Special Issues
On this page we will elaborate on some specific issues that are important to the tax system in The Netherlands and that might be relevant for other Nationals.
Go directly to:
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The Participation Exemption of our Corporation Tax
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The Advance Tax Ruling System that is quite unique
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The 30% rule, a special arrangement for incoming expats.
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Transfer Pricing issues
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Emigration to The Netherlands
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Emigration out of The Netherlands (again)
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Our extensive network of Tax Treaties
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Participation Exemption in the Corporation Tax
The participation exemption is a tax rule in the Netherlands that allows Dutch resident companies to receive dividends and capital gains from qualifying subsidiaries (participations) without being subject to taxation. This exemption is aimed at encouraging cross-border investments and fostering the competitiveness of Dutch companies.
Key points about the participation exemption in the Netherlands are as follows:
Eligible entities: The participation exemption applies to qualifying shareholdings in subsidiaries, which are generally domestic or foreign companies in which the Dutch resident company holds at least 5% of the nominal paid-up share capital.
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Dividends and capital gains: Under the participation exemption, dividends received from qualifying subsidiaries are exempt from corporate income tax. Additionally, capital gains arising from the sale of qualifying shareholdings are also tax-free.
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Subsidiary requirements: To qualify for the participation exemption, the subsidiary must be subject to a "reasonable" level of taxation. This means the subsidiary cannot be a conduit or shell company established in a low-tax jurisdiction solely for the purpose of tax avoidance.
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EU and tax treaty benefits: The participation exemption is also applicable to qualifying shareholdings in subsidiaries based in EU/EEA member states or countries with which the Netherlands has a tax treaty that includes a provision for the exchange of information.
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Holding period requirement: To prevent abuse, the Dutch tax authorities impose a minimum holding period for the participation exemption to apply. The Dutch resident company must generally hold the qualifying shares for an uninterrupted period of at least one year.
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Anti-abuse rules: The Netherlands has implemented anti-abuse measures to prevent the inappropriate use of the participation exemption. If the main purpose or one of the main purposes of holding the shares is tax avoidance, the exemption may be denied.
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It's important to note that tax laws are subject to change and the specific details of tax issue at hand may vary based on individual circumstances. Contact us for the most up-to-date and accurate information regarding the participation exemption in the Netherlands.
30% rule
Historically, the Netherlands has had a tax benefit for highly skilled migrants, which is often referred to as the "30% ruling." Under this ruling, expatriates (expats) who meet certain criteria could be eligible for a tax-free allowance equivalent to 30% of their gross salary which can significantly increase their net income during their stay in the Netherlands.. This benefit was designed to attract skilled workers from abroad and to make it more financially appealing for them to live and work in the Netherlands.
To qualify for the 30% ruling, expats generally needed to meet certain conditions, including:
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The expatriate must have an employment relationship (employment contract) with a Dutch employer or be transferred within a group of companies to work in the Netherlands.
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The employee should possess specific expertise or skills that are considered scarce in the Dutch labor market. This is usually demonstrated by their education, work experience, or qualifications.
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The expatriate should have lived more than 150 kilometers from the Dutch border before starting the employment in the Netherlands.
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The employer and employee must jointly apply for the ruling to the Dutch tax authorities.
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Duration of the Ruling: The 30% ruling can be granted for a maximum period of five years. However, in January 2019, the Dutch government reduced the duration from eight years to five years. If an employee has lived within 150 kilometers of the Dutch border during 16 of the 24 months before their employment, the ruling is granted for a shorter period.
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Salary Threshold: The employee's gross salary must meet a certain minimum threshold to be eligible for the 30% ruling. The minimum salary requirement may change over time, so it's essential to check the latest threshold set by the Dutch tax authorities.
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The tax-free allowance of 30% is meant to cover the additional expenses associated with living in a foreign country. It's essential to note that the 30% ruling is not granted automatically, and the employer or employee must apply for it with the Dutch tax authorities.
Application Process: The 30% ruling application must be submitted to the Dutch tax authorities. It is usually processed by the tax office in the region where the employer is based. If approved, the ruling is valid from the start of the employment or a later specified date.
Other Considerations: While the 30% ruling provides a substantial tax advantage, it's also essential to consider other factors such as housing costs, cost of living, and social security implications while planning to work and live in the Netherlands.
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Changes and Updates: Tax regulations can be subject to changes over time, so it's essential to keep abreast of the latest updates and requirements set by the Dutch government. Contact us for the most up-to-date and accurate information regarding the 30% rule in the Netherlands.
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Emigation to The Netherlands
Emigrating to a new country like the Netherlands involves several important considerations, and taxes are certainly one of them. Here are some key points to keep in mind when it comes to taxes in the Netherlands:
Residency Status: Your tax liability in the Netherlands will depend on your residency status. This is dependent on a lot of factors (where do you have a house, rental or owned, where is your family living, where do you consult doctors. If you plan to stay in the Netherlands for more than 183 days in a year or have a home there, this may at least be an indication of residency, but in itself is not decisive.
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Personal Income Tax: The Netherlands has a progressive income tax system. Your worldwide income will be subject to Dutch taxation if you are a resident. Make sure to understand the tax brackets and rates applicable to your income level.
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Tax Treaties: Check if your home country has a tax treaty with the Netherlands. Tax treaties can impact how your income is taxed and can help prevent double taxation.
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30% Ruling: If you meet certain conditions, you might be eligible for the 30% ruling. This allows you to receive 30% of your gross salary tax-free. It's important to determine your eligibility for this benefit before you actually come to The Netherlands.
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Social Security: The Netherlands has a social security system that includes contributions to healthcare, pensions, and other benefits. You'll need to understand how these contributions work and how they might affect your overall income.
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Wealth Tax: The Netherlands does not have a wealth tax but at present box 3 of the income tax operates a lot like a wealth tax since it applies fictive income/return percentages on the value of your (worldwide) assets exceeding a certain threshold. This can include real estate, savings, investments, and more.
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Property Tax: If you own property (real estate) in the Netherlands, you'll be subject to (local) property tax, which is typically based on the value of the property and will vary per town or city.
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Inheritance and Gift Tax: The Netherlands has taxes on inheritance and gifts. It's important to be aware of these if you plan to receive or transfer significant assets. It may be wise to transfer assets to the next generation before coming to The Netherlands, also depending on the rules if the country you live in at that time.
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Tax Return Filing: Familiarize yourself with the Dutch income tax return process and deadlines. You may need to file an annual tax return, and understanding the process is crucial to avoid any penalties.
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Step up arrangement for your Privately Owned Limited Company: When emigrating to the Netherlands, there is a potential benefit known as the "step-up" for income tax in Box 2. Box 2 refers to the category of income tax in the Netherlands that includes income from substantial shareholdings in companies (usually 5% or more of the shares) and other forms of substantial interests in certain entities. This can include dividends and capital gains from the sale of shares.
The step-up provision allows individuals who become Dutch tax residents to reset the cost basis of their substantial shareholdings and other qualifying assets to their fair market value at the time of becoming a tax resident. This can have significant tax benefits, especially if the value of these assets has appreciated over time.
Here's how the step-up provision works:
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Fair Market Value Assessment: When you become a Dutch tax resident, you have the option to assess the fair market value of your substantial shareholdings and other qualifying assets as of the date you become a resident. This fair market value becomes your new cost basis for tax purposes in box 2.
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Capital Gains Tax Benefit: If you sell these shares in the future, you will only be subject to capital gains tax on the appreciation in value that occurs after you become a Dutch tax resident. This can potentially result in lower capital gains tax liability compared to if you had retained your original cost basis.
It's important to note that while the step-up provision can provide tax benefits, there are specific conditions and requirements that must be met to qualify for this benefit. Some important points to consider include:
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The step-up is available only to individuals who become Dutch tax residents.
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The step-up is applicable to substantial shareholdings held by the taxpayer.
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The fair market value assessment should be done accurately and documented appropriately.
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Certain anti-abuse provisions and limitations apply to prevent abuse of the step-up benefit.
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Given the complexities involved, it's highly recommended to seek professional tax advice from a tax advisor or financial expert who is knowledgeable about Dutch tax laws. They can help you determine if you are eligible for the step-up benefit and guide you through the process to ensure compliance with the relevant regulations.
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Financial Planning: Given the complexities of international taxation, it's recommended to consult with a tax professional or financial advisor when planning to emigrate to The Netherlands. Do so sufficiently long before actually emigrating. Contact us for the most up-to-date and accurate information regarding emigration to The Netherlands.
TRUSTS
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A trust is a figure under Anglo-Saxon law in which a 'settlor' (settlor and usually the donor) transfers legal ownership of assets to a 'trustee' (administrator). The latter is obliged to allow the assets to benefit 'beneficiaries'. By means of the trust deed and the letter of wishes, the 'settlor' can express its wishes with regard to the benefit policy.
In the Netherlands, the foundation comes closest. In Switzerland and Liechtenstein, the trust is known as 'Stiftung'. The Antilliaanse Stichting Particulier Fonds (also known as: Private Foundation) is regarded as a trust.
Important concepts:
• 'Irrevocable' means non-cancellable; the settlor cannot unilaterally cancel the trust and recover the assets.
• 'Discretionary' means that the 'trustee' can independently - separate from the 'settlor' - determine the distribution policy and that the trust did and the letter of wishes also give him the space to do so.
• In the case of an ‘irrevocable discretionary trust’, the Dutch tax authorities often found it difficult to 'attribute' the income and/or assets of the Trust to someone. The legal “Transparency Fiction” created in 2010 has seriously changed this field, as discussed below.
• In the case of a 'revocable non-discretionary trust', the relevant assets and the proceeds thereof are allocated to the settlor for tax purposes, even without the fiction of the APV.
Changes in 2010
Under the Inheritance Act, which applied until 2010, the acquisition of a foreign trust was exempt from gift and inheritance tax. Since 2010, for Income Tax and Inheritance Tax purposes, the trust has been ‘looked through’ and pretended to be obtained from the contributor of the trust. In law, the trust is referred to as Isolated Private Property (= Afgezonderd Particulier vermogen or APV). If the contributor lives in the Netherlands or is deemed to live in the Netherlands, the acquisition is taxable. If the contributor is deceased, the trust assets are allocated to the heirs. The regime has been created to prevent so-called ‘floating capital’. In other words: assets (and income from those assets) that cannot be attributed to anyone and that cannot be taxed by anyone.
Allocation stop
If the trust is independently subject to taxation at a rate of at least 10%, the assets are not allocated to the contributor for income tax purposes (attribution stop). This exception does not apply to the Inheritance Act. The allocation stop only occurs if the APV itself runs a business. This is not the case if the APV only functions as a holding company; the APV must carry out the business activities itself.
APV capital is also allocated to the contributor for corporate income tax purposes. However, this does not apply if the APV is subject to a levy of at least 10%.
Question in income tax return
The income tax return asks about any involvement in trust assets. The question reads as follows: “you, your tax partner, your minor children or the minor children of your tax partner in 2023:
• had placed assets in a Isolated Private Property (APV),
• were heirs of someone who had transferred assets to an APV or
• could claim assets or income from an APV”.
The background of this question is to enable the tax authorities to conduct an investigation.
Wrongly not answering this question in the affirmative, the tax authorities do not take lightly. If you indicate in your income tax return that you are involved in trust assets, the tax authorities usually issue an ‘information decision’. If one has not responded to the satisfaction of the tax authorities, one runs into a reversal of the burden of proof, which is a really uncomfortable position.
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Given the complexities of the position of Trusts and alike structures in The Netherlands and the fact that not all tax consultant are familiair with the matter, it's recommended to consult with a knowledgeable tax professional or financial advisor when planning to emigrate to The Netherlands while being in any way involved in a Trust. Do so sufficiently long before actually emigrating. Contact us for the most up-to-date and accurate information regarding Trusts in The Netherlands.
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The Tax Rulings system in the Netherlands refers to the process by which the Dutch tax authorities provide advance rulings on the tax consequences of specific transactions or arrangements. These rulings aim to give taxpayers clarity and certainty on how the tax authorities will interpret and apply the tax laws to their particular situations.
The Tax Rulings system operates within the framework of the Dutch tax law and is governed by the Tax Rulings (Application) Decree (Besluit Fiscaal Bestuursrecht) and the Tax Rulings (Cooperative Associations and Compliance Supervision) Decree (Besluit Beleidsregel Toepassing Wob). The rulings can cover a wide range of tax-related matters, such as corporate income tax, value-added tax (VAT), transfer pricing, and other specific tax issues.
Here are some key points about the Tax Rulings system in the Netherlands:
Types of Rulings: There are two primary types of tax rulings in the Netherlands:
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Advance Tax Rulings (ATRs): ATRs provide certainty regarding the application of tax laws to a specific transaction or arrangement that a taxpayer is considering. This allows the taxpayer to assess the potential tax implications before proceeding with the transaction.
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Advance Pricing Agreements (APAs): APAs are specific to transfer pricing matters. They determine the appropriate transfer pricing methodology to be applied for transactions between related parties, ensuring that they are at arm's length and comply with the Dutch transfer pricing regulations.
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Binding Nature: Once issued by the tax authorities, tax rulings are binding for both the taxpayer and the tax authorities. As long as the taxpayer adheres to the facts and circumstances stated in the ruling, the tax authorities are generally obliged to apply the tax treatment specified in the ruling.
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Confidentiality: The Dutch tax authorities treat tax rulings with confidentiality. This means that the contents of a ruling and the identities of the taxpayers involved are not publicly disclosed. However, in recent years, there has been increased international pressure for more transparency in tax rulings, and the Netherlands has taken steps to enhance transparency through mandatory exchange of certain tax rulings with other countries under the EU Directive on administrative cooperation in the field of taxation.
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Recent Developments: The Dutch Tax Rulings system has faced criticism, both domestically and internationally, for potentially facilitating tax avoidance. In response, the Netherlands has made some changes to its tax ruling practices and introduced measures to combat tax avoidance and harmful tax practices.
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Please note that tax laws and regulations can change, and it is essential to verify the current status of the Tax Rulings system in the Netherlands with up-to-date sources or Contact us for the most up-to-date and accurate information regarding the Tax Ruling practice in the Netherlands.
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Transfer Pricing
In the Netherlands, transfer pricing documentation requirements are in line with the OECD's Transfer Pricing Guidelines. The Dutch tax authorities require companies to prepare and maintain adequate transfer pricing documentation to demonstrate that their intercompany transactions are conducted at arm's length, meaning they are priced as if they were between unrelated parties under similar circumstances. This is to ensure that profits are not artificially shifted to lower-tax jurisdictions.
The transfer pricing documentation requirements in the Netherlands include:
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Master File: A high-level overview of the multinational group's business operations, organizational structure, and transfer pricing policies. The Master File provides context for understanding the group's overall business and its transfer pricing approach.
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Local File: This document provides detailed information about specific intercompany transactions conducted by the local entity. It includes information about the entity's activities, the related-party transactions, the pricing methods used, and the analysis demonstrating that these transactions are at arm's length.
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Country-by-Country (CbC) Report: For multinational groups meeting certain revenue thresholds, a CbC report is required. This report provides aggregated financial and tax information for each jurisdiction where the group operates. It includes details about the group's revenues, profits, taxes paid, and other relevant economic indicators.
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It's important to note that the Dutch transfer pricing documentation requirements are generally in line with the OECD's BEPS (Base Erosion and Profit Shifting) initiative. Non-compliance with these documentation requirements could result in penalties, adjustments to taxable income, and potential reputational risks.
Additionally, the Dutch tax authorities introduced a formalized Advance Pricing Agreement (APA) and Mutual Agreement Procedure (MAP) process to help prevent double taxation and provide more certainty for taxpayers engaging in cross-border transactions.
Tax regulations can be subject to changes over time, so it's essential to keep abreast of the latest updates and requirements set by the Dutch government. Contact us for the most up-to-date and accurate information regarding Transfer Pricing issues in the Netherlands.
(R)emigration from The Netherlands
Here are some specifics of how the Dutch tax system relates to emigration with your Dutch BV (Besloten Vennootschap or Private Limited Company) to another country.
When emigrating from the Netherlands with your Dutch BV, there are several tax considerations to keep in mind:
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Corporate Income Tax (CIT): Your Dutch BV will be subject to corporate income tax on its worldwide income up until the date of emigration. After emigration, the BV might still be considered a Dutch taxpayer if it maintains substantial economic activities in the Netherlands. This can lead to continued taxation of certain income in the Netherlands.
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Exit Taxation: Upon emigration, the Dutch tax authorities might impose an exit tax on unrealized gains of certain assets of the BV, such as real estate, shares in Dutch companies, and certain intellectual property rights. The exit tax aims to ensure that the Netherlands can still tax any potential capital gains that have accrued until the point of emigration.
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Withholding Tax: Certain payments from the BV to non-residents might be subject to withholding tax. However, the Netherlands has an extensive network of tax treaties that can reduce or eliminate withholding tax on dividends, interest, and royalties.
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Transfer Pricing Rules: When transferring assets or functions from the BV to another entity as part of the emigration process, transfer pricing rules apply to ensure that transactions are conducted at arm's length prices.
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Emigration Procedure: Emigrating with your BV involves notifying the Dutch tax authorities of your intention to emigrate. You'll need to provide information about the emigration, your tax liabilities, and other relevant details.
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Personal Taxation: As an individual, if you're a substantial shareholder (owning at least 5% of the BV's shares) and you emigrate, there will be tax consequences related to your shares in the BV. The Tax Authorities will impose a Conservatory Tax Assessment (CTA) that involves taxation in Box 2 (2023: 26,9%) as if the BV was sold. The tax on the CTA is not collected as long as no dividends are taken out of the company and the shares are not sold. If you emigrate outside of the EU you will have to give security for the CTA. That can be a real problem. The CTA ensures that The Netherlands will preserve its tax claim on the value of the BV at the time of the emigration at the normal box 2 rate (2023: 26,9%) instead of the lower dividend withholding tax (15%).
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It's important to carefully plan your emigration with the assistance of tax professionals who specialize in international taxation and have knowledge of the Dutch tax laws. You can Contact us to help you navigate the complexities of the tax system regarding emigration, ensure compliance with all reporting requirements, and optimize your tax situation based on your unique circumstances.
Tax treaties
The Netherlands is internationally famous for its extensive network of (favorable) tax treaties. Almost all of these treaties provide, among other things, for a significant reduction in withholding tax rates. In view of this, it can be beneficial to route dividends, interest and royalties through the Netherlands. However, this method of tax planning is under pressure, especially when it comes to pure letterbox companies and/or conduit companies. In an OECD and EU context, a dam is being erected against international tax avoidance by multinational companies. See below also about the Multilateral Instrument. This affects the position of the Netherlands as a transit country. The companies in question are referred to as 'special financial institutions' (sfis) and also Service Bodies. Often it concerns letterbox companies.
An interest margin can only be allocated to a Service Entity if it has control over the credit risks and/or has sufficient financial capacity. If this is not met, only a business fee for services can be charged. Debt capital that can only be made available to the Service Entity with a guarantee from an affiliated company is, according to the decree, a capital contribution to the Service Entity. In such a case, interest deduction is not relevant.
Until recently, the tax authorities cooperated in the case of substance. The substance requirements have been replaced by nexus requirements. There must be real economic activities in the Netherlands. Participation exemption rulings will no longer be issued if no relevant management activities are developed in the Netherlands.
The tax treatment of (intermediate) holding companies and service providers is concentrated with the Team of Supervisors and Service Providers of the Tax and Customs Administration/Large Enterprises/Special International (Rotterdam office) (formerly the APA/ATR team).
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Anti-abuse measures
Modern tax treaties contain rules that exclude treaty benefits for persons and entities that improperly attempt to use these treaty benefits (treaty shopping). Broadly speaking, two forms of anti-abuse systems can be distinguished:
1. Limitation on benefits
It is assessed on the basis of the 'ultimate beneficiary' whether treaty benefits are granted. This negates the effect of intermediary companies.
2.Principal purpose test.
No treaty benefits are granted if the transaction was entered into for the main purpose of obtaining the treaty benefit, art. 29(9) OECD Model Convention. This can come into play if the recipient has to pass on the relevant amount in one way or another to the 'beneficial owner'.
Multilateral Instrument (MLI)
The international community wants to include safeguards against mismatches in tax treaties. The so-called multilateral instrument (MLI) has been developed to prevent all tax treaties from having to be adjusted individually. This MLI effect a supplement to tax treaties. Art. 6 provides that tax treaties must state in the preamble that they may not be used to achieve double non-taxation or unjustified tax limitation.
By means of the MLI, the treaty-related OECD standards on treaty abuse from the BEPS reports (= Base Erosion and Profit Shifting project) for (existing) tax treaties can be implemented in one go. This has also entered into force in the Netherlands. For the assessment of the tax consequences of a cross-border case, it is therefore not sufficient to consult the applicable tax treaty. It will also have to be examined whether the MLI applies to this. The Dutch Ministry of Finance has published a brochure in which it can be checked which treaties concluded by the Netherlands are already subject to the MLI, MLI and Dutch tax treaties.
The MLI distinguishes the following anti-abuse standards:
1. the principal purpose test (PPT);
2. the limitation on benefit provision;
3. anti-flow determination.
The states involved can choose from these. Automatic adjustment of the tax treaty only takes place if both treaty partners apply the same standard of abuse. Before the treaty is reflected in the tax treaties, parliament must approve it. The contracting parties concerned must also agree to the amendments to that tax treaty through the multilateral instrument signed today.
At http://www.oecd.org/tax/treaties/mli-matching-database.htm you can check whether and for which articles the MLI has an effect in the tax treaty concluded with the Netherlands.
The Netherlands has made some reservations. You can contact us if you need more information about the Tax Treaties of The Netherlands.
More
This are only a number of specific issues that are related to international taxation and The Netherlands. The is of course more. Contact us with the specifics of your situation.