The corporate income tax rate in the Netherlands is 25.5%, as is the Capital gains tax and the Branch tax rate. Withholding tax is applicable to dividends at 15%. Currently, no tax is applicable on interest, royalties, or branch remittance tax. There is a 1-year carryback on net operating losses and a 9-year carryforward.
What is considered taxable income in the Netherlands?
In the Netherlands, you will be taxed on any income earned worldwide. As a foreign company owning more than a 5% share of a Dutch company, you might also be subject to corporate income tax on the earnings in the Netherlands when there is no treaty protection in place.
What is the Participation Exemption?
This is when the double taxation rule does not apply to your company. In order to benefit, you will need to make sure the capital in your organization is divided into shares, shareholders must hold a minimum of 5% share capital, and the company can’t qualify for low taxed portfolio investment participation.
EU, EER and Dutch companies with 5% or more in share capital do not have to pay withholding tax when paying shareholders.
Currently, the double tax treaty is set at a maximum of 15%.
The rules of Transfer Pricing
Transfer pricing regulations are set based on the ‘arm’s length principle’. This applies to all involved, whether they directly or indirectly participate in the board or they have significant control over a company.
A company in the Netherlands must keep administrative records regarding the arm’s length principle between the involved parties.
This mainly focuses on the interest deductions on loans that have been taken out by a company, including any capital contributions held with other companies, acquisitions, dividend distributions, and capital repayments. Further attention must be paid when considering a change of ownership, holdings, and/or finance companies.
If there is a debt-to-equity ratio that exceeds 3:1, the thin capitalization rule applies and the amount of interest deducted is limited. The debt and ratio figures are set according to annual averages. The limitation is restricted to the amount of interest paid for each entity and the interest income gained from associated companies.
Is there a Foreign Tax Credit?
Yes, as long as the income is earned from a permanent foreign organization. You will be able to deduct corporate income and withholding tax paid abroad for Dutch-based companies if there is no other double taxation applied.
Exempt Investment Companies
An EIC is a Dutch investment company participating in collective investment activity with a minimum of two shareholders. The company can only invest in financial activities such as stocks or shares. Corporate income tax is not applied, nor is withholding tax on shares. However, an EIC is not eligible for double taxation protection.
Fiscal Investment Companies
An FIC status can apply to investment companies in the Netherlands, but only under certain circumstances. There is no corporate income tax but there is a withholding tax on the profits paid out to shareholders and these profits must be paid out annually. An FIC can apply for double taxation protection.
If your company has developed a patented tangible asset, the corporate income tax rate can be reduced from 25.5% to 10%. This 10% rate is only applied to a limit of four times the production costs of the intangible assets.
A Fiscal Unity
Domestic parent companies with a legal and economic hold of 95% or more, including foreign companies with a permanent establishment in the Netherlands, can request to be treated as a fiscal unity or tax consolidation. When there is a fiscal unity, it’s the parent company that must file a consolidation tax return. Losses can be offset against the profit of another company and assets can also be transferred between the involved companies.
The Financial Year
The taxable year is one calendar year; in some cases, you can set a different financial year for your company. The tax authorities set the deadline to file your annual tax returns. If a preliminary tax assessment is carried out during the tax year, any differences to the final tax assessment will be refunded.
A company based in the Netherlands is able to have their tax returns completed in a functional currency. This may prevent additional exchange rate fees.
Value Added Tax
The general VAT rate is 19%. There are some goods and services that are blessed with a lower rate of 6%. There are also goods and services that have a 0% VAT rate.
Additional taxes and Stamp Duties
There is no net worth tax, no capital duty tax, or other duties on capital contributions to an organization incorporated in the Netherlands. There is a real estate transfer tax of 6%.
Treaty Withholding Tax
Treaty Withholding tax will vary depending on the country, so will interest rates and royalties. In the Netherlands, the dividends withholding tax has a maximum rate of 5%. There is no withholding tax on interest and royalty payments.
The withholding tax on dividends for other countries ranges from 10% to 25%. The interest rate can be from 0% to 25%, this rate also applies to royalty payments in other countries.