement to ≥ 5% of the annual profit or ≥ 5% of any liquidation proceeds;
4. a minimum of 5% of the rights to a vote in a Cooperative (or “Coöperatie” in Dutch) or an Association on a Cooperative Basis (“coöperatieve vereniging”).

The criteria listed above are valid both for legal and economic ownership in its various forms.

The rules for substantial shareholdings apply to options to acquire profit shares / shares in the same manner as to underlying profit shares / shares.

The principles of taxation of substantial shareholdings are basically the same for Mutual Funds (FGRs), Cooperations and Associations on a Cooperative Basis: all these entities are treated as corporations.

In case one corporation owns shares of different classes, the 5% criterion is valid for each class separately. Share classes are determined by special rules.

In case a taxpayer is classified as an indirect or direct substantial shareholder, other owned profit shares / shares issued by the subsidiary also belong to the substantial shareholding and therefore are subject to the same rules.

Substantial shareholders’ taxable income

The substantial shareholders’ taxable income is formed by the regular profits generated by the shareholding (e.g. dividends) minus allocable expenditures and by the capital gains obtained through transfers of shares included in the shareholding. Personal allowances can be deducted from this income.

If certain conditions are fulfilled, the income received from inherited substantial shareholdings can be subtracted from the price of acquisition of the shareholding for a period of two years.

Can we help you?

Our qualified tax advisors can provide consultancy on your tax position. They can also prepare and file your yearly income tax report and handle other issues related to tax compliance in your name. If you need further information or assistance, please, contact us.

A characteristic feature of the tax system in the Netherlands is the option to consider the treatment of particular transactions or operations with the tax authorities in advance. The Tax Administration may give you advanced clearance. The National Tax Authorities can conclude two types of agreements with the taxpayers: an Advance Pricing Agreement (APA) or an Advance Tax Ruling (ATR).

APAs are agreements where the Tax Authorities specify the method of pricing that will be applied by the taxpayer to company-related transactions. This programme gives taxpayers the option to resolve or avoid potential or actual disputes on transfer pricing in a cooperative, proactive manner.

ATRs are agreements with the Tax Authorities that determine the legal obligations and rights of the taxpayers in their specific situations.

APAs and ATRs are binding both for the Tax Authorities and the taxpayer. Their conclusion is subject to particular substance requirements. Generally the Tax Administration is able to process requests for ATRs, APAs and other inquiries (for instance for VAT registration, fiscal unity or facilitated merger) without significant delays.

The EU law requires the Tax Authorities in Holland to automatically exchange data on APAs and ATRs with the National Tax Authorities in other Member States. The Tax Administration has prepared standard documents that taxpayers fill in to conclude cross-border rulings or arrangements with respect to transfer pricing. All National Tax Authorities in the EU are required to exchange such information. This improves the transparency with respect to corporate taxation in the Community. Eventually the EU may also start exchanging similar information with National Tax Authorities in non-members.

Cooperative compliance

If certain conditions are fulfilled Dutch businesses can apply for the so-called horizontal monitoring (enhanced relationship with the National Tax Authorities). Horizontal monitoring is a type of voluntary cooperative compliance where the organisation concludes a specific agreement with the Tax Administration. This provides advanced assurance and security and prevents taxpayers from bad tax surprises. Still the scope of horizontal monitoring includes more than legislative compliance: the business needs to demonstrate that it controls its tax risks and processes by using a Framework for Tax Control.

The National Tax Authorities adjust their monitoring intensity and methods with respect to the taxpayer’s tax control level. Hence their audits will switch from reactive (performed for past periods) to proactive (to provide security upfront). The relationship between businesses and the Tax Authorities in horizontal monitoring rests on transparency, mutual understanding and trust.

The main advantage of this arrangement is the possibility to deal with relevant tax positions and risks at the time of their occurrence within plausible commercial deadlines. Companies are expected to behave transparently in their interactions with the Tax Authorities and, in turn, the administration responds quickly with regard to issues brought to its attention by these businesses. Furthermore the horizontal monitoring programme helps to accurately determine taxable cash flows, current and deferred taxes, and guarantees that companies have few, if any, unsure tax positions. This saves businesses both costs and time. However it is worth mentioning that the Dutch Tax Administration has not yet formulated objective principles regarding the requirements for the Framework for Tax Control.

If you reside in Holland or receive Dutch income, you need to follow the national laws on taxation. As a resident (living in Holland) or non-resident (foreign) taxpayer receiving Dutch income, you will need to pay income tax in Holland.

Taxable Dutch income types

The Dutch tax laws recognize 3 types of income that are subject to tax. These are classified into boxes. Box 1 concerns income related to home ownership or employment, i.e. salaries, business profit, pension, regular benefits and owner-occupied real estate. Box 2 covers substantial interest income and Box 3 represents income from investments and savings.

The taxation system in Holland is quite complex and you can end up paying up to one-fourth of your personal income in taxes, but all rates depend on the nature of the work you perform and your residency, among other factors. Persons taxable in accordance with the Dutch laws need to submit their returns in digital form by the beginning of April each year. If it is impossible to keep this deadline due to particular circumstances, an extension can be granted upon request.

Taxes levied on Dutch residents / non-residents

In the form for tax return Dutch residents are obliged to declare their income received worldwide, including amounts that Holland is unable to tax by virtue of international or national regulations. Employment income, business profits and capital gains obtained in foreign countries fall in the list of such revenues. Non-residents can choose whether to be treated as residents with respect to taxation. Persons with status of resident taxpayers must declare their worldwide income permitting the option of taxation of this income in another country. To avoid double taxation, Holland offers tax relief (or tax credit) against owned tax. An experienced Dutch attorney can advise you with regard to the most convenient possibilities for your business.

Dutch corporate income tax (CIT)

Companies in Holland and particular entities established elsewhere and receiving income from Dutch sources are liable for corporate income tax (CIT). Companies with capital consisting of shares, cooperatives and other entities conducting business are on the list of company types subject to taxation. All companies need to file tax returns every year. The deadline for submission is five months after the concerned year’s end. All taxes need to be paid within two months of the receipt’s assessment.

Value Added Tax is, per se, a consumer tax incorporated in the price paid by the end customer for a particular service or product. In line with the EU legislation, VAT is applicable to the provision of goods, services, importation and acquisition of goods. Holland has three different VAT rates: a standard 21% rate, a special 9% rate for drugs, food, newspapers and books, and a 0% rate for international trade to allow for VAT-exempt export of commodities.

If you need further information and personal advice with regard to your business, please, get in touch with our local lawyers.

An important aspect of the corporate tax system in the Netherlands is the special participation exemption according to which all capital gains and dividends generated by an eligible shareholding are exempted from taxes.

Even though all companies residing in Holland are generally liable for CIT on their income generated worldwide, profits originating from an eligible shareholding are tax-exempt at the level of the shareholder considered as tax-resident in Holland. This tax exemption is called the Dutch participation exemption (hereinafter referred to as: PE).

The PE has two main purposes. In its purely domestic sense it prevents double taxation of the income of a single enterprise (taxing both the income of the company and of its parent corporation). From an international perspective the PE aims to avoid double taxation by different countries.

Corporate tax in the Netherlands

Generally, all local companies are liable for corporate income tax, or CIT, with respect to their income generated worldwide. For profits up to 395 000 Euro the CIT rate is 15%. Any income exceeding this threshold is taxable at a rate of 25.8%.

Corporate residents

All resident Dutch companies need to pay CIT. Tax residency is determined based on the particular circumstances and facts. The effective management location is defined by certain prerequisites. This is the location where:

• important decisions regarding the business are made;
• the directors meet and work;
• the company stores its business records and prepares its financial statements.

Thus entities are considered tax resident if their effective management locations are in Holland.

Eligible shareholding

According to the effective legislation, the PE is applicable to profits from shareholding of a Dutch resident parent company, if it fulfills the requirements listed below:

1. The parent corporation participates with at least five percent of the nominal contributed share capital (alternatively, depending on the circumstances, five percent of the rights to vote) of a given company whose capital has been split into shares (requirement for minimum threshold);
2. At least one of three conditions is fulfilled:

• the parent corporation participates with the objective to accumulate a return higher than what is expected from passive investment in a portfolio (the motive requirement);
• the subsidiary’s indirect and direct assets include less than fifty percent passive assets subject to a reduced tax rate (the asset requirement);
• according to Dutch standards the subsidiary already carries an adequate tax burden (the taxation requirement);

3. The profits generated by the subsidiary are not deductible with respect to CIT in the subsidiary’s country.

Participation not eligible for exemption

In case the requirement for minimum threshold (at least five percent participation in the nominal contributed share capital) is fulfilled, but the other conditions for PE are not, the corporation will receive up to 5 percent credit for the base tax payable for the participation (with the exception of eligible EU participations, where the credit can cover the whole tax).

Motive requirement

The motive requirement involves circumstances and facts and is fulfilled when the parent company invests in its subsidiary with the aim to obtain profits exceeding the ones from passive portfolio investments. Generally, the requirement is met if, for example, the parent company is actively involved in the subsidiary’s management or if it performs a significant function in the group’s business enterprise. If >50 percent of the subsidiary’s consolidated assets are made up of shareholdings amounting to <5 percent, or the subsidiary (including its subsidiaries) functions predominantly as a leasing/licensing or group financing company, then the motive requirement will not be fulfilled.

Asset requirement 

Free passive assets, subject to a reduced tax rate, have the following characteristics:

• they are not practically required for the enterprise of their owner; and
• the profit that they generate is taxed effectively at <10% rate.

Immovable property always qualifies as “good” for the purposes of this requirement (never mind its function in the enterprise and its taxation). The fair value of assets on the market is decisive for the fulfilment of the requirement’s conditions. The asset requirement is continuous and mostly needs to be fulfilled throughout the whole accounting year.

Assets used for leasing, licensing or group financing are considered passive, except when they are included in active leasing or financing enterprises, as defined by law, or their financing consists of ≥ 90% third party loans.

Taxation requirement

In general, participations are considered subject to adequate taxation if they are taxed as profits at a minimum rate of 10 percent. Certain differences in the tax bases, e.g. a broad PE, taxation deferral until profit distribution, deductible dividends or absence of limitations with respect to interest deduction may lead to the disqualification of profit tax as sufficient liability, except in cases where the effective rate of taxation in accordance with the Dutch standards is ≥ 10%.

The tax law in the Netherlands offers a preferential regime for corporate taxation with the aim to promote activities related to investments in novel technologies and development of innovative technology. This is the Innovation Box (IB) regime. For profits meeting the requirements for IB, companies owe a total of 7% corporate tax, rather than the 15 – 25.8% usually levied (according to the rates for 2022).

Description of the IB regime

To be eligible for taxation under the IB regime, companies should have fixed intangible assets that meet certain requirements. According to the IB rules, qualifying assets are determined taking into account the taxpayer’s company size. Small taxpayers have a total 5-year group turnover below 250M Euro, while the total gross benefit derived from the eligible intangible assets for the 5-year period is below 37.5M Euro. Companies exceeding these thresholds are qualified as large taxpayers.

In these terms:

qualifying assets of small taxpayers are fixed intangible assets developed in-house and derived from Research and Development (R&D) activities benefitting from remittance reduction (WBSO – R&D tax credit / R&D certificate);

qualifying assets of large taxpayers (excluding cases of software or biological products for plant protection) must meet some additional conditions. Besides R&D certificates, the companies must also have an EU license for medicinal products,  a breeder’s right/(requested) patent, a certificate for additional protection or a certified utility model. Assets related to qualifying fixed intangible assets or exclusive licenses may also qualify under particular circumstances. Logos, brands and similar assets are not eligible for tax reduction.

If the eligibility conditions are fulfilled, then such profits are not taxed at the usual rate of corporate tax, i.e. 25.8%, but at a reduced rate of 7%. Therefore the actual tax amounts to 7%. Before applying the reduced tax rate, the expenses for the asset’s development need to be recaptured from the profits, which means that their amount will be taxed using the full general rate).

It is important to mention that R&D certificates allow both large and small taxpayers to apply for a tax credit with respect to wage tax liabilities. Since 2016 the basis for remittance reduction related to R&D consists of the costs for wage tax plus other R&D expenditures and costs.

Determination of the profits from technology and benefits of the IB regime

The profits eligible for reduced corporate income tax are determined by the expenses of the taxpayer related to the qualifying assets’ development. The expenditures for development are split in two categories: eligible and non-eligible, using the so-called nexus approach. Eligible expenditures are all direct costs related to the fixed intangible asset’s development, except any costs for outsourcing R&D tasks (costs incurred for outsourcing can reach a maximum of 30% of the eligible expenditures). Therefore, the formula below is applied:

eligible costs x 1.3

eligible profits = --------------------------------------------------   x profits

total costs

The profits are determined by tailoring. A simple functional analysis and transfer pricing can be used for a start.

Losses

The IB regime is structured so that it can also bring advantages to companies that aren’t currently paying taxes, e.g. due to accumulated tax losses in the past. In this case, if the company uses the IB regime, the full recapture of its accumulated losses from tax can take longer, so the period for which the entity is not liable for taxes will be extended.

If the developed assets in the field of technology lead to losses, the lost amounts can usually be deducted for the means of taxation at the usual 25.8% rate, and not the low effective 7% rate. Also, any initial losses that were incurred before the start of business operations can also be deducted at the general corporate tax rate of 25.8%. The reduced 7% rate is applicable again only after recapture of IB losses. A taxpayer can only have one IB. Therefore the amounts relevant to the intangible fixed assets under IB regime are consolidated.

Application submission and certainty for future taxes (Advance Tax Rulings, ATR)

A company can use the reduced corporate tax rate by selecting the relevant items in its yearly corporate tax return. In Holland, it is not only possible, but it is a standard procedure to go over the practical aspects of the IB principles and the question of profit allocation with the Tax and Customs Administration (Revenue Service). Taxpayers have the option to conclude binding agreements (ATRs) with the administration and, by doing so, have certainty with respect to future taxes. It is important to mention that the information on tax rulings is exchanged with international tax authorities. Read more on the Advance Tax Rulings in the Netherlands

If you need more details or legal support, please, get in touch with our Dutch tax agents.

Holland has long been attractive for entrepreneurs looking to establish a business due to numerous social, cultural and geographical factors. Its comparatively favorable tax climate is also an important prerequisite in the process of decision-making.

Value Added Tax (VAT)

Value Added Tax has a great influence on corporate cash flows. Generally, a business can request a VAT refund for the amount it has incurred. Still, it may take several months until the tax is recovered through the periodical return. The period for foreign VAT reclamation may even be longer than a year and its duration depends on the EU member involved with the application for refund.

Negative influence of VAT on cash flows is also observed in the process of import of products in the European Union. Importers are obliged to pay VAT that can be reclaimed only retroactively, in the VAT return, or in a time-consuming process requiring a separate refund application. As a consequence, companies have to prepay the VAT on their imports with adverse effects on their cash flows. On this background, few member states of the EU have adopted schemes for deferral of VAT payments that would otherwise be due at the time of import.

Article 23 license

Companies established in Holland have the option to apply for the Article 23 VAT deferral license. This document makes it possible to postpone the import VAT payment until the submission of the periodical return. In the statement, the VAT can be included as payable, but at the same time, its amount is also deducted under input VAT. This means that businesses do not necessarily have to pre-finance VAT. Without Art. 23 license, the VAT due for import would become immediately payable at the country’s border. Its subsequent reclamation occurs either through the periodical return or through a lengthy process for refund requiring a special application. As mentioned above, the refund of this VAT may take months, even years, depending on the case. VAT deferral licenses are granted to companies registered in Holland and international businesses without local establishment that have assigned a Dutch fiscal representative (a tax service provider holding a general licence) for the purpose of VAT.

In most members of the EU, the VAT payable at import has to be transferred to the customs and tax administration at the time of importation or shortly after. Countries like Ireland, Germany, Italy, Great Britain, Spain and Sweden do not offer options for postponed accounting. In other countries, the payment of VAT can be deferred, but only in specific cases and under strict conditions. The only country that provides an option comparable to the Dutch deferral license is Belgium. There the transfer of due VAT can be postponed until the submission of the periodical VAT return.

The EU Directive on the common system of value added tax provides the option to grant an exemption from VAT on import goods destined for another member state straight after import. Import goods intended for storage or sale in the respective member state cannot be exempt from import VAT. However, there is a possibility to suspend the payment of VAT and duties due at the time of import for a particular time period.

When goods enter the territory of the EU, companies the option to store them in the so-called customs warehouses. Such warehousing is possible in all member states, although the formal procedure varies depending on the state. In this case, the payment of duties and VAT is deferred until the goods’ removal from the customs warehouse. Thus VAT and duty payments are temporarily suspended to the advantage of cash flow. At some point in time, these taxes become payable. On the other hand, if the goods’ next destination is unknown, their storage in a customs warehouse can be beneficial. For example, if the goods are subsequently shipped to third countries, no VAT and customs duties become due.

Why should you choose the Netherlands as your gateway to Europe

Considering the above, one can conclude that logistic and geographical factors are just some of the significant reasons to import goods through Holland. The option to avoid VAT pre-financing can be decisive for companies in planning the routes of their import goods.

There is also another factor that must not be overlooked: the level of responsiveness of the different customs and tax administrations across the European Union. Some adopt a strictly formal approach, while others welcome dialogue. The customs and tax administration in Holland is open to discussions. It is acknowledged for its high quality of service and proactive approach. The officers are also ready to confirm particular arrangements in written form, guaranteeing certainty (in advance) to taxable entities. The responsiveness of the Dutch administration is a valuable quality and a strong motivator, along with the favourable VAT arrangements at import, for businesses to choose Holland as a European gateway.

Are you interested? Our company has the network, local competencies, and experience to assist you in the efficient structuring of your import/export operations, both in Holland and abroad. We are here to consider your needs and meet them. If you would like to receive more information on the possibilities, please, do not hesitate to get in touch with us.

Holland has a well developed regulatory framework for private businesses, partnerships and corporations. The main elements of the framework consist of: clear rules on financial statements, auditing, and the publication of audits.

Because of the clarity and relative simplicity of the regulations, corporations are able to have a stable base of operations where they can plan for the long term. In this article, we lay out a summary of the requirements for accounting, auditing and publication in the Netherlands. If you would like to receive more detailed information, please contact us.

Mandatory preparation of financial statements

Practically all corporate entities registered in Holland are obliged to present financial statements. The requirement is statutory and often included in the entity’s Articles of Association (AoA).

Foreign companies are obliged to submit their yearly accounts in their home countries and provide a copy to the Dutch Commercial Chamber. Branches are an exception to this rule as they are not obliged to prepare separate financial statements.

Importance of the financial reports for Dutch businesses

Financial statements constitute the foundation of corporate governance and, as such, are a vital element of the legal system in Holland.

Their main purpose is to report to shareholders. Once the shareholders accept the statements, they discharge the directors’ board for its performance. Their equally important secondary purpose is to protect creditors. Practically all corporate entities are obliged to register at the Trade Registry of the Commercial Chamber and publish annually particular financial data. The Registry is publically accessible and represents an important information source with regard to the national market.

Financial statements also have to do with taxation. Even though the tax law provides independent rules for determining the tax basis, the first step of the process is to consider the statements.

Contents of Dutch financial statements

As a minimum, the statements contain a profit/loss account, balance sheet and notes on the accounts.

Generally Accepted Principles in Accounting (GAAP) in Holland

The Dutch rules for accounting are regulated. The accounting principles are primarily based on European directives.

The GAAP apply to private and public companies with limited liability and to other entities, e.g. some partnership forms. Companies listed on the stock market, insurance companies and financial institutions are subject to special rules.

The Dutch accounting principles differ from the international standards for financial reporting (IFRS) but they are continuously harmonized. As of 2005 all companies listed in the European Union are obliged to follow the IFRS. This rule also applies to the Dutch insurance companies and financial institutions. The question whether private limited liability companies (BVs), non-listed public limited liability companies (NVs) and other local business entities can follow the IFRS is still being discussed.

The Dutch accounting principles

According to the principles of accounting all financial information has to be understandable, reliable, relevant and comparable. All financial statements have to reflect realistically the position of the company in line with the principles.

The profit & loss account, balance sheet and notes must present truthfully and dependably the equity of the shareholders on the date of the balance sheet, the annual profit and, if at all possible, the liquidity and solvability of the company

Companies participating in international groups may choose to prepare their statements in compliance with accounting standards accepted in another member of the EU, if a reference to these standards is included in the attached notes.

The principles of accounting need to be presented in the statement. Once implemented, these principles can be changed only if the change is well justified. The reason for the change must be explained in the respective notes, together with its consequences with respect to the company’s financial position. The Dutch legislation lays out specific requirements for disclosure and valuation that must be respected.

The official reporting currency is the Euro, but depending on the specific company activities or its group structure, the report may involve another currency.

Consolidation, audit and publication requirements in Holland

The consolidation, audit and publication requirements depend on company size: large, medium, small or micro. The size is determined using the criteria below:

• number of staff
• asset value in the balance, and
• net turnover.

The following table summarizes the parameters used for classification. The asset values, staff and net turnover of group companies and subsidiaries qualifying for consolidation must also be included. Companies qualifying for the large or medium category must meet at least 2 of the 3 criteria in two consecutive years.

Criterion	Large	Medium	Small	Micro
Turnover	> 20 M Euro	6 – 20 M Euro	350 K – 6 M Euro	< 350 K Euro
Assets	> 40 M Euro	12 – 40 M Euro	700 K – 12 M Euro	< 700 K Euro
Employees	> 250	50 - 250	10 – 50	< 10

Dutch requirements for consolidation

In principle, corporations must include the data of any subsidiaries and companies in their group in their financial statements in order to present a consolidated report.

According to the law in Holland controlled subsidiaries are legal entities in which companies can exercise indirectly or directly >50 percent of the rights to vote at the meeting of shareholders or are authorised to dismiss or appoint >50 percent of the supervisory and managing directors. Partnerships where companies are full partners also fall within the scope of the subsidiary definition. Group companies are legal entities or partnerships in the structure of company groups. The decisive consolidation factor is the control (managerial) over the subsidiaries, regardless of the percentage of held shares.

The financial information of subsidiaries or group companies does not need to be presented in the financial statements (consolidated) if:

1. It is insignificant compared to the whole group:

• it takes too much time or resources to obtain the subsidiary’s / group company’s financial data;
• the company is held with the intention to be transferred to a different owner.

2. Consolidation can be excluded if the group company or subsidiary:

• meets the criteria for a small business from statutory point of view (these criteria are presented in the point on publication conditions);
• is not listed on the stock market.

3. Consolidation can also be excluded under the following circumstances:

• the company hasn’t been informed in a written form of any objections to the lack of consolidation within six months following the financial year’s end by a minimum of 10 percent of the members or holders of ≥ 10 percent of the capital issued;
• the financial data pending consolidation has already been presented in the statements of the parent corporation;
• the consolidated statements and yearly report meet the requirements of the 7^th EU Directive;
• the consolidated statements, the yearly report and the audit report, if not already translated to Dutch, were translated to or prepared in German, English or French and all documents are in one and the same language;
• within six months of the date of the balance sheets or within 1 month of permitted postponed publication, the papers or their translations mentioned above were submitted at the Trade Registry office where the company was registered or, alternatively, a notification was made with reference to the Trade Registry office where these papers are available.

Requirements for audit in Holland

The law in Holland requires that large and medium companies have their yearly reports audited by qualified, registered and independent local auditors. Auditors are appointed by shareholders, members of the general meeting, or, alternatively by the managing or supervisory board. In principle, audit reports should include points clarifying whether:

• the statements give information in line with the generally accepted principles of accounting in Holland and represent accurately the company’s yearly result and financial position. The company’s liquidity and solvency may be assessed;
• the report of the Managing Board fulfils the statutory requirements; and
• the necessary additional information is provided.

The appointed auditor reports to the supervisory and managing boards. The competent institution should first consider the audit report and then approve or determine the financial statements.

If it is not mandatory to carry out an audit, the parties may do so voluntarily.

The Dutch publication requirements

All financial statements should be finalized and accepted by the members of the managing board within 5 months following the financial year’s end. After that the shareholders have two months to adopt the statements after their approval by the management directors. Also, the company has to publish its yearly report within 8 days of the shareholders’ approval or determination of the statements.  Publication means submission of a copy at the Trade Registry, Commercial Chamber.

The period for preparation of the statements can be extended by up to five months by the shareholders. Therefore the publication deadline is 12 month following the financial year’s end.

If the entity’s shareholders also act in the capacity of managing directors, then the date of approval of the documents by the Management Board would also be the date of adoption by the meeting of shareholders. Under such circumstances, the publication deadline is five months (or ten months, if an extension of five months has been given) following the financial year’s end.

The requirements for publication depend on the company size. They are summarized in the table below.

Document	Large	Medium	Small	Micro
Balance sheet, notes	Fully disclosed	Condensed	Condensed	Limited
Profit & loss accounts, notes	Fully disclosed	Condensed	Not necessary	Not necessary
Valuation principles, notes	Fully disclosed	Fully disclosed	Fully disclosed	Not necessary
Management report	Fully disclosed	Fully disclosed	Not necessary	Not necessary
Statements on cash flow	Fully disclosed	Fully disclosed	Not necessary	Not necessary

Can we help you?

We can offer you a full list of services for accounting, including the preparation of financial statements/yearly reports, administration, tax compliance and payroll services.

Please, contact us with any questions related to this article or in case you want us to send you a specific proposal for engagement.