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.
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.
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;
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.
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.
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.
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
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.
The Netherlands charges the following environmental taxes:
- Groundwater tax
- Tax on mains water
- Waste tax (Afvalstoffenbelasting)
- Fuel tax
- Energy tax
- Packaging 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 is paid by the producers and importers of coal. The rate is € 13.42 per 1,000 kg coal.
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.
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