- Taxes: favourable fiscal climate
- Tax Climate
- Advance agreements and rulings
- Horizontal monitoring
- Tax treaties
- No witholding tax
- Corporate income tax rate
- Participation exemption
- Fiscal Investment Institutions
- Tax exempt investment institution
- Asset Pooling
- 30% arrangement
- Innovation box
The Netherlands is a world-class player in financial services with specific fields of expertise in the rapidly growing areas of retirement management, financial logistics and financial sustainability services.
For entrepreneurs who are looking for a suitable location for their company, the tax system that is applying is an important selection criterion. Since enterprises create innovative power, economic progress and employment, attractive tax rules are of crucial importance. That is recognized by the government of the Netherlands that is making every effort to create a favourable climate for establishing a business. Our well-trained workforce, our intricate infrastructure and our central location in Europe make the Netherlands an attractive country for entrepreneurs and investors.
Advance agreements and rulings
An Advance Pricing Agreement provides certainty in advance about the fiscal acceptability of the price (transfer pricing) that the Dutch group company pays to or receives from a foreign group company for receiving or delivering a service or goods. Financial services exist in a vast variety of forms. Here too, an arm's length price should be calculated on a case-by-case basis, based on the functions performed and on a comparison with transactions between third parties.
An Advance Tax Ruling is an agreement on the tax characterization of international corporate structures, such as certainty in advance about the application of the participation exemption.
With horizontal monitoring, the NTCA strive for a relationship with taxpayers based on mutual trust, understanding and transparency. This means, where necessary, conferring beforehand with the taxpayer, instead of auditing afterwards. It also means utilizing the quality present in the chain, making agreements about that quality and avoiding doing things twice. By doing so, the taxpayer can be certain about its fiscal position at all times.
In order to be able to provide this certainty for the taxpayer, the NTCA concludes individual compliance agreements on a voluntary basis with medium-sized to very large businesses, in which parties agree upon the expected behaviour, desired attitude and the level of supervision.
An evaluation has shown that entrepreneurs are positive about this working-method. The benefits mentioned were:
- working on a real time basis (no backlog);
- reduction of uncertainties; and
- expedient dealing with issues.
To reach the group of small to medium sized enterprises (SME), the NTCA enters into compliance agreements with tax practitioners -intermediary parties such as financial and tax advisors and certified auditors/accountants- and with trade and industry associations.
The Netherlands have an extensive network of tax treaties with other states to prevent double taxation. The government of the Netherlands is actively extending the network of tax treaties. In the negotiations the Netherlands are aiming at a 0% rate for the taxation of dividends on (qualified) participations, interest and royalties.
In practice it’s possible that enterprises will be confronted with double taxation in conflict with a tax treaty. In tax treaties concluded by the Netherlands a specific article with regard to mutual agreement procedures exists. In case the problem of double taxation arises, the competent authority in the Netherlands (Ministry of Finance) will do their utmost to eliminate this double taxation.
No witholding tax
The Netherlands have no withholding tax on interest and royalties.
Corporate income tax rate
The corporate income tax rate in the Netherlands has been reduced to 25.5%. Compared to other European countries that is a relatively low rate.
For decades, profits generated by (qualifying) participations in companies have been tax-exempt for entities based in the Netherlands. This participation exemption sets an international standard.
The key features are:
• minimum shareholding requirement of 5%;
• dividends received from a subsidiary are not taxed;
• the participation exemption is also applicable on capital gains; and
• liquidation losses are deductible if certain conditions are met.
Fiscal Investment Institutions
The Dutch FBI is widely used as an investment fund for (passive) investments in securities and real property. In most cases, the FBI has the form of a Dutch stock company (NV or BV). A FBI is subject to a Dutch corporate income tax rate of 0%, provided that certain requirements are met. The net taxable profit, excluding capital gains, must be fully distributed within eight months after the end of the financial year.
Tax exempt investment institution
The Dutch VBI is a fully tax-exempt non-tax-transparant investment vehicle in the form of a NV or mutual fund. Potentially the VBI is an attractive vehicle. The VBI is exempt from corporation tax and dividend tax.
In practice, the phenomenon of “asset pooling” has been increasingly apparent in the financial markets. The Ministry of Finance recognises the importance of asset pooling for the economy of the Netherlands and would therefore like to support the Netherlands in obtaining a prominent international position in the field of asset pooling. Baring this in mind, the Ministry of Finance tries to make use of the closed general resources account as a means of supporting asset pooling as much as possible.
The extra costs of a temporary stay of an employee outside the country of origin (extraterritorial costs) can be compensated free of tax by the employer. Provided that certain conditions are met, a compensation for extraterritorial costs of 30% of the sum of the wage and the compensation at the most can be given without any proof of the extra costs actually incurred being required.
Another attractive tax rule is the innovation box. The profit from patented know-how is taxed in the Netherlands through the innovation box. The effective tax rate of the innovation box is 5%. Losses on innovative activities are deductible at the normal tax rate of 25.5% (instead of at a tax rate of 5%).
The innovation box has been extended to companies that make use of the research and development arrangement. As a result, the Netherlands have a favourable climate of establishment for smaller companies too.
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