Subsidies in the Netherlands

The Dutch government offers a number of incentive schemes in various sectors to support companies in their business operations. Foreign entrepreneurs who set up companies in the Netherlands and who register their companies with the Dutch Chamber of Commerce can also apply for a number of incentive schemes.

The most important subsidy agency in the Netherlands is AgentschapNL, which is based in The Hague. The latter organization is responsible for the execution of most of the schemes available in the Netherlands. In addition, there are also a number of important regional and provincial schemes available, as well as a number of international schemes offered by the Ministry of Foreign Affairs, the Ministry of Economic Affairs and Brussels.

This section will outline a number of the schemes that are currently available. Obviously this is not an exhaustive list, so we recommend that you contact your consultant for more detailed information.

Innovation subsidies

WBSO (Wet Bevordering Speur & Ontwikkeling)
WSBO stands for the Dutch Research and Development Act. Technological innovation is extremely important. The competitor never rests. The WSBO will help you if you wish to renew your technical processes or develop new technical products or software. The WBSO is a tax incentive scheme that forms part of the compensation of salary and wage expenditures for Research and Development work.

Subsidieregeling Internationaal Innoveren (Subsidy for International Innovation)
This regulation promotes cooperation between Dutch companies and foreign companies in emerging markets, Eureka countries and industrialised countries. By working together with local parties, Dutch companies can gain access to these markets. The maximum contribution per project amounts to € 500,000 for innovation projects in emerging markets and € 750,000 for innovation projects with Eureka or industrialised countries. The following countries are considered emerging markets: Brazil, China, Indonesia, Malaysia, Thailand, South Africa, India and South Korea.

Regional Subsidies

Depending on the location of your place of business, it is also possible to obtain subsidies from various provinces and regional authorities. For example, the Province of Brabant focuses mainly on technological innovation and projects an international profile in that field. The Province of Overijssel is extremely active in the reinforcement of agriculture through innovation, whereby its main concern is to keep the sector viable. Utrecht is oriented to creativity within the ICT sector. Furthermore, a lot of provinces offer subsidies in the area of sustainable development and sustainable energy.

Investments

MIA (Milieu Investerings Aftrek) (Environment Investment Deduction Scheme)
The purpose of the Environment Investment Deduction scheme (MIA) is to stimulate investment in environmentally friendly capital equipment. Companies that invest in the environment are entitled to additional tax deductions at a percentage of the investment cost. The environment investment deduction scheme is only available for capital equipment listed on the Environment List 2010 (Milieulijst 2010), which is updated on an annual basis.

EIA (Energie Investerings Aftrek) (Energy Investment Deduction Scheme)
The purpose of the Energy Investment Deduction scheme (EIA) is to stimulate investment in energy-saving technology and sustainable energy, i.e. so-called energy investments. Companies that invest in the energy industry are entitled to additional tax deductions at a percentage of the investment cost. The energy investment deduction is only available for capital equipment that complies with the specified energy performance requirements. The energy performance requirements and the capital equipment that are subject to the energy investment deduction are available in the Energy List 2010 (Energielijst 2010), which is updated on an annual basis.

BBMKB (Besluit Borgstelling MKB Kredieten) (Credit Guarantee Scheme for SMEs)
The purpose of the Credit Guarantee Scheme for SMEs (BBMKB) is to stimulate credit provision to small and medium-size enterprises (SME or MKB in Dutch). The scheme was designed for companies with a maximum of 100 employees and includes most professional entrepreneurs. If the entrepreneur is unable to provide the bank with sufficient security or collateral to secure a loan, the bank can appeal to the BBMKB for the necessary guarantees. The government will then, under certain conditions, provide the security for part of the credit amount. This reduces the level of the bank’s risk exposure and increases the creditworthiness of the entrepreneur.

KleinschaligheidsInvesteringsAftrek (Small-scale Investment Deduction)
The Small-scale Investment Deduction entitles the entrepreneur to deductions from investments in capital equipment between € 2,200 and € 300,000 in 2010. You invest in capital equipment in the year in which you buy it and therefore incur a payment obligation. The investment deduction can be applied in the year in question. If you do not intend to use the capital equipment in the year in which the investment is made, then part of the investment deduction is sometimes carried forward to the next year.

Environment and Energy

Energie Onderzoek Subsidie (EOS) (Energy Research Subsidy)
The purpose of the Energy Research Subsidy (EOS) is to increase the quality level of research and knowledge in the Netherlands by stimulating the development of new technology with the ultimate aim of realizing sustainable energy supply. The aim of the EOS programme is to broaden the knowledge base for energy efficiency and sustainable energy across the Netherlands. The knowledge forms the foundation for affordable, reliable and cleaner energy supply in the future. The EOS covers the full process from idea to market introduction.

Milieu & Technologie (Environment & Technology Subsidy)
Netherlands-based industrial small and medium-size enterprises (SME) qualify for subsidies for projects that contribute to the development and application of innovative environmentally oriented processes, products and services that are new to the Netherlands. The subsidy is known as the ‘Environment and Technology Subsidy’. The projects must focus on the analysis and exploration of market opportunities (TeMa component: ‘Technology in the Market’), or the project must be focused on the research, development, testing and first application of environmentally oriented innovations (ToeP component: Application in Practice’). Stimulering Duurzame Energieproductie (SDE) (Stimulation of Sustainable Energy production) The Dutch Ministry of Economic Affairs wants to support both companies and individuals who want to produce sustainable energy. Anyone who wants to produce energy in a way that does not adversely affect the environment, can make use of this regulation. The production of sustainable energy is not always cost-effective. The SDE compensates the difference between the cost price of regular energy and sustainable energy over a period of 12 or 15 years.

Foreign Markets

Private Sector Investeringsprogramma (PSI) (Private Sector Investment Programme)
The purpose of the Private Sector Investment Programme (PSI) is to contribute to the sustainable economic development of a number of developing countries with the use of the knowledge and capital available in Dutch companies and institutions. If you are planning to invest in a developing market, but the associated risks are excessively high, PSI might offer a suitable solution. The scheme could contribute to (partial) compensation of your investment costs. The programme applies to selected countries in Africa, Latin America, Asia and Eastern Europe. Foreign companies from a selected number of countries can also apply for the PSI.

Prepare2Start
The Prepare2Start programme helps Small and Medium-size enterprises (SME) in taking the first steps in exporting. The purpose of the scheme is to support SMEs with limited or no experience in export when entering new or practically new foreign markets. The support is available in the form of advice and supervision when setting up and implementing an internationalization plan, as well as a contribution towards the cost of a number of activities specified in the plan. The Prepare2Start is applicable to all countries in the world.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl


Other taxes and duties in the Netherlands

The tax system in any given country is invariably an extremely important criterion when it comes to companies finding a country of incorporation. The view taken by the Dutch government is that the tax system may under no circumstances form an impediment for companies wishing to incorporate in the Netherlands. In that framework, it is possible to obtain advance certainty regarding the fiscal qualification of international corporate structures in the form of so-called Advance Tax Rulings. In addition, the Netherlands has also signed tax treaties with many other countries to prevent the occurrence of double taxation.

The following are a few of the benefits offered by the Dutch tax system:

  • The Netherlands does not charge tax at source on interest and royalties.
  • In most cases all the profits that the Dutch parent company receives from foreign subsidiaries are exempted from tax in the Netherlands (participation exemption).
  • The Netherlands offers attractive tax-free compensation in the form of the 30% scheme for all foreign personnel who are temporarily employed in the Netherlands.

The Dutch tax system can be divided into taxes based on income, profit and assets, and cost price increasing taxes.

Below you find a summary regarding other taxes and duties.

Dividend tax

Companies often pay out profits to the shareholders in the form of dividends. The following are further examples of dividend situations:

  • Partial repayment of the moneys paid up on shares by shareholders;
  • Liquidation payments above the average paid-up equity capital;
  • Bonus shares from profits;
  • Constructive dividend. This concerns situations in which the shareholder sells something to the company at a lower value than the prevailing value in the market. In other words, this works to the company’s advantage;
  • Compensation received for a cash loan, where the loan was taken out under such conditions that it effectively functions as corporate equity capital.

The company (liable for withholding the tax) that pays out the dividend is bound to withhold the dividend tax and to pay it to the tax authorities.

Exemption
No tax is withheld, among others, in the following situations:

  • Where, in inland relationships, benefits are enjoyed from the shares, profit-sharing certificates and cash loans of participations to which the participation exemption applies;
  • If a Dutch company pays out dividends to a company established in a member state of the European Union and the company holds at least a 5% share of the Dutch company;

Tax rate
The tax rate for dividends is 15%. The tax is withheld by the company that pays out the dividends and pays it to the tax authorities. The dividend tax withheld serves as an advance tax payment on income and corporate income tax.

The Netherlands has signed tax treaties with various other countries, as a result of which a lower tax rate will apply in many instances.

Prevention of double taxation

Residents of the Netherlands and companies that are registered in the Netherlands must pay tax on all revenue generated worldwide. This could result in any given income component being taxed both in the Netherlands and abroad.

To prevent this kind of double taxation, the Netherlands has signed tax treaties with many other countries. The treaties are largely modelled on the OESO Model Treaty for the prevention of double taxation.

If an income tax component is nevertheless double-taxed as income or corporate income tax, the taxed amount is reduced based on the exemption method. The method entails a reduction of the Dutch tax related to the foreign income. The exemption on the income tax is calculated per box.
Double taxation of dividend payments and interest payments and royalties is prevented with the use of the settlement method. The use of this method means that the Dutch tax is reduced by the amount of tax charged abroad.

In certain situations it is also possible to deduct the foreign tax directly from the profits or as costs related to income.

The 30% rule

Foreign employees who come to work in the Netherlands temporarily qualify for the 30% Rule under certain circumstances. The rule entails that the employer is entitled to pay the employee a tax-free remuneration to cover the extra costs of their stay in the Netherlands (extraterritorial costs). The disposition is only valid for a maximum period of 10 years, and the situation can be reviewed after 5 years. The compensation amounts to 30% of the salary, including the compensation, or 30/70 of the salary excluding the compensation. The condition is that, based on this salary, the employee is not entitled to prevention of double taxation. If the employer reimburses more than the maximum amount, then this is additional salary before salary deductions.

Conditions for qualification for the 30% rule
1. The employee has a permanent job;
2. The employee has a specific expertise that is hardly or not at all available in the Dutch employment market. This is, in any event, the case if the employee is employed in the mid or upper levels of the management of an international company and is sent to the Netherlands on a rotational basis. The employee must have been employed by the company for a period of approximately 2.5 years.

Extraterritorial costs
The extraterritorial costs consist of the following, among other things:

  • extra cost of living because of the higher cost of living in the Netherlands than in the country of origin (cost of living allowance);
  • the cost of an introductory visit to the Netherlands, with or without the family;
  • the cost of the application for a resident’s permit;
  • double housing costs, because the employee will continue his or her residence in the country of origin.

The following aspects are not covered by the extraterritorial costs and can therefore not be compensated or granted untaxed:

  • the overseas posting allowance, bonuses and comparable compensations (foreign service premium, expat allowance, overseas allowance);
  • loss of assets;
  • the purchase and sale of a house (reimbursement of house purchase expenses, agent’s fee);
  • the compensation for higher tax rates in the Netherlands (tax equalization).

If the employee has children, the employer is entitled to offer the employee tax-free compensation for school fees at an international school in addition to the 30% rule. Other professional costs can be compensated untaxed based on the normal rules applicable to the Wages and Salaries Tax Act (Wet op de loonbelasting).

If the extraterritorial costs add up to more than 30%, then the actual costs that have reasonably been incurred can also be compensated tax-free. It must however be possible to demonstrate that the costs incurred are justifiable.

To be able to make use of the 30% rule, the employer and the employee must jointly submit an application to the Foreign Office of the tax authorities in Limburg (Belastingdienst/Limburg/kantoor Buitenland). If the application is approved, the tax authorities will issue a decision.

The decision is valid for a maximum period of 10 years. Should the request be made within four months after the start of employment as an extraterritorial employee by the employer, the decision shall be retroactive to the start of employment as an extraterritorial employee. If the request is made later, the decision shall apply starting the first day of the month following the month in which the request is made.
The ten-year period is reduced by previous periods of stay or employment in the Netherlands.

In addition, the employee can also submit an application for registration as a partial foreign taxpayer for tax purposes in the Netherlands. This entails that he will be entered as a foreign taxpayer in Box 2 and 3.

Value Added Tax (VAT)

The Dutch turnover or value added tax system is based on the European Directive concerning tax on added value. Tax is due the Added Value (VAT or ‘BTW’ in Dutch). This entails that tax is charged at each and every stage of the production chain and in the distribution of goods and services. Businesses charge one another VAT for goods and / or services provided. The company that charges the VAT is required to pay the VAT amount to the tax authorities. If a company is charged VAT by another company, it is entitled to deduct the VAT amount from VAT due on the company’s part. By doing so, the system ensures that the end user is effectively responsible for paying the VAT. Foreign companies that perform taxed services in the Netherlands are in principle also liable to pay VAT. Those companies, too, will be required to pay the VAT due in the Netherlands and will therefore also be able to claim the VAT invoiced to it by Dutch companies.

Exemptions
Not all good and services in the Netherlands are subject to VAT. The following services are VAT exempt: medical services, services provided by educational institutions, most banking services, insurance transactions, services performed by sports organizations and property rentals. Companies that provide exempted services are not entitled to charge VAT for their services. In addition, they are also not entitled to claim the VAT charged to them for goods and services. Companies that perform both VAT liable and VAT exempt services will assign VAT to those specific services on which VAT is due.

The VAT system in the internal European market
Europe has recognized the existence of an internal European market since 1 January 1993. From that date on, the European Union has recognized the free traffic of goods, persons, services and capital in the EU. Performances within the European Community are referred to as the intracommunity supply and acquisition of goods and intracommunity services. VAT is charged based on the destination country principle. This means that goods that cross the border to another EU country are taxed in the destination country. With effect from 1 January 2010 there is a new main rule for business to business services (B2B). These are from now on usually taxed in the country where the customer is established or has a permanent establishment.

Tax rates
The general VAT tax rate is 19%. The Netherlands also has a low VAT rate of 6%. Goods and services falling under the low tax rate are specified in Table 1 of the Turnover Tax Act (Wet op de omzetbelasting 1968). This applies, among other things, to foodstuffs and medicines. The zero rate is mainly intended for goods exported to outside the EU and for goods exported to other EU members states.
All companies are bound to submit VAT declarations. If the company also supplies goods or services to elsewhere in the European Union, it is also bound to fill in the Opgaaf Intracommunautaire Prestaties (Intracommunity Supplies) tax form.

Excise and other Duties

Excise duty
The Netherlands charges excise duties on alcohol-containing beverages, tobacco, fuel and other mineral oils. Manufacturers, traders and importers pay excise duties to the tax authorities. The Excise Duty Act (Wet op de accijns) in the Netherlands is fully harmonized with the applicable EU directives.

Environmental taxes
The Netherlands charges the following environmental taxes:

  • Groundwater tax
  • Tax on mains water
  • Waste tax (Afvalstoffenbelasting)
  • Fuel tax
  • Energy tax
  • Packaging tax

Groundwater tax
The taxes are paid by companies that extract groundwater. The amount of tax due is based on the amount of cubic metres of groundwater that is extracted by the company. The rate is € 0.1951 per m3.

Tax on mains water
The Netherlands charges tax on mains water. All companies and households pay tax on a maximum amount of 300 cubic metres of water per connection per annum. The rate is € 0.157 per m3.

Waste tax (Afvalstoffenbelasting)
Waste tax is charged on all dumped waste. The rate is € 107.49 per 1,000 kg of dumped waste. The rate for non-burnable waste and waste that should not be incinerated is subject to a rate of € 16.79 per 1,000 kg.

Fuel tax
Fuel tax is paid by the producers and importers of coal. The rate is € 13.42 per 1,000 kg coal.

Energy tax
The purpose of energy tax is to reduce CO2 emissions and to reduce energy consumption. The energy tax is charged to the user of the energy (natural gas, electricity and certain mineral oils). The rates are related to the amounts used, whereby the rates are progressively reduced as consumption increases.

Packaging tax
With effect from 1 January 2008 the Netherlands has introduced a new tax: the packaging tax. The principal pays the tax. The tax is also payable by people who for the first time market a packaged product or an (empty) packaging together with a product. For each taxpayer there is a tax threshold of 50,000 kg. The packaging tax is only paid on the amount of packagings that exceed the threshold. Businesses who make available or market less than 50,000 kg of packagings are not affected by the packaging tax and also do not have to notify the Dutch Tax Authorities.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl


Corporate income tax in the Netherlands

The tax system in any given country is invariably an extremely important criterion when it comes to companies finding a country of incorporation. The view taken by the Dutch government is that the tax system may under no circumstances form an impediment for companies wishing to incorporate in the Netherlands. In that framework, it is possible to obtain advance certainty regarding the fiscal qualification of international corporate structures in the form of so-called Advance Tax Rulings. In addition, the Netherlands has also signed tax treaties with many other countries to prevent the occurrence of double taxation.

The following are a few of the benefits offered by the Dutch tax system:

  • The Netherlands does not charge tax at source on interest and royalties.
  • In most cases all the profits that the Dutch parent company receives from foreign subsidiaries are exempted from tax in the Netherlands (participation exemption).
  • The Netherlands offers attractive tax-free compensation in the form of the 30% scheme for all foreign personnel who are temporarily employed in the Netherlands.

The Dutch tax system can be divided into taxes based on income, profit and assets, and cost price increasing taxes.

Below you find a summary regarding corporate income tax.

Corporate income tax

Corporate income tax is charged to legal entities of which the capital is partially or fully divided into shares. Examples of such legal entities are the Dutch NV and BV. Companies based in the Netherlands are taxed on the basis of the companies’ local revenues. The question as to whether a company is in effect based in the Netherlands for tax purposes is assessed on the basis of the factual circumstances. The relevant criteria are issues such as where the actual management is based, the location of the head office and the place where the annual general meeting of shareholders is held. Entities set up under Dutch law are deemed to be established in the Netherlands. Certain entities not established in the Netherlands that receive income from the Netherlands are foreign taxpayers. A foreign taxpayer receives profit from a Dutch enterprise if the enterprise is operated in the Netherlands using a Dutch permanent establishment or permanent representative.

Tax base and rates
Corporate income tax is charged on the taxable profits earned by the company in any given year less the deductible losses. The following are the applicable corporate income tax rates for 2010:

Profit from / up to Rate
Up to € 200,000 20.0%
More than € 200,000 25.5%

If a company incurred a loss in any given year, that loss can be deducted from the taxable profit of the previous year or from the taxable profit over nine subsequent years. This loss set-off has been temporarily extended. Losses may be carried back three years. In exchange for this the loss carry forward of nine years is cut to six years. This temporary measure applies for the tax years 2009 and 2010.

The company profits must be determined on the basis of sound commercial practice and on the basis of a consistent operational pattern. This entails, among other things, that as yet unrealized profits do not need to be taken into consideration. Losses, set against them, may be taken into account as soon as possible. The system of valuation, depreciation and reservation that has been chosen must be fiscally acceptable and, once approved, must be applied consistently. The tax authorities will not subsequently accept random movements of assets and liabilities.

In principle all business expenses are deductible when determining corporate profits. There are however a number of restrictions with respect to what qualifies as business expenses.

Valuation of work in progress and orders in progress
In work and/or orders in progress profit taking may no longer be postponed. The constant part of overheads must be capitalised and a cumulative profit must be taken. The same applies for orders in progress.

Limited depreciation on buildings
As of 2007, certain restrictions apply with respect to the depreciation of business buildings. Effectively, this means that the taxpayer is entitled to depreciate the building until the book value has reached the so-called base value. The base value is determined with reference to the WOZ value (see above). Based on the latter regulations, the value of a building is determined, to the greatest extent possible, on the basis of its value in the economic environment. The base value for owner-occupied buildings is 50% of the WOZ value. The base value for buildings used as investments is 100% of the WOZ value.

Arbitrary depreciation
In the Netherlands in principle no more than 20% per year of acquisition or production costs may be depreciated on operating assets, other than buildings and goodwill. The minimum depreciation period is therefore 5 years. Under certain conditions goodwill can be depreciated by a maximum of 10% per year.
As a temporary measure, because of the economic crisis, companies may depreciate their investments made in the 2009 or 2010 over 2 years (50% per year). Depreciation is possible as soon as an investment commitment is entered into or production costs are incurred in 2009. The amount of arbitrary depreciation may not be higher than what was paid by way of investment commitment or incurred by way of production costs.

Excepted operating assets are:

  • Buildings, earth, road and hydraulic engineering works, animals, intangible fixed assets (such as software), mopeds, motorbikes and passenger cars. However arbitrary depreciation may be made on taxis and very economical passenger cars.
  • Operating assets intended primarily to be made available to third parties.

Participation Exemption
Participation exemption or substantial holding exemption is one of the main pillars of corporate income tax. The scheme was introduced to prevent double taxation. Profit distribution between group companies is exempted from tax.

A participation refers to a situation where a company (the parent company) is the owner of at least 5% of the nominal paid-up capital of a company that is based either in the Netherlands or abroad (the subsidiary).

Under the participation exemption, all benefits derived from the participation are tax exempt. The benefits include dividends, profits and losses in the sale of the participation and acquisition and sales costs. If the value of the participation falls due to losses incurred, devaluation by the parent company is in principle not permitted. Losses arising on liquidation of a participation can under certain conditions be deducted.

In principle, participation exemption does not apply if the parent company or subsidiary is an investment institution. It is however possible to appeal for a ‘reduced tax investment participation’. To determine whether the participation exemption applies an intent test is used. This means looking at whether or not the participation is held as an investment. A participation in a company whose balance sheet consists for example of liquid assets, debentures, securities and debts is regarded as an investment. In the latter case the participant is not entitled to participation exemption, but is however entitled to appeal for a participation settlement.

Fiscal unity
If the parent company owns at least 95% of the shares of a subsidiary, the companies can submit a joint application for fiscal unity to the tax authorities, whereby the companies will be viewed as a single entity for corporate income tax purposes. The subsidiary is thereby effectively absorbed by the parent company. One of the most important advantages of a fiscal unity is the fact that the losses of one company can be set off against the profits of another company in the same group. The companies are thereby also entitled to mutually supply goods and / or services without fiscal consequences, and they are also entitled to transfer assets from one company to another.

Fiscal unity is only permissible where all of the companies concerned are effectively established in the Netherlands. In addition, the parent company and the subsidiaries must also use the same financial year and be subject to the same tax regime.

Innovatiebox (Innovation box)
In 2007 the patent box was introduced. Companies that have developed intangible assets (an invention or technical application) can deduct the development costs from the company’s annual profits in the year in which the asset was developed. As soon as a patent has been granted for the intangible asset, the company can opt to place the benefits in the so-called patent box. Plant variety rights also fall under this. With effect from 1 January 2008 the patent box has been extended with intangible assets for which a patent has not been granted but which have arisen from a research and development project. The tax payer must have received an R&D declaration for this from Senternovem.

With effect from 2010 the patent box has been given a new name: the innovation box. The rate for corporation tax for innovative activities has been reduced from 10% to 5%. Losses on innovative activities can from now on be deducted at the normal rate of 25.5%. The outsourcing of R&D work is also possible if the principal has sufficient activities and knowledge present.

A number of conditions must however be fulfilled to be able to qualify for the aforementioned tax benefits: For example, to make use of the innovation box the intangible assets must contribute at least 30 percent to the profit that the company receives from the intangible asset. The patent box does not apply to brands, logos, TV formats, copyrights on software and so on. The choice must be specified in the corporate income tax declaration.

Group interest box
In 2007 the Dutch government introduced the ‘group interest box’ in corporate income tax. The purpose of the box is to tax the balance of interest paid and received between group companies at a special low tax rate of 5%. The company must fulfil a number of conditions to qualify for this allowance. The scheme was approved by the European Commission in 2009. The Netherlands has decided not to introduce the group interest box for the present however.

Thin capitalisation rule
On 1 January 2004, the government introduced a limitation on the interest deduction on corporate income tax; a system that is known as ‘thin capitalisation’. Based on this rule, the company is not permitted to deduct interest in so far as it is making use of excess levels of leveraged financing. The rule applies exclusively to companies that form part of a group. The rule uses two tests to determine whether the company is making excessive use of leveraged financing, namely, a fixed ratio and a group test:

  • Based on the fixed ratio criterion, the company is using excess leveraged financing where the fiscal leveraged finance exceeds the company’s fiscal equity capital by more than three times reduced by a franchise of  500,000 €.
  • Based on the group test, the company is using excess leveraged financing where the ratio between leveraged financing and the company’s equity capital, according to the commercial (consolidated) balance sheet, exceeds that of the group of which the company forms part of as a whole.

The maximum limitation on the interest deduction is the amount of the interest due to the allied (local and overseas) companies.

Additional limitation on interest deduction
With effect from 1 January 2008 the anti-abuse provision relating to interest deduction has been tightened up further. The Dutch tax authorities may from now on demonstrate that in the case of a group transaction no business considerations are involved, even if the recipient pays 10% or more tax abroad. In that case the interest paid within the group is not deductible. The interest for ordinary business transactions does however remain deductible. Evidence to the contrary is however possible with the so-called evidence to the contrary ruling. If the requirements for this ruling are met, the deduction of interest is restored.

Arm’s Length Principle
The Dutch corporate income tax legislation includes an article that determines that national and foreign allied companies are entitled to charge one another commercial prices for mutual transactions. This is however subject to an obligation to keep due documentation of all relevant transactions. This enables the Dutch tax authorities to determine whether the transaction between the applicable allied companies are conducted based on market prices and conditions. It is possible to obtain prior assurance of the fiscal acceptability of the internal transaction with the use of the so-called ‘Advance Pricing Agreement’.

Tax declarations
The corporate income tax declaration must be submitted to the tax authorities within six months of the end of the company’s financial year.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl


Income tax in the Netherlands

The tax system in any given country is invariably an extremely important criterion when it comes to companies finding a country of incorporation. The view taken by the Dutch government is that the tax system may under no circumstances form an impediment for companies wishing to incorporate in the Netherlands. In that framework, it is possible to obtain advance certainty regarding the fiscal qualification of international corporate structures in the form of so-called Advance Tax Rulings. In addition, the Netherlands has also signed tax treaties with many other countries to prevent the occurrence of double taxation.

The following are a few of the benefits offered by the Dutch tax system:

  • The Netherlands does not charge tax at source on interest and royalties.
  • In most cases all the profits that the Dutch parent company receives from foreign subsidiaries are exempted from tax in the Netherlands (participation exemption).
  • The Netherlands offers attractive tax-free compensation in the form of the 30% scheme for all foreign personnel who are temporarily employed in the Netherlands.

The Dutch tax system can be divided into taxes based on income, profit and assets, and cost price increasing taxes.

Below you find a summary regarding income tax.

Income tax

Income tax is a tax levied on the income of natural entities with domicile in the Netherlands (domestic taxpayers). They are taxed on their full income wherever it is earned in the world. Any natural person who is not domiciled in the Netherlands, but earns an income in the Netherlands, is liable to pay income tax on the income (foreign taxpayers). Foreign taxpayers can also opt to pay domestic taxes. In the latter instance, the taxpayer is subject to all the rules applicable to domestic taxpayers.

In principle, income tax is charged on an individual basis: Married persons, registered partners and unmarried cohabitants can however mutually distribute certain joint income tax components.

Tax base
Income tax is charged on all taxable income. The different components of taxable income are broken down into three ‘closed’ boxes; each at a specific tax rate.

Each source of income can only be entered in one box. A loss in one of the boxes cannot be deducted from a positive income in another box. A loss generated in Box 2 can be deducted from a positive income in the same box in the previous year (carry back) or in one of the nine subsequent years (carry forward). A loss in Box 1 can be deducted from a positive income in the same box in the 3 preceding years or in one of the subsequent 9 years. Box 3 does not recognize a negative income.

Box 1: Taxable income from work and home

The income from work and home is the sum of:

  • The profit from business activities;
  • The taxable wages;
  • The taxable result of other work activities (e.g. freelance income or income from assets made available to entrepreneurs or companies);
  • The taxable periodic benefits and provisions (e.g. alimony and government subsidies);
  • The taxable income derived from the own home (fixed amount reduced by a deduction equivalent to a specified interest paid on the mortgage bond);
  • Negative expenditures for income provisions (e.g. repayment of specific annuity premiums);
  • Negative personal tax deductions.

The following allowances apply to the above-mentioned income components:

  • Expenses for income provisions (e.g. premiums paid for an annuity insurance policy or a disability insurance);
  • Personal deductions. This concerns costs related to the personal situation of the taxpayer and his family that influence his ability to support himself and his dependents (e.g. medical expenses, school fees and specific living expenses for children).

The tax rate in Box 1 is progressive and can accumulate to a maximum of 52%.

Business allowances and exemptions for Small and Medium-size Enterprises (SME) (MKB in Dutch)
A natural person who derives income from business activities qualifies for tax allowances for entrepreneurs under certain circumstances. The tax allowances for entrepreneurs include self-employed allowance, research and development allowance, overtime allowance and discontinuation allowance. In addition, a starting entrepreneur is also entitled to a start-up allowance.

The SME Allowance (MKB-vrijstelling) will also come into effect in 2007. This entails that entrepreneurs will be entitled to an additional exemption of 12% (2010) of the profits following deduction of the start-up allowance.

Box 2: Taxable income from substantial interest

Substantial interest applies where the taxpayer, with or without his partner, is a direct or indirect holder of a minimum of 5% of the paid-up capital in a company of which the capital is distributed in shares.

The income from substantial interest is the sum of the regular benefits and / or sales benefits reduced by deductible costs. Regular benefits include dividend payments and payments on profit-sharing certificates. Sales benefits include the gains or losses on the sale of shares. Examples of deductible costs include the following: consultancy fees and the interest on loans taken out to finance the purchase of
the shares.

The tax rate in Box 2 is 25%.

Box 3: Taxable income from savings and investments

Box 3 charges tax on the taxpayer’s assets. This assumes a fixed return on investment of 4% of the yield base. The yield base is the average value of the assets less the average value of the debts. The average value is obtained by adding up the assets at 1 January and at 31 December and dividing the sum by two.

The following assets are included under Box 3: Savings, a second house or holiday house, properties that are leased to third parties, shares that do not fall under the substantial interest regime and capital payments paid out on life insurance.

Debts in Box 3 include the following: Consumer loans and mortgage bonds taken out to finance a second house. Per person, the first € 2,900 (2010) of the average debt is not deductible from the assets.

Untaxed assets
All taxpayers are entitled to untaxed assets in Box 3 of € 20,661 (2010). The amount is intended to reduce the yield base. The untaxed assets can be increased by a child allowance of € 2,762 (2010) per minor. Taxpayers of 65 and older are entitled to an extra increase up to a maximum of € 27,350 (2010) under certain conditions. A fixed return of 4% is then calculated on the amount remaining after deduction of the exemption. 30% tax is then paid on this return.

The tax rate in Box 3 is 30%.

Tax allowances
Once the due tax has been calculated for each box, certain tax allowances are deducted from those amounts. All domestic taxpayers are entitled to a general tax allowance of € 1,987 (2010). Depending on the personal situation of the taxpayer and the actual amount of the annual income, the taxpayer may also be entitled to additional tax deductions.

Advance tax payments
Tax is withheld in advance over the course of the tax year for income deriving from work activities and from dividends. Both wage withholding and dividend tax are advance tax payments on income. The withheld amount may be deducted from the income tax due.

Tax declaration
The income tax declaration for any given tax year must be submitted to the tax authority in principle before 1 April of the next year. If a firm of accountants produces the return an extension scheme applies. This means that the return may also be submitted later in the year.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl


Personnel in the Netherlands

Finding and retaining personnel is an essential condition for the existence and growth of an organization. Companies stand out through the personnel they employ. Dutch tax legislation allows numerous options for rewarding personnel in fiscally friendly ways.

The Dutch legislation includes various provisions to secure the rights and obligations of both employer and employee in the Dutch employment market. As a general rule, the employer and employee should behave according to the standard of good employership or employeeship respectively. The employer has a number of specific legal obligations with respect to work and rest times, leave and working conditions.

Wage tax

As is evident from Section 5 Tax Legislation, wage withholding tax is an advance tax payment on income tax. Anyone deriving an income from employment in the Netherlands is liable to pay income tax on the income. In addition, employees in the Netherlands are generally covered by social security. The employer withholds the social security premium and wage tax due from the wages as a single amount and subsequently pays this to the tax authorities. The combined amount is referred to as wage tax. The wage tax is subsequently settled against the amount of income tax due.

Wage tax is calculated on the full value of the remunerations received by the employee based on the employment contract. The remuneration may take the form of cash, such as a salary, holiday allowances, overtime, commissions and payments for a thirteenth month Employees can however also receive remuneration ‘in kind’, such as products from the company or holiday trips. The concept of remuneration also includes various other claims, compensations and provisions.

A claim is a right to receive a benefit or provision after a period of time or subject to certain predetermined conditions. One example of the latter is the right to receive retirement benefits. Examples of provisions include tools, meals, public transport tickets, etc. ‘Compensation’ normally refers to amounts that the employer pays its employees to cover costs incurred by the employee in the fulfilment of his or her job.

Tax rate

The wage tax rates in 2010 are:

  • On the first € 18,218 of taxable income: a percentage of 33.45% is withheld (2.30% wage tax and 31.15% social security premium);
  • On the next € 14,520 of taxable income: a percentage of 41.95% is withheld (10.80% wage tax and 31.15% social security premium);
  • On the next € 21,629 of taxable income: 42% is withheld;
  • On all additional income: a percentage of 52% is withheld.

When withholding the wage tax, the employer must also take into account the general tax allowance and the labour allowance. The latter discounts are discussed in greater detail in Chapter 5 Tax Legislation.

The employer himself, rather than the employee is liable for certain taxable components of the wage. This concerns the so-called final levy components. Certain forms of compensations ‘in kind’ are eligible for final levy payment, such as traffic fines not charged to the employee and excessive compensations and provisions of a maximum of € 200 (2010) per month. An important example of a compulsory final levy component is a redundancy payment for an older employee which actually qualifies as an early retirement payment.

Tax-free compensations and provisions

Not all compensations and provisions are taxable components of the wage. Compensations are tax-free in as far as they are deemed to be issued to cut costs, liabilities and depreciations with respect to the proper fulfilment of the employment contract. Compensations paid by the employer to the employee, and which are not generally perceived by society as remuneration and which society considers the reasonable duty of the employer to pay or provide, are also included in the latter category. A ‘free’ compensation is always paid out in the form of cash, while a ‘free’ provision could also be provided in the form of goods and services. The concepts are considered equivalent to the greatest extent possible. If something can be provided untaxed, then it can generally also be compensated untaxed. Certain forms of compensation and provisions are however only exempted up to a certain limit and in some instance standard amounts apply. The following are a number of ‘free’ compensations and provisions.

Travel expenses

Employers are entitled to pay their personnel untaxed compensation of € 0.19 (2010) per kilometre for home-work travel and other work-related kilometres. This is irrespective of the means of transport used. When using public transport, the employer is entitled to choose between the completely untaxed compensation of the actual cost of the public transport and an untaxed compensation of € 0.19 per kilometre. Alternatively, the employer may provide the employee with a car (in case of any private use of the car, a percentage of the catalogue price must be added to the employee’s taxable income).

Coffee and refreshments

Expenses for refreshments taken during work hours, such as coffee, tea, confectionary and fruit may be provided untaxed. The employer is entitled to provide the above items free of tax without the need for documentary proof to the value of € 2.75 per week or € 0.55 a day (2010).

Meals

Meals may be provided untaxed provided that the business character is of more than incidental interest. The value of a meal at a company canteen is set at the fixed amount of € 2.20 (2010) for a coffee meal or breakfast and € 4.20 (2010) for a cooked meal.

Company products

Employers are entitled to offer their employees discounts or compensation for purchasing products produced or manufactured by the company. This can be done tax-free subject to the following conditions: These must be products that are unique to the industry in which the company operates; The maximum discount or compensation per product must be 20% of the market value of the product; The total value of the discount or compensation may not exceed € 500 per calendar year. If in any calendar year the employee does not make use of this facility, any remaining amounts may be carried forward for a maximum of 2 calendar years.

This may also extend beyond the termination of the employment contract due to disability or retirement.

Study/Training

Study and / or training expenses incurred by the employee with a view to obtaining an income can be compensated free of tax. This includes study and course fees, the cost of study books and other study materials. The following items are exceptions to the above and are taxed: compensation for costs related to a work room or study space, including its design and furnishing; compensation for foreign travel in as far as the compensation exceeds € 0.19 per kilometre.

Relocation

If an employee is required to relocate for work purposes, the employer is entitled to compensate the employee free of tax for the moving costs for his household goods. In addition the employer may give a tax-free moving expenses allowance of a maximum of € 7,750 (2010). The condition is however that this is a move that is entirely related to the employment. This in any case applies if the employer gives the allowance within two years after the employee accepts the new employment (or after transfer) and the employee moves to a dwelling less than 10 kilometres from his/her work where he/she previously lived further that 25 kilometres away from his/her work.

Courses, congresses, etc.

Employers are entitled to compensate employees free of tax for the cost of courses, congresses, seminars, symposiums, excursions, study trips and so forth. This also covers the related travel (maximum € 0.19 p/km) and accommodation. This must however involve professional expenses.

Representation costs

The cost of receptions, festivities, gifts, promotional gifts and entertainment, including the associated travel (maximum € 0.19 p/km) and accommodation can also be free of tax compensated. This must however involve professional expenses.

Employment relationships

According to Dutch law, 3 different general types of agreements are used to determine the rights and duties of persons performing activities in the course of a business for another party. The employment agreement (‘arbeidsovereenkomst’) is the most common agreement. The assignment agreement (‘overeenkomst van opdracht’); for example, a freelance agreement, consultancy agreement or a management agreement is used often in an attempt to avoid an employment agreement coming into being. A third agreement is the contracting agreement (‘aannemingsovereenkomst’). This agreement is concluded between parties if the purpose of the activities is to construct an item with a physical nature.

Essential features of the employment agreement are: the obligation to perform labour in person in return for pay, and the authority of the other party to give instructions as to how the labour is to be performed. Other agreements lack one or more of these features. The employment agreement itself is not subject to rules as to its form (oral agreements are perfectly valid, although problems as to proof may arise). However, according to Dutch labour law the employer is under the obligation to provide certain information in writing to the employee with respect to the employment agreement. This relates to place of work, job title, the date the employment agreement enters into force, remuneration, working hours, terms and conditions relating to holidays and the applicability of any collective labour agreement.

Furthermore, Dutch labour law takes the legal presumption of an employment agreement as a starting point if a person has performed labour every week for 3 consecutive months, with a minimum of 20 hours a month. The contracted work in any given month is presumed to amount to the average working period per month over the 3 preceding months.

Governing law

As a rule, an employment relation is governed by the law of the country to which it is most closely connected (typically: the country where the labour is performed). In principle, parties to an employment agreement are free to choose a different law to apply to their relationship. However, according to European legislation, the effect of any choice of law in international employment agreements is limited to the extent that the employee will not lose protection on the basis of mandatory provisions of the law of any member state which would apply if no choice of law had been made.

Mandatory rules are legal provisions which cannot be contracted out. For example, many provisions of Dutch labour law regarding the termination of an employment agreement are considered to be mandatory. The parties to an employment agreement are limited to negotiations of their own terms and conditions by both Dutch labour law and any applicable collective labour agreement, since these contain many mandatory rules on terms and conditions of employment.

Employment law regulations

Employment relations in the Netherlands are mostly regulated by the Dutch Civil Code (‘Burgerlijk Wetboek’). An important principle of the employment provisions of the Dutch Civil Code is the protection of what is known as the weakest party, i.e. the employee. Apart from the Dutch Civil Code, regulations concerning labour law can be found in several other regulations and legislative acts, such as the Works Council Act and the Workings Conditions Act. As a result of the unification of Europe, Dutch regulations are increasingly influenced by European treaties and case law of the European Court of Justice. Furthermore, employment regulations are laid down in the Collective Labour Agreements.

Collective labour agreements (‘CAOs’)

As mentioned above, employment agreements are also influenced by collective labour agreements (‘CAOs’). Collective labour agreements are negotiated between representatives of employers and employees and are intended to provide consistent employment conditions within specific branches. Collective labour agreements can be negotiated for an entire branch or be limited to a company. Furthermore, the Minister of Social Affairs can impose the application of a collective labour agreement on the entire industry or sector by declaring a collective labour agreement generally binding. Any provision in an individual employment agreement, which restricts the rights of the employee under an applicable collective labour agreement, is void. In such cases the provisions of the collective labour agreement prevail.

Trade Unions

Although the influence of Trade Unions in the Netherlands is generally waning, Trade Unions are still well organised in the manufacturing industry and the semi public sector or privatised sector. The most important trade unions are the Christian Trade Union Federation (‘Christelijk Nationaal Vakverbond’ (CNV)) and the Federation of Dutch Trade Unions (‘Federatie Nederlandse Vakbeweging’ (FNV)). The main employers’ association is the Confederation of Netherlands Industry and Employers (‘VNO-NCW’).

Employment agreements

An employment agreement may be agreed for an indefinite or fixed period of time. If an employment agreement for a fixed period of time is continued, a new agreement will then be deemed to be have been entered into under the same conditions and for the same period of time (subject to a maximum of 1 year) as the former employment agreement.

Parties are free to enter into consecutive employment agreements for a fixed period of time, ending by operation of law, however two restrictions apply:

  • The aggregate duration of the consecutive employment agreements (with interruptions of not more than 3 months) may not exceed 36 months; if the aggregate duration is longer than 36 months (interruptions included), the last employment agreement shall be deemed to be an employment for an indefinite period of time.
  • The number of consecutive employment agreements must be less than 4. If the number of consecutive employment agreements exceeds 3 (while there are no interruptions of more than 3 months in between the employment agreements), the fourth employment agreement will be considered to be an employment agreement for an indefinite period of time.

Termination of an employment agreement

With respect to termination of an employment agreement, a distinction must be made between an employment agreement for a fixed period of time and an employment agreement for an indefinite period of time. There are several ways for employment agreements to terminate:

Probation period

Parties can agree upon a probation period. However, it should be noted that a probation period is subject to strict rules. A probation period for maximum 2 months can only be concluded if parties have agreed upon an employment contract for a fixed period of at least 2 years, or in case of an employment contract for an indefinite period of time. An employment contract for the limited period of less than 2 years and an employment for a specific project, where a termination date is not indicated, may only contain a probation period of 1 month. During the probation period both the employer and the employee can terminate the employment contract directly at any time. In order to be valid, the probation period has to be expressly agreed upon by parties in writing. Any deviation from the aforementioned rules will result in a void probation period.

Lapse of the agreed period

An employment agreement for a fixed period of time will terminate by operation of law at the end of the agreed period of time without formalities.

Summary dismissal

The employment agreement can be terminated for urgent cause; for instance, if the employee has committed a serious crime, such as, but not limited to, theft, fraud, etc. Before a summary dismissal can be given, all circumstances must be taken into consideration. Dismissal must be given without delay, only the time necessary for an investigation into the facts is usually allowed. The grounds for the dismissal must be conveyed to the employee at the moment of dismissal. The employment ends immediately, without notice, and the employee is not entitled to compensation. Usually, payment of unemployment benefits is denied. The courts do not easily accept that sufficient grounds are present to deem a summary dismissal valid. Before deciding on a summary dismissal, therefore always consult a legal advisor. The employee may challenge the dismissal itself within 6 months, stating that he is still employed and is thus entitled to pay. Alternatively, the employee may acquiesce in the termination of the employment, but claim damages for reasons that the grounds for the dismissal were not valid. As a risk containment measure, it is advisable to file for dissolution of the employment (see below).

Death of the employee

The employment agreement will terminate by operation of law in case of death of the employee: the family of the employee is entitled to be paid approximately 1 month’s gross salary.

Mutual consent

The employment agreement can be terminated by mutual consent. Until 1 October 2006, a termination by mutual consent bore the risk for the employee that he would not be eligible for unemployment benefit. To secure the unemployment rights for the employee, the employee was obliged to fight the termination of his employment agreement. As from 1 October 2006, the entitlement to unemployment benefits exists unless the employee him/herself has taken the initiative for termination or he/she has acted in such a way that there is an urgent cause for summary dismissal. The purpose of this policy change is to create a more flexible dismissal regime and to save costs for the employer. In everyday practice, to avoid any risks, some employees still prefer a court procedure to dissolve the employment contract on neutral grounds or a request to the Labour Office for a dismissal permit on neutral grounds (see below).

Dissolution by the Court

The Court can terminate the employment agreement through dissolution. The employer will need a sound reason to have the employment contract dissolved by the Court. Amongst others, restructuring of the company and non-performance of the employee can serve as reasons. The proceedings will take approximately 6 to 8 weeks. No notice period is called for; the court sets the termination date in its verdict (usually at a date approximately 2 weeks after the verdict). The Court can grant a severance payment to the employee in the case where the employment agreement is dissolved.

The severance payment is calculated according to the ‘Cantonal Court Formula’, which was first formulated in 1997, and has been changed as of 1 January 2009. This formula (A x B x C) takes among other things into consideration the age of the employee, his seniority within the company, his salary and which party is to blame for the dismissal.

  • A. Years of service from start until end date of employment, rounded up or down to full years. If the employee is under 35 years of age, the years of services are to be multiplied by 0.5; if the employee is aged 35 up to 45, the years of services are to be multiplied by 1; if the employee is aged 45 up to 55, the years of services are to be multiplied by 1.5; years of service completed from the age of 55 are to be multiplied by 2.
  • B. Gross monthly salary, including all regular emoluments, such as holiday allowance, thirteenth month, regular bonuses, etc.
  • C. If the application for an order terminating the employment contract is based on ‘neutral grounds’ the correction factor will typically be 1; the grounds for termination are deemed ‘neutral’ when neither the employer nor the employee is to blame for them, e.g. if the employee is made redundant as the result of a reorganization and procedures have been followed correctly. However, there may be circumstances which justify an adjustment – upwards or downwards – of the correction factor. The court may even apply a correction factor of nil if in its opinion the circumstances of the case do not justify any compensation at all, e.g. serious dereliction of duty or misconduct by the employee.

Furthermore the Cantonal Court Judges may take into consideration the employee’s position on the job market, the employer’s financial position and the position of older employees who are close to their retirement.

No appeal is possible against the decision of the Court, either to dissolve the employment contract or to grant a severance payment. This is save exceptional cases in which – in short – the Court has failed to apply the law correctly.

Notice

The employment contract can be terminated by giving notice. Employment agreements for a fixed period of time can only end by giving notice if this possibility is explicitly stated in the employment agreement. Before notice can be given, the employer needs to obtain a dismissal permit. Dismissal permits will have to be requested at the Labour Office, stating among other things the grounds for dismissal. The proceedings will take about 6 to 12 weeks. The statutory notice period that has to be observed may vary from 1 – 4 months, depending of the duration of the employment. The statutory notice period for the employee is 1 month. If the parties want to agree upon a longer notice period (for the employee to observe) than 1 month, the employer must observe a notice period of at least twice the notice period of the employee, with a maximum notice period of 6 months for the employee. For instance, if a notice period for the employee of three is agreed, the employer will have to observe a noticee period equal to at least 6 months. The employer who has obtained a dismissal permit may observe 1 month less notice period than obliged by law or contract, provided that a minimum notice period of 1 month remains effective.

Even if a dismissal permit has been obtained, notice cannot be given if the employee is ill, unless the employee reported ill after the Labour Office received the request to grant the dismissal permit. Furthermore, notice cannot be given if the employee is pregnant or is a member of a labour representative body. Although the court may dissolve the employment agreement at any time, therefore also during illness and pregnancy, a severance payment will usually be higher under those circumstances and there are also other requirements that need to be met.

Although the Labour Office cannot grant a severance payment when granting the dismissal permit, it should be noted that the employee can request the Court to grant him a severance payment after the employment has terminated stating that the termination was apparently unjust. This is called an unfair dismissal (‘kennelijk onredelijk ontslag’). Case law shows that the Courts tends to award a severance payment using the Cantonal Court Formula (see above) as a guideline and applying a deduction because in comparison to dissolution, notice takes longer (due to notice period + longer procedure). However, there is serious discussion as to whether standard compensation must be applied, or rather the actual damages must be compensated.

Working conditions

By comparison with international worker protection standards, the Dutch regulations are of a high standard. In view of an action plan of the Dutch Government (Simplifying Social Affairs and Employment Regulation), it is expected that these regulations will be simplified to bring them more in line with the international worker protection standards and to strengthen the position of the Netherlands on the international labour market.

Under Dutch law, the employer is responsible for organizing work in such a way that it protects the safety, health and well-being of the employees in accordance with a statutory set of standards and criteria. In principle, all employers are highly recommended to avail themselves of the professional assistance of a certified occupational health service (‘Arbodienst’) in respect of the implementation of a significant part of the applicable health and safety measures (for example the occupational health medical examination). Under certain circumstances, the employer’s own employees may provide this assistance, providing that they are certified to this end.

Immigration law

Workers from EEA countries (European Union, Norway, Iceland and Liechtenstein) do not need special permits to work in the Netherlands. Non-EEA nationals, however, do need work permits to work legally in the Netherlands. The prospective employee must first apply for a residence permit, and then the prospective employer must file a request with the Labour Office for a work permit. In the event of the stay in the Netherlands not exceeding 3 months, the employee will only need a short-stay visa to enter the Netherlands. In the event of the stay being longer than 3 months, the following permits are required:

  • authorization for temporary stay (MVV, ‘Machtiging tot Voorlopig Verblijf’)
  • residence permit (verblijfsvergunning)
  • work permit (tewerkstellingsvergunning); this permit is not required for so called knowledge workers.

Residence permit

An MVV visa is necessary prior to travelling to the Netherlands for a stay of over 3 months, as well as to be able to apply for a residence permit upon arrival. One can apply for an MVV visa at the Dutch Embassy or Consulate or the prospective employer can contact the Immigration and Naturalization Service (IND, ‘Immigratie- en Naturalisatie Dienst’). This authority approves requests for visas and investigates whether there is any objection against issuing an MVV visa. If there is no objection, the IND will send the visa to the Dutch Embassy in the home country. This visa must also be requested for accompanying family members.

Work permit

Non-EEA nationals must obtain work permits to work in the Netherlands. The work permit has to be applied for at the same time as the application for an MMV visa. The prospective employer has to submit a request for the work permit with the Centre for Work and Income (CWI). The abovementioned permit will be based upon the duration of the employment, as laid down in the employment agreement that is submitted by the prospective employer.

The Labour Office can issue a work permit for a maximum of up to 3 years and only in the event that there are no qualified employees available on the labour market in the Netherlands or EU. As a consequence of this requirement, the employer has the obligation to undertake all the necessary actions to find a qualified employee for the position that the prospective employee is to fulfil. There are special regulations for intercompany transfers and knowledge workers. There is no work permit requirement for knowledge workers. Knowledge workers are employees for whom the employer has shown he cannot find a suitable alternative within the EU, working on the basis of an employment agreement and earning a minimum gross income of approximately € 50,183 per annum (2010; for employees over the age of 30. For employees under the age of 30 a gross income of € 36,801 per annum is sufficient).

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl


Finding a location in the Netherlands

The Dutch office market

The office market in the Netherlands is decentralized, which results in each city having a more or less specific office market. Amsterdam (approx. 6.6 million sq.m. office stock) focuses on finance and international trade, The Hague (approx. 4.0 million sq.m.) is the national administration centre where the government and public departments are the main users of the local office buildings. Rotterdam (approx. 3.1 million sq.m.) has one of the largest ports in the world, as a result of which the office market has a traditional focus on insurance and trade. Utrecht (approx. 2.5 million sq.m.) is the heart of the country with a focus on transport and domestic commercial services. In Eindhoven (approx. 1.4 million sq.m.) and Arnhem (approx. 1.1 million sq.m.) occupiers of office space have strong ties with electronics, chemicals and energy supply.

In general the office leasing market reflects the trends in the national economy. After 2000 when GDP fell, the demand for office space fell back as well and supply increased rapidly. Like the Dutch economy, take-up levels increased in the period 2004-2007. In 2008 and 2009 take-up decreased due to the changing economic climate. Occupiers are increasingly cautious in decision making and activity is driven by cost reduction and is focused primarily on good quality, well-located space. In the course of 2009 the supply rose by approx. 11% compared to 2008. There is a strong polarisation between (economically) dated and modern office space in the total supply.

Owners are aware of the fact that the market has changed and it has become a lot more difficult to attract new tenants. In all markets incentives went up; in areas confronted with high-vacancy rates the growth of incentives is even more generous.

The Netherlands has seen its key office markets slow down over the course of 2009. However, signs of modest improvement in occupier interest are becoming evident, suggesting that the prime market segment has found its floor and no further rental falls are expected. Prime rents in the top CBD locations across the country have stabilized, whilst secondary and non-core locations continued to decline.

Location Prime rent (Jan. 2010)Euro/sq.m/yr
Amsterdam – Zuidas 360
Amsterdam – Central 270
Amsterdam – South-East 195
Rotterdam 180
The Hague 200
Utrecht 195
Eindhoven 170

Town planning

The Netherlands has applied strict regulations with respect to the development of offices, retail, industrial and residential schemes since 1950. The municipal system of zoning plans determines in detail what can and cannot be built. In general, developers are only granted building permits if their plans fit in with the zoning plans or if an exemption has been granted. The zoning plans also apply to all redevelopment projects. It is therefore not easy to change the use of the building without the cooperation of the local authorities. Municipal as well regional approval is mandatory with respect to zoning plan changes. Procedures for obtaining permits are scheduled according to strict timetables. It can take several years to obtain approval for complex building plans in which public authorities play a dominant role.

Lease or buy

The general practice in the Netherlands is to lease office space: approx. 65% of all office buildings are owned by investors. Owner-occupier situations are more common in the industrial real estate market, but due to an increasing number of sale-and-lease-back transactions this proportion is changing.

Leasing has advantages, such as a positive impact on the company’s cash flow, flexibility, the possibility of off-balance presentation and negotiation of incentives with landlords. Lease contracts can be subject to VAT; which may result in VAT savings in specific situations. Depreciation is an important consideration with respect to the ownership of real estate.

Since the beginning of 2007, the depreciation on real estate is limited, both for BVs and for IB entrepreneurs. Depreciation is exclusively permitted where and in as far as the book value of the building exceeds the so-called base value. The level of the base value depends on the intended use of the building.

Leasing Practises and Taxes

Offices and Industrial

Typical lease length: Negotiable, but the common practice is 5 years + auto-renewals for 5 years
Typical break options: Negotiable
Frequency of payment: Quarterly in advance Annual index: Linked to CPI consumer price index (all households)
Rent reviews: To market prices only if agreed upon (frequency usually 5 years / by expert panel)
Service charge: Depending on contract
Tax (VAT): 19%
Tax (others): Property tax, water tax and sewer tax

In all instances:
The tenant has security of tenure as the lease automatically renews at expiry, bearing in mind the notice period. The exception to this is if the landlord wishes to occupy, tear down or redevelop the building. These conditions are rather strict and in reality the landlord’s options of terminating the lease are limited.

  • The tenant pays for internal repairs and utilities.
  • The tenant is responsible for insurance of contents.
  • The landlord pays for the external and structural elements of the building.
  • The landlord is responsible for building insurance and non-recoverable service charge items.
  • The landlord provides property management services that are not recoverable through service charges.

More about taxes

The landlord and the tenant are each partly responsible for the property tax levied by the local authority. Each property is assessed for taxation purposes, known as “onroerende zaak belasting” (OZB). The local government gives a value for the property and that value applies for one year. Each year the authorities collect the tax. The rate depends on the local authorities and this is a percentage of the value according to the Immovable Property Act.

Purchase Practises and Taxes
The purchaser is responsible for the so-called ‘kosten-koper’, which means that the buyer is liable for the payment of all additional costs. Those costs include transfer tax (6%), notary costs (0.2-0.5%), legal costs (negotiable) and some minor administration costs, such as land registration (Kadaster).

General building costs

Operational Costs 10.0 %
Maintenance 7.0 %
Management 1.5 %
Property tax Depending on the Municipality
Others 1.0 %
Insurance 0.3 %

Market Outlook
Although the Dutch economy is now on the road to recovery the market conditions are still challenging. Supply will continue to creep up, albeit at a slow rate. Demand is subdued with lease extensions dominating the market in the short term. Prime rents are expected to remain largely stable, however, some pressure may be felt in the secondary markets and overall incentives remain high.

Investment in Immovable Property

It is possible to make private immovable property profitable by leasing it to private or corporate tenants. The market can be broken down into 3 fiscal situations:

  • Personal investment
  • Income from other work
  • Income from business operations

Personal investment
In most instances the income from immovable property is subject to a fixed tax rate via Box 3. In the case of leasing beyond the scope of normal active asset management, the income is not taxed via Box 3, but via Box 1, as income from other work. The balance of the value applicable to the immovable property, as at 1 January and 31 December of each year, minus the financing debts on 1 January and 31 December is taxed at 1.2% via Box 3. Immovable property subject to tax based on the principles applicable to Box 3 is, in principle, valued at current market value at the reference date. Box 3 is a fixed tax rate for income from immovable property. The actual income, whether rent or lease is irrelevant.

Income from other work
In the case of private entities, income from ordinary investment and speculation does not translate into taxable income from other work. Where the activities however go beyond ordinary active asset management, such as in the case of the preparation and sale of immovable property where the sales profit is increased by carrying out major maintenance in-house, the work will not be considered normal
investment or speculation. The income will be viewed as taxable income where the work has a favourable influence on the financial outcome. The actual lease revenue is taxed in Box 1 at a maximum progressive rate of 52%. The (business) costs are deductible. If of the immovable property is sold, the profits (sales value minus the fiscal book value) will also be taxed progressively.

Income from business operations
This is processed in a similar way to that outlined in situation 2.

Depreciation
The annual depreciation is deductible from the annual profits in situations 1 and 2. As of 1 January 2007, the fiscal book value may not however fall below the so-called base value. The base value is equivalent to the WOZ value. If the immovable property is not leased, but used by the company itself, then the base value is equivalent to 50% of the WOZ value (WOZ for ‘Wet waardering onroerende zaken’ or Real Estate Valuation Regulations).

Private house
A private house is viewed as the complete unit of the house with the garage and other buildings on the property. Houseboats and caravans are also viewed as private houses. The only condition being that they are permanently bound to a single address. A private house is only considered as such where the house is owned by the occupant (tax payer) and where it serves as permanent domicile and not as temporary domicile.

The Own Home Scheme (Eigenwoningregeling)
Once it has been determined that a house can be viewed as an ‘own home’, the house automatically qualifies fiscally for the Own Home Scheme based on Box 1 (Work and Home: Maximum tax rate 52%).

The own home scheme works as follows: The fixed sum assumed by the legislator for the enjoyment derived from the own home is fiscally expressed in the own home fixed sum. The own home fixed sum is determined on the basis of a fixed percentage of the value of the house in question. The basis for determining the value of the own home is the value of the property, as determined on the basis of the WOZ value. The WOZ value is determined by municipal decree. Certain costs can be deducted from the above-mentioned own home fixed sum. This does not however mean that the interest paid on a mortgage bond is automatically tax deductible.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl


Starting Business in the Netherlands

Under Dutch law, a foreign individual or company may operate in the Netherlands through an incorporated or unincorporated subsidiary or branch. Dutch corporate law provides a flexible and liberal framework for the organization of subsidiaries or branches. There are no special restrictions for a foreign entrepreneur to do business in the Netherlands.

The business operations can be set up in the Netherlands with or without a legal personality. If a legal entity has legal personality, the entrepreneur cannot be held liable for more than the sum it contributed to the company’s capital.

Dutch law distinguishes 2 types of companies both of which possess legal personality: the private limited liability company (besloten vennootschap met beperkte aansprakelijkheid – BV) and the public limited liability company (naamloze vennootschap – NV). These forms of legal entities are most commonly used for doing business in the Netherlands.

Other common forms of business entities are sole proprietorship (eenmanszaak), general partnership (vennootschap onder firma – VOF), (civil) partnership (maatschap) and limited partnership (commanditaire vennootschap – CV). None of the latter forms possesses legal personality and, as a consequence thereof, the owner or owners will be fully liable for the obligations of the entity.

All entrepreneurs engaged in commercial business and all legal entities have to register their business with the Trade Register (Handelsregister) at the local Chamber of Commerce (Kamer van Koophandel).

This section covers the abovementioned legal entities for doing business in the Netherlands from a legal perspective. After dealing with the distinction between a subsidiary and a branch, the above mentioned entities will be described in greater detail. This will be followed by a summary of the status of intellectual property rights in the Netherlands. Finally, this manual will explain the advantages and disadvantages of doing business through a subsidiary or a branch.

Branch, subsidiary

Branch
A branch is not a separate legal entity. A branch is a permanent establishment of a company from which business operations are carried out. As a result, the company that establishes a branch in the Netherlands is liable for claims incurred by actions carried out by the branch.

Subsidiary
A subsidiary is a separate legal entity that may be established by one or more shareholders. The subsidiary is a legal entity that is controlled by the (parent) company. Control of a subsidiary is mostly achieved through the ownership of more than 50% of the shares in the subsidiary by the (parent) company. However, under certain circumstances it is also possible to obtain control by special voting rights or diversity of the other shareholders. These shares or rights give the (parent) company the votes to determine the composition of the board of the subsidiary and thereby to exercise control. Since a subsidiary has limited liability, a shareholder (the parent company) is, in principle, only liable to the extent of its capital contribution.

Private limited liability company (BV)

The laws regulating the BV are largely based upon rules governing the NV. The shares of a BV are not freely transferable (subject to blocking clauses incorporated in the articles of association) which makes this type of company generally preferred as the vehicle for a privately held company.

Incorporation
A BV is incorporated by one or more incorporators pursuant to the execution of a notarial deed of incorporation before a civil-law notary. The notarial deed of incorporation must be executed in the Dutch language and must at least include the company’s articles of association and the amount of issued share capital. Prior to incorporation, statement of no objection (‘verklaring van geen bezwaar’) must be obtained from the Dutch Ministry of Justice. This statement is required for incorporation and ensures that all statutory requirements for incorporation have been met. Certain information regarding the incorporator(s) must be submitted before approval is granted.

While the BV is in the process of incorporation, business may be conducted on its behalf provided that it adds to its name the letters, ‘i.o.’ (for ‘in oprichting’), which means in the process of being incorporated. The persons acting on behalf of the BV i.o. are severally liable for damages incurred by third parties until the BV (after its incorporation) has expressly or implicitly ratified the actions performed on its behalf during the process of incorporation. A similar liability arises for the persons responsible if the BV is not incorporated or if the BV fails to fulfil its obligations under the ratified actions and the responsible persons knew that the BV would be unable to do so. In the event of bankruptcy within 1 year of incorporation, the burden of proof lies with the persons responsible.

Members of the board of directors are also severally liable to third parties for legal acts performed after incorporation, but preceding the registration of the BV with the Trade Register.

Share capital
A BV must have an authorized capital, divided into a number of shares with a par value expressed in Euros. Shares without a par value are not permitted. At least 20% of the authorized capital must be issued and at least 25% of the par value of the issued shares must be paidup. The issued and paid-up capital of a BV must amount to at least € 18,000.

Payment for shares can be in cash. If payment for shares is in cash, the civil-law notary must be provided with a statement from a bank to the effect that, upon incorporation, the money will be available to the BV at the bank in question, or that the bank has received the required amount of cash in an account in the name of the BV i.o. This statement may not be issued more than 5 months prior to the date of incorporation.

Payment for shares can also be in kind. Payments in kind are contributions of property and/or other non-cash items. These payments are restricted to items that can be objectively appraised. If these payments take place upon incorporation of the BV, the incorporators must describe the contributed assets and an auditor must issue a statement to the effect that the value of the contribution is at least equal to the par value of the shares. The statement of the auditor is to be provided to the civil-law notary involved prior to incorporation and may not be issued more than 5 months prior to the date of incorporation.

Shares
A BV may only issue registered shares. Besides ordinary shares, a BV may also issue priority shares, to which certain (usually voting) rights are allocated in the articles of association, and preference shares, which entitle the shareholder to fixed dividends that have preference over any dividends on ordinary shares. Within a given type of share, the articles of association may also create different classes of shares (e.g. A, B and C shares) to which certain specific rights are allocated (e.g. upon liquidation).

Dutch law does not allow for the existence of non-voting shares. All shareholders must at least have one vote. However, by using a trust office, the voting power can be separated from the beneficial interest.

The articles of association of a BV must stipulate limitations on the transferability of the shares. Dutch law provides for 2 possible restrictions, which require the transferor either to:

  • offer his shares to the other shareholders, the right of first refusal, or;
  • obtain approval for the transfer of shares from the corporate body, as specified in the articles of association.

Shares in a BV are transferred by a deed of transfer executed before a civil-law notary.

The board of directors of a BV must keep an up-to-date shareholders’ register, which lists the names and addresses of all shareholders, the number of shares, the amount paid-up on each share and the particulars of any transfer, pledge or usufruct of the shares.

Management
The management of a BV consists of the board of directors and the general meeting of shareholders. A BV can, in addition, under certain circumstances have a supervisory board.

General meeting of shareholders
At least one shareholders’ meeting should be held each year. Shareholders resolutions are usually adopted by a majority of votes, unless the articles of association provide otherwise. As a rule, the shareholders may not give specific instructions to the board of directors with respect to the management of the company, but only general directions.

Supervisory board
The supervisory board’s sole concern is the interest of the BV. Its primary responsibility is to supervise and advise the board of directors. Pursuant to the Large Companies Regime (Structuurregeling), the supervisory board is only a mandatory body for a Large BV; however this is optional for other BVs.

Board of directors

The board of directors is responsible for managing the BV. The members of the board of directors are appointed and removed by the shareholders (unless the BV is a Large BV). The articles of association generally state that each director is solely authorized to represent the company. However, the articles of association may provide that the directors are only jointly authorized. Such a provision in the articles of association can be invoked against third parties.

The articles of association may provide that certain acts of the board of directors require the prior approval of another corporate body such as the shareholders’ meeting or the supervisory board. Such a provision is only internally applicable and cannot be invoked against a third party, except where the party in question is aware of the provision and did not act in good faith.

A member of the board of directors of the company can be held liable by the BV, as well as by third parties. The entire board of directors can be held liable to the BV for mismanagement. An individual member of the board of directors can be held liable with respect to specific assigned duties. The shareholders can discharge the members of the board of directors from their liability to the company by adopting an express resolution barring statutory restrictions.

Besides the aforementioned liability prior to incorporation and registration, liability towards third parties can occur in several situations. For example, in case of the bankruptcy of the BV, the members of the board of directors are severally liable for the deficit if the bankruptcy was caused by negligence or improper management in the preceding 3 years. An individual member of the board of directors can exonerate himself by proving that he is not responsible for the negligence or improper management.

Simplification and flexibilization of Dutch private company law
Dutch private company law is currently subject to extensive discussion. A Bill to simplify Dutch private company law was submitted on 31 May 2007 and is currently pending in the Dutch Parliament. The Bill will abolish many of the formalities that are currently required to set up a BV; e.g. the requirement of a minimum capital of €18,000. The new legislation will make it easier for entrepreneurs to set up a BV in the future.

Public limited liability company (NV)

In general, everything mentioned above that applies to the BV also applies to the NV. This section will outline the most significant differences between the NV and the BV.

Share capital and shares
The minimum issued and paid-up share capital is € 45,000. Besides registered shares, a NV may also issue bearer shares. Bearer shares must be fully paid up and are freely transferable. Registered shares have to be transferred by executing a deed of transfer before a civil-law notary, and in contrast to a BV, it is not a statutory requirement that the articles of association of an NV provide for limitations with respect to the transferability of the registered shares. An NV is authorized to issue share certificates (certificaten).

Other common forms of business entities

Partnership (maatschap)
Entrepreneurs in the liberal professions (such as doctors, lawyers and graphic designers) often set up partnerships (maatschap).

A partnership is an arrangement by means of which at least two partners, who may be individuals or legal entities, agree to conduct a joint business. Each partner brings money, goods and/or manpower into the business. Each partner is personally, either jointly or severally, liable for all the obligations of the partnership. A partnership does not possess legal personality.

A public partnership (openbare maatschap) participates in judicial matters under a common name. The possessions of a public partnership are legally separated from the possessions of the partners.

General/commercial partnership (VOF)
A general partnership can be defined as a public partnership that conducts a business instead of a profession. A public partnership and the partners must be registered in the Commercial Register at the Chamber of Commerce.

A limited partnership (CV)
A limited partnership is a special form of the general partnership (VOF) which has both active and limited (or sleeping/silent) partners.

An active partner is active as an entrepreneur and is liable, as in the case of the general partnership.

The silent partner, however, tends to finance the business and stays in the background. The silent partner is liable only up to the amount of his capital contribution. He is not allowed to act as an active partner and his name cannot be used in the name of the partnership. If the silent partner enters the business (to provide extra finance for growth) he becomes liable as an active partner.

Sole proprietorship (eenmanszaak)
In the case of a sole proprietorship (eenmanszaak), 1 (natural) person is fully responsible and liable for the business. A sole proprietorship does not posses legal capacity and there is no distinction between the business assets and private assets of the natural (person).

Legislative proposal
There is currently a bill pending in the Dutch Parliament which provides for replacement of the partnerships described above by a new legal form of partnership. Depending on whether it is public or not, it will be possible for such a partnership to obtain legal personality and, consequently, to hold property, to contract in its own name, to sue and be sued. Obtaining legal personality, however, does not result in a reduction of the liability of the owners or partners in the partnership. This new form of partnership will be introduced in the Dutch Civil Code in the near future.

Trust company

A trust company is entitled to perform corporate trust services for payment, such as the administration and management of a company that conducts business in the Netherlands. A trust company can take care of (required) administrative services, such as the preparation of annual reports. In certain instances the trust company is the (sole) director of the company for which it provides the services.

Intellectual property

The Benelux Convention on Intellectual Property regulates the provisions regarding the registration, use and protection of trade marks, designs and models in the Netherlands, Belgium and Luxembourg.

Trademarks can be names, drawings, stamps, letters, numbers, shapes of goods or packages and all other signs used to distinguish the goods of one company from those of others. A registered trademark is protected for a period of 10 years from the registration date and the protection can be extended by a further 10 years. Renewal must be requested and all due fees paid. The rightful owner is entitled to claim damages for infringement of its rights (such as the use of the trademark by another party).

A design or model is the new appearance of a utility product. A registered model or design is protected for 5 years from the registration date onwards and the protection can be extended by 4 periods of 5 years each, up to a maximum of 25 years. Renewal will be effective upon timely settlement of all fees due. The rightful owner is entitled to claim damages for any infringement of its rights (such as the use of the model or design by another party).

Copyright Act 1912 (Auteurswet 1912) contains provisions regarding the protection of copyrights. Copyright does not require registration in the Netherlands and applies (amongst other things) to literature, dramatic, musical and artistic work, sound recordings, films and computer programs. A copyright expires 70 years after the author’s death.

Council Regulation (EC) No 40/94 on the Community trademark introduces a system for the award of Community trade marks by the Office for Harmonisation in the Internal Market (OHIM). The Community trademark system of the European Union enables the uniform identification of products and services of enterprises throughout the European Union. Requiring no more than a single application to OHIM, the Community trade mark has a unitary character in the sense that it produces the same effects throughout the Community. The Community trade mark contains provisions concerning the registration and use of Community trademarks by (legal) persons and the protection of the rightful owners of such Community trademarks. A registered trademark is protected for 10 years from the registration date onwards and the protection can be extended repeatedly by subsequent ten-year periods. Renewal must be requested and all fees due settled in good time. The rightful owner is entitled to claim damages for infringement of its rights (such as the use of the trademark by another party).

Branch or Subsidiary

Many foreign companies make use of a subsidiary rather than a branch. The main legal reason to set up a subsidiary, instead of a branch, is limitation of liability. As a shareholder of a subsidiary, the foreign company’s liability is, in principle, limited to the extent of its capital contribution; whereas, if the foreign company makes use of a branch, it is fully responsible for all the obligations and liabilities of the branch.

One major advantage of setting up a branch is that it does not, in principle, require the same legal formalities required for setting up a subsidiary. However, the simplification and flexibilization of the Dutch limited company law (as mentioned above) may well diminish this advantage.

Another important aspect to consider with respect to the choice of setting up a branch or a subsidiary in the Netherlands is the matter of local tax regulations. The choice of setting up a branch or a subsidiary will be determined based on the circumstances and relevant factors with respect to the business as such, and the Dutch tax regulations and tax treaties.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl


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