The Netherlands back in shape!
According to the leading research institute World Economic Forum the Netherlands have re-entered the top ten of attractive jurisdictions for doing business internationally. The Netherlands currently holds rank eight on the list. This is mainly driven by a combination of improved tax legislations (see the previous editions of our News Flash) as well as the financial and service infrastructure.
Presently many initiatives are being undertaken to maintain or even improve this position. One of the examples is the opening of the Duisenberg School of Finance that is part of the newly opened Holland Financial Centre. This school should have a place amongst other well known financial educations such as Insead and the London Business School.
Another initiative is the introduction of a more flexible limited liability company (‘besloten vennootschap or BV’) in order to make the incorporation procedure easier and its articles of association more flexible. You can read more about the headlines of this new legislation in the following paragraph of this News Flash.
A third initiative is the very recent introduction of the non-taxed Dutch Exempted Investment Fund about which highlights are mentioned in the final paragraph of this News Flash.
Introduction of a more flexible BV company
 On 31 May this year a draft bill was filed aiming to introduce a simpler and more flexible private company with limited liability (“BV”). This should facilitate the use of BV’s in smaller businesses, joint ventures and in corporate groups. Although the final outcome is not yet certain the main changes will most likely be:
- The abolishment of the requirement of a minimum issued and paid in share capital of EUR 18,000 as well as abolishment of the mandatory auditors opinion in case of a contribution in kind;
- the provisions relating to the mandatory blocking regulations in case of a sale of shares will be replaced by a provision in the law that sees to an obligation to offer the shares to the other shareholders only. In the articles of association deviating provisions can be implemented;
- the BV will be allowed to provide security for the purpose of subscription of shares in its own share capital;
- distributions of profits, reductions of share capital and repurchases of shares can take place unlimitedly provided that the BV continues to be able to pay its debts after the distribution. An appropriate distribution test will be introduced. One of the features of this test will be the need for the consent of the board of directors;
- shares without profit-sharing rights or without voting rights can be issued;
- the shareholders or another corporate body can give concrete instructions to the directors which have to be followed by the directors unless it contradicts with the company’s interest;
- Directors and supervisory directors can be appointed by each shareholder with voting rights;
- Directors can also be appointed by the supervisory board;
- the present declaration of no objection by the Dutch Justice Department will be replaced by an obligation to report the new company to said Department an will therefore not uphold or delay the incorporation of the BV;
- obligations of one shareholder to the other can be laid down in the articles of the BV. This gives a more secure protection than doing such by means of a shareholders agreement.
The Dutch Exempted Investment Fund
On July 10, 2007 Dutch Parliament adopted legislation for the introduction of the Dutch Exempt Investment Fund (“DEIF”), which creates a highly attractive legal structure for collective investment funds available in the international financial marketplace.
With the proposed regulation the Dutch Government wishes to improve the competitiveness of the Netherlands in the international financial markets. The DEIF is particularly attractive for open-end funds aimed at high net-worth individuals and/or (offshore) institutional investors.
They can be fully tax-exempt and free from any form of regulatory supervision. The proposed legislation will not replace the already existing Dutch investment fund tax regime, but creates an additional tax regime for Dutch investment funds.
The main characteristics of the DEIF are that it is (i) not subject to Dutch corporate income tax nor (ii) has to withhold Dutch dividend withholding tax on outbound dividend distributions. However, since the DEIF is not subject to tax, the DEIF cannot be considered a Dutch resident corporate taxpayer for tax purposes and therefore is not entitled to tax treaty protection. Consequently, the DEIF can also not reclaim any foreign source withholding tax. There are also no requirements as to the number or residency of the shareholders. In order to benefit from the proposed legislation a request has to be filed with the Dutch tax authorities within the book year the taxpayer wishes to be eligible for the DEIF regime.
Non-Dutch resident corporate taxpayers (regardless their residency) investing in a DEIF will not become subject to Dutch corporate income tax as a consequence of this investment. Therefore the DEIF is also accessible to corporate offshore investors.
When the shares in the DEIF which are held by a Dutch resident individual or a non-Dutch resident individual form a substantial interest (at least 5% shareholding) the shareholder will be subject to Dutch personal income tax at a rate of 25% on capital gains realized on or dividends received from its shareholding in the DEIF. Annually a deemed benefit of 4% of the fair market value of the DEIF shares has to be recognized so that the effective Dutch personal income tax rate equals at least 1% annually.
When the shares in the DEIF which are held by a non-Dutch resident individual do not form a substantial interest (less then 5% shareholding) the non-Dutch resident shareholder will not be subject to tax in The Netherlands.
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