The Netherlands

The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with parts in the Caribbean. It is a parliamentary democracy organised as a unitary state. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders with Belgium, Germany, and the United Kingdom. The country capital is Amsterdam and the seat of government is The Hague. The Netherlands in its entirety is often referred to as Holland, although North and South Holland are actually only two of its twelve provinces, which is a case of pars pro toto (see terminology of "the Netherlands").

The Netherlands was one of the first countries to have an elected parliament. Among other affiliations the country is a founding member of the European Union (EU), NATO, OECD and WTO. With Belgium and Luxembourg it forms the Benelux economic union. The country is host to the Organization for the Prohibition of Chemical Weapons and five international courts: the Permanent Court of Arbitration, the International Court of Justice, the International Criminal Tribunal for the Former Yugoslavia, the International Criminal Court and the Special Tribunal for Lebanon. The first four are situated in The Hague as is the EU's criminal intelligence agency Europol and judicial co-operation agency Eurojust. This has led to the city being dubbed "the world's legal capital". The Netherlands has a capitalist market-based economy, ranking 15th of 157 countries according to the Index of Economic Freedom. In May 2011, the Netherlands was ranked as the 'happiest' country according to results published by The Organisation for Economic Cooperation and Development (OECD).

The Netherlands is a geographically low-lying country, with about 25% of its area and 21% of its population located below sea level, and 50% of its land lying less than one metre above sea level. For this reason, the country's name in many other European languages, i.e. French: Les Pays-Bas and Spanish: Los Paises Bajos, literally translates to English as "The Low Countries." Significant land area has been gained through land reclamation and preserved through an elaborate system of polders and dikes. Much of the Netherlands is formed by the estuary of three important European rivers, which together with their distributaries form the Rhine-Meuse-Scheldt delta. Most of the country is very flat, with the exception of foothills in the far southeast and several low-hill ranges in the central parts. The BES islands, or Caribbean Netherlands, became part of the Netherlands proper after the dissolution of the Netherlands Antilles on 10 October 2010.

The Netherlands was the gateway to Europe. For many years, The Netherlands has been a preferred location for foreign companies to establish a business.  The location, the political stability and the beneficial tax regime have made The Netherlands a premium alternative in this respect. Recently, other countries have started initiatives in copying Dutch tax benefits and at the same time EU legislation has mitigated the competitive advantage of The Netherlands.  Just in time, the Dutch government has realized the need to take action in this respect and have, over the last few years, initiated several tax law changes in order to keep ahead of the competition.

The general Dutch corporate income tax rate is 20% on the first EUR 200,000 and 25.5% on the taxable profit that exceeds EUR 200,000. This rate is more than competitive in the region as all countries surrounding The Netherlands have (much) higher corporate income tax rates.  Also the taxes on income distributed are in general much lower than in other countries. The international tax treaty network (The Netherlands has concluded more tax treaties than most other countries) and the membership of the EU (and corresponding access to EU treaties) ascertain minimal taxation on payments to the group. Traditionally, the Dutch participation exemption has been a major attractor of companies to The Netherlands. This facility allows the receipt of dividends and capital gains from subsidiaries free of tax in The Netherlands. This has made (and makes) the Netherlands very attractive for expansion into Europe and the rest of the world. 

Another traditional benefit of The Netherlands is the open attitude of the Dutch tax authorities. Contrary to many other countries, The Netherlands offer the possibility to discuss tax positions in advance with the Dutch tax authorities. These discussions can be formalized in agreements (or rulings) with the Dutch tax authorities that offer optimum certainty in advance.

The main advantages of setting up a company in the Netherlands can be summarized as follows:

  • Political stability, acceptance, confidence and professional infrastructure
  • Extensive bilateral investments treaty network
  • Extensive and appropriate treaty network and access to EU Directives
  • Participation exemption
  • No withholding tax on interest and royalties
  • Possibilities to reduce Dutch dividend withholding tax (Curacao or Cyprus parent company, use of Dutch cooperative)
  • No capital tax, no CFC-rules
  • Ruling practice

Dutch tax residency
Tax residency is essential for assuring the tax benefits of the structure. The Dutch tax authorities, as a general rule, do not question the tax residency of a Dutch legal entity. Actually, Dutch legal entities are always considered to be subject to Dutch corporate taxation.

Foreign tax authorities on the other hand might have an interest to question the Dutch tax residence of a Dutch company. If the Dutch holding company obtains a ruling, the Dutch tax authorities will test the Dutch tax residency. The Dutch tax authorities will –upon request- certify to the foreign tax authorities by means of a certificate of residence that the Dutch holding company is a Dutch tax resident in the sense of the tax treaty applicable.

Dutch substance requirements
The main requirement for the BV to be considered a Dutch tax resident is that it must have sufficient substance in the Netherlands.

From guidance published by the Dutch tax authorities it can be derived that the substance requirements would be met if:

  • At least half of the total number of the statutory directors and the directors competent to make decisions reside in the Netherlands (individuals) or have the place of effective management situated in the Netherlands (non-individuals).
  • The directors resident in the Netherlands (individuals) or with the place of effective management situated in the Netherlands (non-individuals), have the professional knowledge required to properly perform their duties. The task of the (joint) directors include, at the very least, the decision making – based on the legal entity’s own responsibility and within the framework of normal intra-group involvement – on transactions to be concluded. The legal entity has qualified staff at its disposal (either its own staff or obtained from third parties) who can adequately perform and record the transactions to be conducted by the legal entity.
  • (Key) managerial decisions should be taken in the Netherlands.
  • The legal entity’s (main) bank accounts should be maintained in the Netherlands.
  • The legal entity’s accounts should be kept in the Netherlands.
  • The legal entity should have compiled with all of the relevant requirements relating to the submission of tax returns, at least until the date on which its application is assessed. This applies equally to all forms of tax, including corporation tax, wage withholding tax, VAT, etc.
  • The legal entity’s registered office must be located in the Netherlands. The legal entity is, to the best knowledge of the entity, not (also) regarded a tax resident in another country.
  • The legal entity’s equity should be adequate in relation to the functions performed (taking into account the assets used and the risks assumed).

Our Dutch office was opened in December 1997.