Tax Treaties

Tax treaties have been concluded between The Netherlands and many countries. The Netherlands is currently actively involved in treaty negotiations with several other countries.

Furthermore a tax agreement has been entered between The Netherlands and the Netherlands Antilles.”

The effect of the tax treaties as concluded between The Netherlands and many other countries on withholding taxes is extensive; the withholding tax levied on dividends, interests or royalties payable by a foreign entity to a Dutch based company, is considerably reduced or even eliminated.

Only a (small) spread should be regarded as taxable income in The Netherlands. The Dutch company should however maintain a certain part of its equity at risk.

Participation Exemption

One of the most important features of the Dutch corporate income tax law is the provision with respect to profits and gains derived by a Dutch company from its subsidiaries and qualifying participations. The participation exemption allows a total exemption from Dutch corporate income tax of (foreign source) dividend income and capital gains, provided that certain conditions are met.

Advanced tax rulings

In The Netherlands it is possible to request an advance tax ruling with the tax authorities which ensures on forehand the maximum possible corporate income tax exposure. The most used rulings in international tax planning are the rulings in which the participation exemption for holding companies is confirmed as well as those for finance and royalty companies (so called APA/ATR).

Holding companies

By interposing a Dutch holding company one benefits from:

a) the participation exemption whereby the Dutch holding company is exempt from corporate income tax due on dividends received from (foreign) participation's as well as on capital gains realised on the (foreign) participation's;

b)  the reduction of the withholding tax on dividends paid by a Dutch holding company to a foreign parent company, as provided for by the various tax treaties .

Please note that to benefit from the participation exemption certain conditions need to be met.

Under the EU Parent-Subsidiary directive dividends and capital gains are tax exempt in case of shareholdings with a minimum 15 % in qualifying entities of other EU states.

Finance companies

Due to the absence of withholding tax on interest, a Dutch finance company can be an attractive option. This company borrows monies from internal and/or external sources for re-lending to its lower tiered group companies. Dutch taxes on the interest received and paid with respect to the loans can frequently be reduced to nearly zero as interest paid can be deducted from interest received. Only a (small) spread is regarded as taxable income in The Netherlands.

Royalty companies

The Netherlands do not levy any withholding tax on royalties. The cross-border flow of royalties can be structured through a Dutch royalty company. The company holding (i.e., owning) the intellectual property grants a license to use the rights (e.g., such as copyrights for movies, images and industrial property rights to trademarks and patents). The Dutch company then sub-licenses these rights to other companies worldwide. The tax benefit of The Netherlands is that paid royalties can be reduced from royalties received, leaving only a small spread taxable in The Netherlands.

Real estate companies

The real estate company is owned and managed by the Dutch subsidiary which is held by the parent holding company. When the real estate is to be sold, the shares of the Dutch subsidiary (holding the real estate) are sold. Proceeds from the shares sold in the subsidiary are tax-exempt in the parent holding company due to participation exemption.

Tax benefits of the use of a Dutch Cooperative (Coöperatie)

The main benefit of using a Coop is that no dividend withholding taxes are levied on dividend distributions by a Coop and that the participation exemption applies to qualifying shareholdings owned by a Coop.

A Coop is subject to Dutch corporate income tax and is a qualifying entity under tax treaties as well as for the EU Parent Subsidiary Directive

Tax benefits of the use of a Dutch Limited Partnership (Commanditaire Vennootschap or CV)

If structured properly no Dutch taxes would be due on the income of the CV.

Also the partners are not subject to Dutch taxation as long as the general and limited partner are not resident in the Netherlands and the business of the CV is not located in the Netherlands.

Another fiscal benefit of the CV is the absence of Dutch inheritance taxes which may make the CV a suitable vehicle for estate planning.

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