Dutch Based Holding Company
General
For a country to be an attractive location in which to set up a holding company some tax related criteria must be satisfied, amongst which:
- Incoming Dividends: Incoming dividends remitted by the subsidiary to the holding company must either be exempted from or subject to low withholding tax rates in the subsidiary’s jurisdiction.
- Dividend Income Received: Dividend income received by the holding company from the subsidiary must either be exempted from or subject to low corporate income tax rates in the holding company’s jurisdiction.
- Capital Gains Tax on Sale of Shares: Profits realized by the holding company on the sale of shares in the subsidiary must either be exempt from or subject to a low rate of capital gains tax in the holding company’s jurisdiction.
- Outgoing Dividends: Outgoing dividends paid by the holding company to the ultimate parent corporation must either be exempt from or subject to low withholding tax rates in the holding company’s jurisdiction.
By these criteria Holland is a fiscally attractive jurisdiction in which to locate a holding company. Indeed the holding companies and “participation exemption rules” are one of the Netherlands most attractive features as a tax-planning centre.
Withholding Taxes on Incoming Dividends:
Under the terms of the EU (European Union) parent/subsidiarauditorsy directive, if a Dutch company owns 10% or more of the shares of another EU company, no withholding taxes will be levied on dividends remitted by the subsidiary.
Where a foreign subsidiary is not covered by the EU parent/subsidiary directive the terms of a double taxation treaty will often substantially reduce the amount of withholding taxes deducted on the remittance. Dutch holding companies can rely on an extensive network of double taxation treaties the effect of which is to obtain a reduction in withholding tax rates on dividends remitted to the Netherlands from the subsidiary jurisdiction. The Netherlands has around 100 tax treaties in place. The greater a country’s network of double taxation treaties the greater its leverage to reduce withholding taxes on incoming dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction.
Corporate Income Tax on Dividend Income Received
The general rule is that all dividend payments remitted by subsidiaries to Dutch parent corporations are subject to corporate income tax in the hands of the parent company (with tax credits being due where there is an element of double taxation). Where a Dutch holding company comes within the “participation exemption rules” all income received by the holding company from the subsidiary whether by way of dividends or otherwise is tax free. To come within the “participation exemption rules” the following criteria must be satisfied:
5% rule: the Dutch holding company must hold at least 5% of the subsidiary’s shares. The 5% rule makes Holland a particularly attractive jurisdiction in which to base international holding companies. Similar regimes in other countries require much higher percentage shareholdings if the company is to qualify for favourable tax treatment and require that the company be a proper holding company in the sense that its sole economic activity is to hold shares in other subsidiaries. In Holland by contrast a company which trades but also happens to own shares in another corporate entity can be deemed a holding company for the purposes of the participation exemption rules.
Applicability of EU law
As the Netherlands is an EU Member State, companies based in the Netherlands can enjoy the benefits provided by EU law.For example, dividends, interest, and royalties from EU‐based subsidiaries can, subject to limited conditions, be paid to a Dutch parent company free of withholding tax.
Bilateral Investment Treaties
The Netherlands has an extensive network of around 100 Bilateral Investment Treaties (“BITs”),
including a large number of investor friendly BITs that offer direct access to international arbitration
as opposed to being obliged to exhaust proceedings with a local court first. The Dutch BITs
generally offer protection for indirect investments made by a Dutch holding company through local
subsidiaries.
Active Management: The parent company must actively involve itself in its subsidiary’s management.
Tax Exempt Portfolio Company: The subsidiary must not be a “tax exempt portfolio investment company”.
Expenses Incurred by Parent Corporation: The costs to the parent corporation of running the subsidiary are not deductible from the taxable profits of the parent corporation in Holland.
Foreign Taxes: Foreign taxes paid by the subsidiary on income earned by the subsidiary can neither be credited nor debited against the taxable profits of the parent company.
Capital Gains Tax on the Sale of Shares
Under the participation exemption (see above), all capital gains made by a Dutch holding company on the sale of shares in a subsidiary are tax free in Holland irrespective of whether the subsidiary is resident or non resident.
Withholding Taxes on Outgoing Dividends
Under the EU parent/subsidiary directive dividends paid by Dutch subsidiaries to EU parent corporations are exempt from Dutch withholding taxes provided the EU parent corporation has held 10% of the shares in the Dutch subsidiary for at least 12 months. Where a foreign parent is not covered by the EU parent/subsidiary directive the terms of a double taxation treaty will often substantially reduce the amount of withholding taxes deducted on the outgoing remittance. Dutch holding companies can rely on an extensive network of double taxation treaties.The Netherlands has around 100 tax treaties in place. The greater a country’s network of double taxation treaties the greater its leverage to reduce withholding taxes on outgoing dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction.
On outgoing dividends from a Dutch company to a parent company in Denmark, the tax treaty withholding rate on dividends is 0%, based upon EU parent/subsidiary.
Loss compensation
Limitations now apply to the carry forward or carry back of tax losses by holding/financing companies. In essence, the tax losses which originate from a year in which the main activity of the company is the holding of shares or group financing activities may only be carried back or carried forward to tax years in which the company had or has similar activities. Both the nature of the activities and the volume of the activities (balance sheet ratios) are relevant.
Tax reduction for expatriates (30% ruling)Highly qualified non‐Dutch employees moving to the Netherlands may request a 30% ruling, whichwill enable them to enjoy 30% of their salary taxfree. Concluding netsalary agreements can substantially reduce an employer’s salary costs. The minimum required gross income of the employee amounts to appr. Euro 51,000.
Tax Reforms
Some reforms were designed in the past years to increase the attractiveness and competitiveness of the Netherlands from a tax point of view.
Key changes included a reduction in the general corporate income tax rate to 25%. Profits below EUR200,000 are now (taxyear 2013) subject to a 20% rate, and profits above-EUR200,000 face a rate of 25%.
In terms of withholding tax on dividends, this was reduced by 10%, from 25% to 15%.
The participation exemption rules became more strictly observed, although the 5% requirement remained in place.
Other provisions which came into force were:
- New depreciation rules.
- Restrictions on the carryback and forward of losses (to 1 year and 9 years, respectively).
Conclusion
A general conclusion may be that a Dutch holding company can be very attractive for international operating concerns from a tax point of view. Except from our vast treaty network and favourable legislation, it is well possible to conclude tax rulings with the Dutch tax authorities. Agreements can be made concerning international transfer pricing matters. We have a broad experience with such negotiations.
The Netherlands’ ruling policy is ”EU proof”, and comprises an APA (Advance Pricing Agreement)
practice and an ATR (Advance Tax Ruling) practice. These rulings provide advance certainty
regarding the tax consequences of certain proposed transactions as well as holding and financing
structures.
We can be of help with the founding of a Dutch holding company. A holding can be founded on short notice, with little formalities, like a minimum of capitalization of EUR 0,01. The founding legal person(s) need to file some information like the business of the company to be incorporated, who will be the final policy maker and identification of management.
Furthermore we offer accounting and tax services, as well as payroll services and VAT-administration. We are a member of the IEC international network of accounting, legal and tax advice firms.
Our headoffice is located in the centre of the Netherlands.
Please do not hesitate to contact us, if you should want more detailed information.
Tobi Smit
TSM@vhmabc.nl
IECnet Board member & IECnet Secretary
vhm | audit B.V.
Pastoor Somstraat 2 | Postbus 344 | 8160 AH EPE | THE NETHERLANDS
T +31 578 677377 | F +31 578 621872 | M +31 622 923 069
