Dutch corporate tax regime
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Tax liability for Dutch subsidiaries of foreign corporate entities |
Tax liability for corporate entities
Virtually all corporate entities established and residing in the Netherlands are subject to Dutch corporate income tax for their worldwide profits. Branches of foreign corporate entities are in general only subject to Dutch corporate income tax for certain categories of Dutch source income, like Dutch real estate or a Dutch permanent establishment.
Tax liability for branches of non-resident corporations
According to Dutch domestic tax law, the profits allocable to a Dutch business establishment of a foreign corporate entity are subject to Dutch corporate income tax. The taxable base as well as the tax rate is in essence the same as for Dutch corporations. No special rules apply for the calculation of the taxable profits of permanent establishments; in particular no special "branch tax" is imposed. There is no Dutch (withholding) tax imposed on the remittance of profits by the permanent establishment to its foreign head office.
Under most tax treaties the tax liability is limited to profits attributable to a qualifying permanent establishment. The tax treaty generally provides for a definition of the concept "permanent establishment". Under most tax treaties, activities of an auxiliary, preparatory or supporting nature are excluded from the definition of taxable permanent establishment and are therefore not subject to Dutch corporate income tax.
Tax liability for Dutch subsidiaries of foreign corporate entities
Dutch subsidiaries of foreign entities are treated the same way as Dutch owned corporations.
A Dutch subsidiary BV will be subject to Dutch corporate income tax on its worldwide profits and capital gains if it is either incorporated in the Netherlands or is managed and controlled from the Netherlands.
There are no special tax requirements or restrictions for foreign ownership of Dutch corporations. It is noted that foreign corporations holding shares in a Dutch corporation may be exposed to a Dutch withholding tax on dividends or corporate income tax if the holding of shares is considered abusive. For more information about the levy of dividend withholding tax we refer to the page "International tax planning - The tax cost of repatriating profits from the Netherlands".
For an overview of the Dutch dividend withholding tax rates under applicable tax treaties we refer to the page "Overview of the dividend withholding tax under Dutch tax treaties".
The standard tax year is the calendar year, but a deviating year is allowed. A company may for instance use its parent's fiscal year or accounting year as its tax year.
The tax year used by a parent and a subsidiary do not necessarily have to coincide (except for some special tax provisions to be invoked).
The tax year must generally coincide with the statutory year. Upon incorporation a BV can have an extended book year.
We refer to the page "Doing business in The Netherlands - Dutch tax rates for corporations".
Portfolio investment income received by a company that has the status of "Fiscale Beleggingsinstelling" (a so-called Fiscal Investment Company) can qualify for a 0% tax rate. In order to qualify for this regime various conditions have to be met with regard to amongst others the shareholders, the activities, the funding and the distributions of profits. It is also noted that despite this 0% rate, the Dutch tax authorities take the standpoint that such a company is subject to tax instead of exempted from tax (albeit at a 0% tax rate) and as such it should qualify as a taxpayer for application of the Dutch tax treaties making it eligible for tax treaty benefits if no anti-abuse regulations apply (i.e. the reduced withholding tax rates).
As from 1 August 2007, there is a special regime introduced for portfolio investment companies. Under certain conditions a BV (or similar corporate entity) whose main activity consists of managing portfolio investments on behalf of its shareholders may opt for a full exemption of Dutch corporate income tax and dividend withholding tax. This exempt BV is referred to as a "Tax Exempt Investment Company" or "Vrijgestelde Beleggingsinstelling".
A Tax Exempt Investment Company has in essence no treaty access and may thus not enjoy treaty benefits.
Corporate income tax is assessed on taxable profits.
Taxable profits are determined on the basis of book profits calculated according to Dutch accounting standards adjusted with some adjustments for tax purposes. These adjustments can result in temporary or permanent differences between the book profits and the profits for tax purposes.
In general, all expenses incurred in the ordinary course of business are tax-deductible. Certain costs however are not deductible (including costs relating to criminal activities, fines and penalties). Regular profit distributions (dividends), corporate income tax and certain profit-sharing payments are not deductible either.
Capital gains and losses are treated similarly to other income and as such are included in the taxable profit.
As a general rule of sound business practice, capital gains are in general not taxed until realised while on the other hand capital losses can be deducted on an accrual basis.
Dutch tax law provides for various possibilities to defer taxation of capital gains. See the following paragraph Tax exemptions.
The Dutch corporate tax system provides for various income exemptions, either in the form of a permanent exemption or as a roll-over relief (in fact deferral of taxation).
Permanent exemptions amongst others include exemption of:
- dividends received from and capital gains realised on the shares in qualifying Dutch or foreign subsidiaries (the Dutch participation exemption);
- interest on certain profit participating loans granted by a parent to a subsidiary;
- certain categories of foreign source income by virtue of applicable tax treaties or the Dutch unilateral rules for the avoidance of double taxation;
- the profits arising as a consequence of the waiver of debt (under certain conditions).
- the profits and capital gains in relation to qualifying legal mergers, de-mergers, spin-offs, share mergers (share for share) or business mergers (assets for shares);
- the replacement of certain business assets, including real estate ("replacement reserve").
Dutch corporate tax law provides for an exemption of dividends and capital gains on shares in subsidiaries if the following conditions are met:
- ownership of at least 5% of the issued share capital of the subsidiary;
- the subsidiary has an equity divided into share capital;
- the shares in the subsidiary are not held as a portfolio investment.
In certain specific situations, a lower percentage of ownership than the aforementioned 5% can suffice.
The participation may not be held as a portfolio investment. The motive of the taxpayer becomes a relevant, although arbitrary, factor. However, the law offers two escapes. If a subsidiary qualifies as a portfolio investment, the participation exemption still applies if either an "asset test" or a "subject-to-tax test" is met.
As the asset test is concerned, the assets of the participation should not consist for more than 50% of low taxed passive portfolio investments (e.g. investments which do not have a business function). Participations of less than 5% are considered to be portfolio investments.
The participation exemption is applicable if the subsidiary is taxed at a realistic corporate income tax rate according to Dutch standards. A realistic corporate income tax rate is defined as a regular statutory tax rate of at least 10% unless the taxable base differs significantly from the tax base according to Dutch standards, which could for instance be the case when a special tax regime applies to the subsidiary.
If the participation exemption does not apply because the subsidiary is regarded as a (low taxed) portfolio investment participation, the Dutch corporate taxpayer is granted a (limited) credit for the corporate income tax paid by the subsidiary on the income that is distributed to the parent company.
The participation exemption applies to dividends and capital gains, as well as currency exchange and hedging results and the interest income on certain categories of profit participating loans.
When the participation exemption applies, losses in relation to the participation are in general not tax deductible as the income is already exempted. True liquidation losses might still be deductible.
Under the Dutch participation exemption rules, a Dutch (intermediate) holding company is allowed to deduct all costs and expenses (not only general and administrative expenses but also interest expenses related to acquisition financing) incurred in connection with its subsidiaries. With respect to expenses relating to the purchase or sale of a subsidiary there have been many discussions on whether a deduction applies. We recommend to contact us in case you have expenses relating to the purchase or acquisition of a subsidiary.
For the deduction of interest Dutch tax law provides for various limitations for tax deduction of interest on group loans depending on the situation.
For certain specific situations anti-abuse provisions apply.
To encourage innovation and investments in research and development, for income from innovations an effective tax rate of 7% is introduced (originally introduced as Patent Box).
This (optional) regime can in essence be applied in connection to income derived from intangible assets which are patented in the Netherlands or abroad. Income from intangible assets such as trademarks, logos and other similar assets is excluded from the Patent Box.
The Innovation Box regime has the following relevant features:
1. R&D Activities
Originally the patent box regime could only be applied to income from registered patents, but this has been extended to include income from R&D projects for which an R&D declaration has been obtained.
For application of the innovation box, a distinction has to be made between small and other taxpayers. Small tax payers are companies with worldwide net group sales less than EUR 50 million per year and a gross benefit form IP not exceeding EUR 7.5 million per year. For small taxpayers the R&D declaration is sufficient to enter the innovation box. A small taxpayer may also include 'unprotected IP' in the innovation box regime.
Larger taxpayers need to obtain a R&D statement and should also have an acknowledged legal access ticket. For larger tax payers only income from patents, utility models, software, plant breeders’ rights, and pharmaceutical certifications qualifies for the innovation box regime. This group of taxpayers will thus be subject to a double test.
2. Maximum of revenues
A restriction is introduced with respect to the level of income that can be allocated to the innovation box (“modified nexus” approach). It is relevant whether research and development will be performed in-house and how R&D costs are divided between related parties. This implies that the more R&D activities are outsourced to related parties, the less profit can be allocated to the intangible resulting from such R&D activities The following formula has been developed to calculate the qualifying income.
{(Qualifying costs*1.3)/Total costs}* overall income from the IP asset
Qualifying costs stands for the qualifying R&D expenditures incurred by a taxpayer to develop a certain IP asset. The qualifying costs are multiplied by 1.3 (to discourage outsourcing of R&D within the group). Total costs stands for the overall R&D expenditures incurred to develop the IP asset. The outcome is to be multiplied with the overall income derived from the IP asset.
3. Threshold
The innovation box can only be applied to qualifying income that exceeds a threshold. The threshold is determined by means of a complex calculation involving the development costs from the previous and current year, the economic value of the qualifying immaterial actvie and the qualifying income. In order to make things easier a simplification is available for the first three years of applying the innovation box. In these first three years the threshold is set at 25% of the profit w ith a maximum of € 25,000.
4. Tax rate
The tax rate increased from 5% to 7% and will increase to 9% in 2021. For illustration purposes, the normal corporate income tax rate in the Netherlands is 20-25%. The effective tax rate of 7% is achieved by using the following formula: 7/25 (regular corporate income tax rate) of the total amount of net earnings derived from the intangible asset that has been allocated to the innovation box is recognized as taxable profit which is taxed at the regular corporate income tax rate.
5. Tax losses
Losses incurred canbe offset fully against taxable profits in the previous year or the next six years. This means that the normal loss compensation regime is applicable.
Dutch tax law also has an R&D deduction (RDA). It is not intended that the RDA-deduction and the innovation box can be applied together. Therefore, the R&D deduction cannot be taken into account within the innovation box.
For certain investments, the taxpayer is allowed to apply an extra tax deduction on top of normal depreciation. This includes the:
General investment deduction
Companies are offered the possibility to deduct a percentage of the total amount of investments made in a year, insofar the total amount of investments exceeds an amount of EUR 2400 and does not exceed EUR 323,544 (figures 2020).
The percentage varies (in brackets) from 28% for investments between EUR 2,401 and EUR 58,238, a fixed amount of EUR 16,307 for investments between EUR 58,239 and EUR 107,848 and for investments between EUR 107,848 and EUR 323,544 an amount of EUR 16,307 reduced with 7.56% of the part of the investment exceeding EUR 107,849. In general, investments not exceeding EUR 450, investments in land, passenger cars and private houses may not be taken into account. Investments however in highly fuel-efficient and electric cars are eligible for the allowance, irrespective of their intended use. For assets alienated within five years of the beginning of the calendar year of investment with a transfer price of at least EUR 2,400, a disinvestments addition is due.
Energy Investment deduction
For investments in qualifying energy saving assets a deduction is available. The deductible percentage in a tax year can amount up to 45%. The investment threshold is € 2,500 and no investment allowance is granted for investments exceeding € 124,000,000 in a tax year (figures 2020).
Environmental Investment allowance
The deductible percentage in connection with qualifying environmental-friendly assets amounts to 13.5-36% in a tax year, depending on the assets. The investment threshold is € 2,500. Per investment no more than € 25,000,000 can be accounted for (figures 2020).
The Dutch Corporate Income Tax Act provides for incentives, such as:
Tonnage taxation for shipping companies
Shipping companies established in the Netherlands can choose to be taxed on the basis of the net tonnage of the vessels owned (tonnage taxation), rather than on the basis of the taxable profits actually made. For more information about this subject we refer to the page Investing in the Netherlands - Dutch tonnage tax regime.
Research and development deduction (R&D deduction and wage tax reduction)
If R&D activities are performed and a declaration for these activities is obtained, an amount of EUR 12,980 (2020) may be deducted. In case the activities are performed by a start-up this deduction is increased with EUR 6,494 (2020).
R&D activities are also stimulated by a wage tax reduction of qualifying R&D related labour costs. The reduction is equal to 32% of the relevant wage costs up to € 350,000 and 16% of any excess. The reduction for start-ups (so called techno starters) amounts to 40% of the first € 350,000 and 16% of any excess.The WBSO does not have limitations be it that the maximum benefit may not exceed the wage sum.
Free depreciation and amortisation
For certain categories of assets, free depreciation is allowed e.g. assets that are important for environmental protection, assets that have a high technological value, assets which are used for production in certain areas, investments to improve labour conditions, etc.
In general, tax losses can be carried back to be offset against the taxable profits of the previous year and can be carried forward for a period of six years.
For Dutch holding and finance companies special rules applied until 2019. Certain anti-abuse rules are implemented in legislation which aims to prevent the "trade" in tax losse
Dutch corporate tax law contains the provision that intra-company pricing for goods and services must be at arm's length. Also specific rules apply with regard to the documentation of intra-group transactions (such as country-by-country reported).
Guidelines for inter-company pricing are given by extensive policy. In general it is possible to obtain advance tax rulings on transfer pricing issues.
Special rules and guidelines are provided for intra-group financial services companies, which include group financing and royalty companies.
For more information about these rules we refer to the pages Investing in the Netherlands - Dutch ruling practice and International tax planning - Dutch finance company and International tax planning - Dutch Licensing company. (links)
As of 2019, the Netherlands has incorporated a CFC-rule in its legislation following the EU Anti-Tax Avoidance Directive. This CFC-rule entails that so-called ‘tainted’ income earned at the level of a subsidiary resident in a low-taxed country should be included in the taxable base of the Dutch shareholder if this income is not distributed to the shareholder. For the CFC-rule to apply the Dutch taxpayer should have at least 50% of the shares or voting power in a subsidiary resident in a low-taxed country. A country is considered low-taxed if it has a statutory corporate income tax rate which is lower than 9% or if it is included on the EU Blacklist. If the subsidiary performs genuine economic activities the CFC rule does not apply
The Dutch corporate income tax act provides for the possibility of a consolidate tax regime, referred as "fiscal unity".
A fiscal unity, which is optional, can be formed between a parent and subsidiary companies, whereby formally the parent (owning at least 95% of all of the issued share capital of the other company) is the entity that is taxed for the consolidated profits of the fiscal unity. A fiscal unity can only be formed between Dutch resident companies.
One of the advantages of a fiscal unity is that profits and losses of group companies can be offset against each other. This also means that transactions between group companies can be eliminated for tax purposes and hence assets can under certain conditions be transferred within the group without triggering taxable capital gains.
Within a fiscal unity reorganisations can be carried through without triggering corporate income tax, although various anti-abuse provisions will have to be considered.
Typically, the fiscal unity concept can be used to facilitate the acquisition of a Dutch target company by setting up a separate Dutch holding company for purchasing the target company. If the purchase is loan-financed, the fiscal unity regime allows within certain restrictions the interest expense to be deducted from the operating profits of the target company.
Withholding taxes on outbound payments
Under Dutch domestic tax law no withholding tax is levied on (genuine) outbound interest and royalties payments.
Dividend distributions are in principle subject to 15% Dutch dividend tax at source. However, an exception applies if the receiving company is in a country with which the Netherlands has a tax treaty, provided that no abusive situation exists. Additionally, under applicable tax treaties, the rate for inter-company dividends is often reduced, in many cases even to nil percent. Within the EU conditionally a 0% rate applies.
Furthermore, the extensive treaty network provides for low withholding taxes on dividends, interest and royalties payable to a Dutch company. For the Dutch withholding tax due on account of the re-distribution of foreign dividends, an indirect tax credit may be available.
For more information on withholding taxes on outbound payments we kindly refer to the page Investing.
The Netherlands have concluded tax treaties with more than 90 countries worldwide.
With this extensive treaty network, the Netherlands is a preferred location to establish holding companies, finance companies and licensing companies.
For an overview of the Dutch treaty network we refer to the page "Overview of tax treaties concluded by The Netherlands". For specific information about withholding taxes we refer to the pages "Overview interest withholding tax rates under Dutch tax treaties", "Overview royalty withholding tax rates under Dutch tax treaties", "Overview dividend withholding tax rates under Dutch tax treaties".
The extensive Dutch treaty network provides for low or zero withholding taxes on dividends, interest and royalties payable on distributions by and to a Dutch company.
If foreign withholding taxes are incurred, a Dutch resident taxpayer can by virtue of applicable tax treaties or the Dutch unilateral rules for the avoidance of double taxation, in many cases claim a tax credit for foreign withholding taxes incurred. Such a tax credit allows the taxpayer (under certain conditions) to reduce the Dutch corporate income tax imposed on the grossed up income with the amount of foreign withholding tax incurred to prevent double taxation. Upon election of the taxpayer, foreign withholding taxes may be treated as a tax deductible item instead.
Under certain conditions a Dutch branch of a foreign corporation (non-resident for Dutch tax purposes) can claim the tax benefits provided for in Dutch tax treaties.
By virtue of the EU Interest and Royalty Directive no foreign withholding taxes should be due on interest and royalties paid by companies, to companies which are both resident in EU countries. We refer to the page "The EU exemption for interest and royalties”.
The Netherlands has an extensive, efficient and reliable advance ruling practice.
As part of the ruling practice an Advance Pricing Agreement ("APA") or Advance Tax ruling ("ATR") can be obtained. Advance rulings can be obtained on the tax consequences of certain transactions or corporate structures.
An APA provides certainty in advance regarding the at arm's length character of cross border inter-company transactions, including financing or licensing activities and the provision of services (this relates to amongst others the tax treatment of Foreign Sales Corporations, foreign finance branches, cost contribution arrangements, and cost-plus activities in general).
An APA can either be unilateral (between tax payer and Dutch tax authorities), bilateral (Netherlands and another State) or even multilateral (involving more than two States).
An ATR provides certainty in advance regarding the tax consequences of certain international structures and/ or transactions. An ATR can be requested for amongst others:
- the application of the participation exemption for intermediate holding companies or top holdings;
- international structures in which hybrid financing forms or hybrid legal forms are involved;
- the (non) existence of a permanent establishment in The Netherlands.
For more information on the Dutch ruling practice we refer to the page Investing in the Netherlands - the Dutch ruling practice.
If you are interested in our services, please feel free to contact us via e-mail or to call us at our offices in Rotterdam +31 (10) 2010466 or Amsterdam +31 (20) 5709440.