When thinking of the Netherlands, a field of colourful tulips may come to mind or maybe even the slowly rotating wings of a wind-mill, while stacked clouds pass by in the background. Typical Dutch sceneries like this attract vast numbers of visitors. Among them international investors, although they are more interested in another attraction: the Dutch investment climate.
The Netherlands offers a highly competitive business and investment climate. Several contributing features are its strategic location to serve markets within Europe, the Middle East and Northern Africa, superior logistics and technology infrastructure, an open innovation approach, and a solid workforce. Last but not least, the Dutch legal and tax climate adds significantly to the attractiveness of the Netherlands.
For decades, international businesses have chosen the Netherlands to base their operations, whether as European headquarters, a shared service centre, a customer care centre, a distribution and logistics centre or an R&D facility. The pro-business environment and supporting policies implemented by the Dutch government have greatly increased the international popularity of the Netherlands as an investment location.
The Dutch legal framework is very flexible and user-orientated. To a considerable extent, it is possible to shape the Dutch entity and its surrounding contractual agreements in a manner which caters to the requirements and concepts preferred by parties from different jurisdictions. Importantly, the Dutch court system is reliable and functions in a transparent manner.
Recently, various (listed) multinationals have incorporated a Dutch entity as ultimate holding, often a result of the flexible nature of Dutch corporate law. For example, Dutch corporate law contains various options to prevent hostile takeovers and to safeguard the voting power of major shareholders.
Participation exemption - Companies with holding activities in the Netherlands can benefit from the participation exemption regime for benefits derived from qualifying shareholdings, thus resulting in a full exemption from corporate income tax. Combined with the extensive tax treaty network and approachable Dutch tax authorities, the Netherlands has been tried and tested as an internationally accepted and widely used jurisdiction to establish investment holding platforms.
Pursuant to the participation exemption regime, benefits derived from a qualifying shareholding, including dividends and capital gains, are exempt from Dutch corporate income tax.
Withholding taxes - The Netherlands does not levy withholding tax on interest and royalty payments (unless interest and royalties are reclassified to dividend). Furthermore, there is no net wealth tax, stamp-duty and lump-sum tax in the Netherlands. Dividends distributed by a Dutch company (i.e. NVs, BVs and non-transparent limited partnerships) are subject to 15% Dutch dividend withholding tax (in Dutch: ‘dividendbelasting’). However, an exemption applies for qualifying EU (or EEA) companies (i.e. companies that hold at least 5% of the shares in the Dutch distributing entity). Non-EU/EEA companies will often be entitled to a reduced tax treaty rate as the Dutch tax treaty policy aims to minimize withholding taxes on outbound payments in treaties.
Other tax facilities – In addition, the Netherlands is known for its transparant policy towards substance for tax purposes, its extensive treaty network to avoid double taxation, for hosting international financing activities, IP incentives and licensing activities, its ruling practice, expatriate tax incentive regime (30% ruling) and its internationally oriented VAT and customs regime.
In next series of articles involving the Netherlands to structure internationally oriented businesses, more details will be provided on the Dutch tax and legal system and its facilities, as well as legal forms of doing business.
For further information and advice, on matters relating to Tax Law, please contact Hans de Kruijs, in relation to other areas of Law, please contact Kees van der Burg.