Tax Matters: Four reasons to incorporate in The Netherlands

By Robin de Raad
Tax Advisor, Zirkzee Group

The Netherlands was recently voted as one of best countries for global trade by the Centre for Global Development. This assessment was down to its open and international outlook, well-educated workforce and strategic location in Europe.

The other, and possibly more important, reason was the coun- try’s attractive tax environment. The  Dutch government’s view is that the tax system should, under no circumstances, form an obstruction  for companies to incorporate in the Netherlands. They aim to compete with other fiscally  attractive countries across the key areas of tax treaties, tax tariffs, participation exemption  and incentives for innovative entrepreneurs.

Tax treaties

The Netherlands has concluded bilateral tax treaties with a considerable number of  countries. The purpose of these tax treaties is the prevention of double taxation, which  creates a good collaboration between two countries and creates an appealing commercial  environment for entrepreneurs. Com- panies that are tax resident in the Netherlands, are taxed  on their worldwide income, whereas non-resident companies are taxed only on income generated in the  Netherlands.

A company is considered to be tax resident in the Nether- lands if it is incorporated  under Dutch Civil Law, or when its management and control is exercised in the Netherlands. If no  tax treaty is concluded with a specific country, double tax- ation can be avoided with the ‘Double  Taxation (Avoidance) Decree (2001)’. This vast network of tax treaties provides, in many  cases, reduced or no withholding tax on dividends, interest and royalties, and offers instruments  for international tax planning.

Tax tariffs

The Netherlands has a competitive statutory corporate income tax rate, in comparison to other  developed economies in Europe. The tax rate is 20 per cent on the first EUR200,000 (to be  reduced stepwise to 16 per cent in 2021) and 25 per cent for taxable profits  exceeding EUR200,000 (to be reduced stepwise to 22.25 per cent in 2021).

For fiscal investment funds that meet the applicable criteria, a corporate income tax rate of nil  percent is applicable. And finally, certain investment funds (under conditions) are eligible to opt  for an exempt status for Dutch corporate income tax purposes. Ordinary tax losses can be carried  forward for six to nine years or carried back for one year.

Participation exemption

Besides the abovementioned tax treaties, the Dutch corporate income tax law provides for another  way to avoid double taxa- tion, with a participation exemption regime. This participation exemption  regime aims to eliminate economic double corpo- rate taxation of profit distributions paid by a  subsidiary to its parent company.

The participation exemption is applicable for all benefits, such as dividends and capital  gains, received from a qualifying shareholding. Basically, this is a shareholding of at  least 5 per cent of the share capital. Expenses relating to the sale or purchase of participations  are not tax-deductible, but as an exception to the participation exemption regime, losses that  arise from the liquidation of a company in which a qualifying participation is held, can, under  certain conditions, be deduct- ible for corporate income tax purposes. There is no minimum holding  period applicable to use the participation exemption.

Incentives for innovative entrepreneurs

Innovation is strongly encouraged in the Netherlands. One of the ways in which this is  encouraged is via tax benefits for innovative entrepreneurs. These tax benefits  include a Research and Development deduction (RDA) and the so-called Innovation Box.

Companies can lower the wage costs for R&D and other R&D costs and expenditures by deduction of the  tax benefit in their income tax return. The innovation Box is a corporate income tax credit in  respect of the profits from innovation. If the condi- tions are met, the proceeds from innovation  will not be taxed at the regular 20 or 25 per cent tax rate, but at 7 per cent.

Conclusion

The attractive Dutch tax framework offers several options to avoid double taxation. Competitive  tax rates, the possibility to settle financial losses and multiple incentives to stimulate  innovation, make The Netherlands an interesting country in which to start a business.

A stable government and a highly accessible and cooperative tax administration, contribute to  making entrepreneurs feel confident that future adjustments in the Dutch tax system will be  implemented in a way that maintains attractiveness for foreign investors, minimises  impediments for business and guarantees transparency from tax authorities.

 

 This article is taken from the recent IR Digital doucment: IR GLOBAL – MEET THE MEMBERS: The Netherlands.