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Taxation in the Netherlands

Taxation in the Netherlands

The Netherlands has an excellent fiscal climate. This is again supported by the global Paying Taxes study: PwC annually assesses the ease with which tax obligations can be met. Paying Taxes compares the tax burden and compliance obligations of 190 countries around the world. Paying Taxes 2020 shows that the Netherlands has an excellent climate in this regard: in the overall ranking the Netherlands scores high. This is caused by clear administrative processes, relatively modest tax rates and the use of technology to facilitate tax compliance. Please find more information in our Paying Taxes study.

The Netherlands has a competitive statutory corporate income tax rate compared to the rest of Europe: 15 per cent on the first 245,000 euro and 25 per cent for taxable profits exceeding 245,000 euro. The applicability of the 15 per cent tax rate will be expanded to the first 395,000 euro in 2022. In addition to the low tax rate, the Dutch tax system has a number of attractive features for international companies.

A competitive fiscal climate

The Dutch tax ruling practice has a 30-year track record and has given many international groups clarity on their tax position when setting up successfully in the Netherlands. Although some changes have been made to the Dutch tax system and the ruling practice, these are generally part of a worldwide trend towards transparency and paying one's fair share. And thanks to the Netherlands’ stable government and highly accessible and cooperative tax administration, companies can feel confident that any possible further adjustments to this practice will be implemented in such a way that it maintains attractiveness for foreign investors, minimises impediments for business and guarantees cooperation and transparency from Tax Authorities.

Attractive features of the Dutch tax system

  • An efficient fiscal unity regime, providing tax consolidation for Dutch activities within a corporate group
  • A wide network of nearly 100 bilateral tax treaties to avoid double taxation and to provide, in many cases, reduced or no withholding tax on dividends, interest and royalties
  • Clarity and certainty in advance on the tax consequences of proposed major investments in the Netherlands
  • A broad participation exemption (100 per cent exemption for qualifying dividends and capital gains) which is vital for (European) headquarters. 
  • Favourable expat tax program with a 30 per cent personal income tax advantage for qualified, skilled foreign employees
  • Fully compliant and aligned with the international developments in the OECD and EU and often one of the driving forces behind a coordinated approach to taxation

The Dutch ruling practice

One of the specific features of the Dutch tax system is the possibility to discuss the tax treatment of certain operations or transactions in advance. Upfront clearance can be obtained from the Dutch Tax Authorities. The Dutch Tax Authorities conclude Advance Pricing Agreements (APA) as well as Advance Tax Rulings (ATR).

An APA is an agreement with the Dutch Tax Authorities specifying the intercompany pricing that the taxpayer will apply to its related-company transactions. The APA system is designed to help taxpayers voluntarily avoid or resolve actual or potential transfer pricing disputes in a proactive, cooperative manner.

An ATR is an agreement with the Dutch Tax Authorities determining the tax rights and obligations in accordance with the law in the taxpayer’s specific situation.

Both an APA and ATR are binding for the taxpayer and the Dutch Tax Authorities. To obtain an APA or ATR, certain substance requirements must be met. In general, the Dutch Tax Authorities will be able to handle requests for APA’s, ATR’s and other requests (e.g. a request for a tax facilitated merger, a VAT registration or a (VAT) fiscal unity) within a reasonable amount of time.

In accordance with EU law the Dutch Tax Authorities are obliged to exchange information regarding rulings and transfer pricing arrangements with the Tax Authorities of other EU member states automatically. The Dutch Tax Authorities use a standard form that taxpayers have to complete when concluding a cross border ruling or transfer pricing arrangement. All EU Tax Authorities are obliged to exchange this information. The exchange of information increases the transparency for corporate taxation within the EU. It is expected that in the future similar information may be exchanged with the Tax Authorities of non-EU member states as well.

Starting 1 July 2019  the Netherlands’ policies on the issuing of tax rulings with an ‘international character’ were adjusted. The main characteristics of the new ruling process are as follows:

  • Transparency: building on international developments in transparency in tax matters, the Dutch tax authorities will publish anonymised summaries of individual rulings with an international character. 
  • Economic nexus: rulings with an international character will only be available to taxpayers with (sufficient) economic nexus in the Netherlands. 
  • Main purpose: rulings will no longer be available in case the main purpose of the business structuring is obtaining a tax advantage, be it a Dutch or foreign tax advantage.
  • No rulings on transactions with entities in black listed countries (generally low tax jurisdictions or jurisdictions on the EU list of non-cooperative countries)

Cooperative compliance

Another specific feature of the Netherlands is that the Dutch Tax Authorities allow businesses, under certain conditions, to apply for an enhanced relationship (‘horizontal monitoring’). This is a form of cooperative compliance in which the organisation signs a Horizontal Monitoring covenant with the Dutch Tax Authorities. It provides a timing benefit and certainty: it prevents unpleasant tax surprises when it is too late to do something about them. But horizontal monitoring encompasses more than just complying with laws and regulations: the organisation must be able to demonstrate it is in-control of its tax processes and tax risks, via a so-called ‘Tax Control Framework’.

The Dutch Tax Authorities will adjust the methods and intensity in which they perform their monitoring to the level of tax control of the taxpayer. As a result, audits performed by the Tax Authorities will shift from reactive (tax audits over past years) to proactive (providing ‘assurance’ upfront). Under horizontal monitoring, the company’s relationship with the Dutch Tax Authorities is based on mutual trust, understanding and transparency.

The main benefit of Horizontal Monitoring is that relevant tax risks and positions can be dealt with when they occur. The company is required to act with a transparent attitude towards the Dutch Tax Authorities, and they will in return provide a quicker response with respect to tax issues that are brought to their attention by the company. This proactive assurance prevents unpleasant surprises afterwards. Apart from this, it helps with accurately determining the tax cash flow, deferred and current taxes, and ascertains that the company has as little uncertain tax positions as possible. This saves the company both time and costs. In 2020 the Tax Authorities introduced their reformulated Horizontal Monitoring. Top 100 taxpayers in the Netherlands will get an individual approach and monitoring plan. Individual Horizontal Monitoring will be possible for companies who require an audit on their annual accountants and which have a tax strategy, a tax risk analysis and a monitoring and testing plan in place. For small and medium enterprises, a general covenant is possible through their qualified service provider. PwC is one of the qualified service providers.

Horizontal monitoring can be applied to all taxes including corporate income tax, value added tax, customs, wage tax and social security. PwC has developed a special tax management maturity model (T3M) to help companies determine their existing level of tax risk management and the path towards the intended maturity level of their tax risk management. T3M is inspired by the common standards on general and financial risk management, such as COSO, and in line with the latest report of the OECD on ‘Building better Tax Control Frameworks’.

What we can do for you?

  • Define tax governance and roles and responsibilities for tax
  • Process mapping and improvement
  • Enhance tax risk management, e.g. by means of defining clear key tax controls
  • Quick and smooth communication with the Dutch Tax Authorities
  • Assisting your organisation in its discussions with the Tax Authorities towards horizontal monitoring
  • Assessing the current and desired state of the tax function and the Tax Control Framework (by means of T3M assessment)
  • Designing and implementing your Tax Control Framework via our Sustainable Tax methodology
  • Performing statistical sampling in line with the approach of the Tax Authorities, as part of monitoring the Tax Control Framework as well as tax data analytics and key control testing as part of showing that you are in control of tax
  • Help you to clearly communicate the maturity of your Tax Control Framework to internal and external stakeholders

International developments

BEPS

As a member of the OECD, the Netherlands is an active participant in the Anti-Base Erosion and Profit Shifting (BEPS) project of the OECD. The Netherlands supports the goals as set by the OECD in this respect and adheres to the outcomes of the BEPS project. The Netherlands also adheres to the international developments on transparency in tax matters, including those involving the outcomes of the BEPS project on the exchange of information in tax matters. The Netherlands has signed and ratified the Multilateral Instrument (MLI), albeit with limited reservations to certain provisions, and has brought all of the Netherlands’ tax treaties within the scope of the MLI except for the few tax treaties that were being negotiated or not yet in force at the time of the MLI signature.

In addition, the Netherlands follows the international discussions at the OECD level regarding Pillar 1 and 2. 

ATAD I 

The EU adopted the Anti-Tax Avoidance Directive (ATAD I), which contains several measures to combat tax avoidance. The ATAD I includes measures regarding the limitation of interest deductibility, exit taxation, a general anti-abuse rule (GAAR), a Controlled Foreign Company (CFC) rule and rules addressing mismatches between EU member states arising from the use of hybrid instruments or entities. These rules were transposed into all EU member states laws and apply, in principle, as from 1 January 2019. The Netherlands, as an EU member state, also implemented this legislation that applies as per 1 January 2019. 

More specifically, to implement ATAD I, the Netherlands included a CFC-rule, an earnings stripping rule and slightly reformed its exit taxation rules for corporate income tax (CIT) purposes. The CFC-regime targets corporate taxpayers that hold a direct or indirect interest, either standalone or with affiliated companies, of more than 50 per cent in a subsidiary, or owns a permanent establishment, in either
a) a low-taxed country (i.e. less than 9 per cent but only if listed by the Dutch Ministry of Finance on an annual basis) or b) a jurisdiction included in the EU list of non-cooperative jurisdictions.

The ATAD’s GAAR was not implemented as such, since, according to the Ministry of Finance, the GAAR was already effectively present by means of the standing Dutch fraus legis doctrine. 

The new earnings stripping rule limits the deduction of the on balance interest cost to 30 per cent of the taxpayer’s EBITDA with a threshold of 1 million euro and a carry forward rule. In conjunction to the introduction of the earnings stripping rule, the Dutch interest limitation rules regarding excessive participation debts and excessive acquisition debts were abolished as per 1 January 2019. 

The exit taxation regime for CIT purposes was slightly altered, by providing that an exit levy must be paid in full within the 5 years following the exit but no later than at the moment of realisation, e.g. the sale of the asset(s). 

ATAD II

As an expansion to the legislation included in the ATAD I, the European Commission proposed rules addressing hybrid mismatches between EU member states and in relation to third countries (ATAD II). A hybrid mismatch must lead to either tax deduction with no inclusion of the income or double deduction in cases involving entities, (financial) instruments, permanent establishments or the location of an entity. ATAD II has already been adopted at the EU level and the EU member states must implement the ATAD II rules, in principle, by 31 December 2019 and apply them as per 1 January 2020. The Netherlands applies ATAD II as per book years starting on or after 1 January 2020. Please note that it is mandatory under Dutch law to have documentation on the ATAD II position on file.

DAC 6

The EU Directive on mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (DAC6) imposes mandatory disclosure requirements for certain arrangements with an EU cross-border element. It requires relevant advisors or taxpayers to report a wide range of cross border arrangements under certain conditions. Where such an arrangement falls within certain "hallmarks" mentioned in the directive and in certain instances where the main or expected benefit of the arrangement is a tax advantage, the arrangement should be reported. DAC6 covers all taxes except value added tax and excise duties. 

The Netherlands has already implemented DAC6 legislation. The Netherlands has decided not to go further than the EU Directive. For example, no additional hallmarks have been included in Dutch law and the scope of the legislation has not been extended to other taxes like VAT. 

The first transactions need to be reported by 31 January 2021 at the latest. Failure to do so results in an administrative fine of up to 870,000 euro (amount 1 January 2020). 

If your company has an international structure, we recommend that you work with your adviser to determine how you will fit this mandatory exchange of information into your tax and compliance strategy. It is also important that you report in a timely manner, for example, if no external advisor is involved in a transaction subject to reporting requirements, or if the advisor in question makes use of a legal right to withhold information (lawyers, etc.).

Conditional source tax on interest and royalties

As from 2021, interest and royalty payments to group companies established in low-tax jurisdictions will be subject to a source tax at a rate of 25 per cent (withholding tax). The withholding tax rate may be reduced by a tax treaty, if applicable. A conditional withholding tax liability will also be applicable to abusive situations, e.g. where payments are artificially diverted. A similar type of withholding tax may become due on dividend payments from the Netherlands in 2024, on all dividends paid, i.e. not only to group companies.

Low-tax jurisdictions are jurisdictions with a statutory corporate tax rate of less than 9 per cent and jurisdictions on the EU list for non-cooperative jurisdictions. These countries are together regarded as low-taxed jurisdictions.

Additional substance requirements for service companies 

As of 1 January 2021, additional substance requirements will apply to service companies. A service company is a Dutch tax entity whose activities consist for more than 70 per cent of the direct or indirect receipt and payment of interest, royalties or rent from a foreign group entity. The new substance requirements, which supplement the current substance requirements for service companies, are 100,000 euro in relevant labour costs and office space for at least 24 months. If these requirements are not met, information is exchanged with the country from which the interest, royalties or rent is paid (the source state). The result could be that the source state deprives the taxpayer of treaty benefits.

State aid

The European Commission has been investigating for several years whether certain schemes/regimes as well as individual tax rulings between companies and local authorities are in breach of EU State aid rules. In some of these cases the European Commission has already issued final decisions concluding that these schemes and tax rulings constitute unlawful State aid. One of these final State aid decisions concerns a Dutch tax ruling. The Dutch government has appealed this decision with the General Court (that is the court of first instance within the EU). In its judgment, the General Court annulled the decision of the European Commission because, in the Court’s view, the European Commission did not demonstrate the existence of an economic advantage within the meaning of EU State aid rules. The European Commission accepted this decision by the General Court. 

The European Commission has also investigated other Dutch tax rulings for which a final State aid decision is expected. The Dutch government has also taken the position that the Dutch tax ruling practice in general does not allow for State aid, considering that Dutch tax rulings do not deviate from Dutch tax law as the goal of Dutch tax rulings is to obtain certainty in advance.

Transfer pricing: country-by-country reporting, master file and local file

The OECD country-by-country reporting implementation package is primarily meant to be a (tax) risk assessment tool for the (international) Tax Authorities. Based on the OECD report, a multinational group with a turnover of at least 750 million euro will have to file a country-by-country report in the state where the ultimate parent company is a resident. The Tax Authorities will then exchange this information with Tax Authorities of other countries to which the information may be relevant and that have agreed to mutually exchange these reports.

Besides, the agreed OECD report prescribes that each individual company within such group will be obliged to have a master file and a local file available in its administration. The master file contains information on the transfer pricing within the entire group while the local file contains information on all intra group transactions of the local company. All this information will be kept confidential, not accessible to the general public.

The Netherlands has enacted legislation implementing the OECD country-by-country reporting package which corresponds with the system and methods as prescribed in this reporting package. In addition, in the Netherlands companies with a consolidated turnover of at least 50 million euro are obliged to have a local file and a master file available.

As mentioned in the above only the ultimate parent company of a multinational group has to file a country-by-country report. A Dutch group entity of a multinational group with a turnover of at least 750 million euro must notify the Tax Authorities whether the ultimate parent company or surrogate parent company will file the country-by-country report. If not, it must notify the tax authorities which group company and its tax residence will file the report. This notification should be made at the latest on the final day of the financial year.

Further, a Dutch company that must file a country-by-country report, must file this report within 12 months after the end of the financial year. The master file and local file must be in the company’s administration within the same deadline that holds for filing the tax return. 

Moreover, in 2018, the Dutch Ministry of Finance published a new Transfer Pricing (TP)  Decree. The Decree provides further guidance on the application of the arm’s-length principle and aims to incorporate recent changes following the OECD Base Erosion and Profit Shifting (BEPS) project and related amendments to the 2017 OECD TP Guidelines.  

The new Decree provides additional guidance on the position of the Dutch Tax Authorities in the post-BEPS era, among others, concerning the application of various BEPS provisions as included in the 2017 OECD TP Guidelines (e.g. TP methods, hard-to-value intangibles and valuation methods) into Dutch tax practice. 

What we can do for you?

  • Assess the impact of the MLI on your business
  • Discuss the possible consequences of Pillar 1 and 2 
  • Assess how the ATAD I and the ATAD II legislation may affect your business and assist with the ATAD II documentation requirement
  • Help you recognise possible DAC6 reportable transactions
  • Inform you on State aid developments
  • Determine the need to file a country-by-country report and assist you with it
  • Help you set up a local file and a master file
  • Assess the effects of BEPS and the new legislation

Corporate income tax

Scope

In general, a Dutch resident company is subject to corporate income tax (CIT) on its worldwide income. However, certain income can be exempted or excluded from the tax base. Non-resident entities have a limited tax liability. In principle, only ‘Dutch source income’ is included in the CIT base of non-resident corporate taxpayers. For these companies, the income from Dutch sources includes e.g. income derived from a business enterprise in the Netherlands. This is the income attributable to a business or part of a business operated through a permanent establishment or permanent representative in the Netherlands.

Residence

In the Netherlands, corporate residence is determined by a company’s specific facts and circumstances. Management and control are important factors in this respect. Companies incorporated under Dutch law are deemed to be residents of the Netherlands.

To obtain a Dutch tax residency certificate or a tax ruling, minimum substance requirements are guidelines in ensuring that effective management and control of the company are based in the Netherlands.

Tax rate

The standard CIT rate is 25 per cent. A lower rate of 15 per cent applies to taxable income up to 245,000 euro, and will apply to income up to 395,000 euro  in 2022. If the criteria are met, fiscal investment funds are taxed at a CIT rate of nil per cent. Under conditions, certain investment funds are eligible to opt for an exempt status for Dutch CIT purposes. 

Income determination

Corporate income is determined annually in accordance with the principles of ‘sound business practice’. Profits and losses are attributed to the years with reference to the basic principles of realisation, matching, reality, prudence and simplicity. The Dutch tax law, however, contains rules that expressly deviate from the concept of sound business practice. For example, tax laws may limit the annual depreciation of some assets but also offer the possibility of accelerated depreciation of other assets. In addition, there are many exceptions to the main rules as a consequence of special fiscal facilities, the most important one being the participation exemption, which will be discussed below in ‘participation exemption’.

The Dutch tax system provides several tax incentives, for example to stimulate certain investments. If the conditions are met, tax incentives are available for small-scale investments, investments in energy-efficient or environmental assets and for research and development activities. The Netherlands also provides for an optional favourable regime for the calculation of profits from qualifying activities of seagoing vessels. Certain conditions have to be met.

The remuneration for activities performed should be at arm’s length, meaning that terms, conditions and pricing of transactions between affiliated companies should be similar to those applied between independent third parties. Dutch companies are obliged to produce and maintain appropriate transfer pricing documentation substantiating the transfer prices used. The documentation should, among other things, include a functional analysis (description of the functions, risks and assets), an economic analysis (including benchmarks) as well as transfer pricing policy documents and internal contracts. Depending on the situation, the documentation obligations also include a country-by-country report, a master file and a local file. 

If a transaction between related parties is not at arm’s length, the taxable income may be adjusted by the Tax Authorities. Moreover, transactions that do not meet the arm’s length test may be deemed to be a contribution of informal capital or a deemed profit distribution (the latter may trigger dividend withholding tax).

Interest deduction

In principle, interest expenses are deductible for corporate income tax purposes. However, various interest deduction restrictions do apply, such as the earnings stripping rule. The earnings stripping rule limits the deduction of the on balance interest cost to 30 per cent of the taxpayer’s EBITDA with a threshold of 1 million euro and a carry forward rule. Furthermore, there are specific interest deduction restrictions to prevent tax base erosion by interest deduction.

Depreciation

Generally, depreciation may be computed by using a straight-line or a reducing-balance method or on the basis of historical cost. However, Dutch tax law includes specific rules that can limit the depreciation of immovable property, goodwill and other assets.

On the other hand, the law provides accelerated and random depreciation of several specific assets. Accelerated depreciation applies to qualifying investments in assets that are in the interest of the protection of the environment in the Netherlands (the allowed percentage for accelerated depreciation is 75 per cent, the normal depreciation regime applies to the other 25 per cent of the investment). Accelerated depreciation is also available for certain other designated assets, for example, investments of starting entrepreneurs and seagoing vessels. Under conditions, the costs of the production of intangible assets may be taken into account at once.

Functional currency

A Dutch taxpayer may upon request and under certain conditions determine its taxable income in a currency other than euro. The request should be filed during the first book year of incorporation or prior to the start of a new book year in later years. Tax payments must always be made in euro.

Participation exemption

The Dutch participation exemption regime aims to eliminate economic double corporate taxation of profit distributions paid by a subsidiary to its parent company. A corporate taxpayer is exempt from Dutch corporate income tax on all benefits, such as dividends and capital gains, connected with a qualifying shareholding, in general a shareholding of at least 5 per cent. Such benefits are also eligible for an exemption of Dutch dividend withholding tax if distributed by a Dutch resident entity. If a taxpayer fails the so-called motive test and the participation is actually or deemed to be held as a portfolio investment – then the participation exemption would still apply if:

  • the subsidiary in which the portfolio investment participation is held, is subject to tax that is reasonable according to Dutch standards, i.e. an effective tax rate of at least ten per cent (‘effective tax rate test’); or,
  • less than 50 per cent of the assets, directly or indirectly owned by the subsidiary in which the portfolio investment participation is held, consists of low-taxed free portfolio investments (‘asset test’).

There is no minimum holding period in relation to the applicability of the participation exemption. As an exception to the participation exemption regime, losses arising from the liquidation of the company in which a qualifying participation is held may be deductible for CIT purposes. The limitations and conditions applicable have been changed per 2021. 

Expenses relating to the sale or purchase of participations are non-deductible.

For non-qualifying portfolio investment participations, an indirect tax credit system is applicable for foreign taxes instead of the exemption. Income and expenses relating to earn-out receipts and payments are not taxable. 

As from 2019 the participation exemption includes a CFC-rule. The CFC-regime targets corporate taxpayers that hold a direct or indirect interest, either standalone or with affiliated companies, an interest of more than 50 per cent in a subsidiary or disposes of a permanent establishment in either a low-taxed, i.e. less than 9 per cent, or a non-cooperative jurisdiction that is explicitly listed by the Dutch Ministry of Finance.

Innovation box regime

A special regime applies with respect to profits, including royalties, derived from a self-developed intangible asset. Under the innovation box, the taxpayer may opt, under certain conditions, for the application of a lower effective tax rate on taxable profits derived from these intangible assets. The effective tax rate of the innovation box is a maximum of nine per cent, by means of a reduction of the tax base.

The innovation box regime applies mostly to profits from innovative activities that take place in the Netherlands. The innovation box can be a very important facility. In combination with other facilities (see ‘Tax incentives’), it makes the Netherlands the ideal location for R&D activities.

Fiscal unity

A Dutch resident parent company and its Dutch resident subsidiaries may, under conditions, opt to be treated as one taxable entity for the Dutch CIT by forming a ‘fiscal unity’. Under the fiscal unity regime, inter-company transactions are eliminated and the business proceeds of the included companies are balanced for CIT calculation purposes. Companies with their place of residence in the Netherlands, both for Dutch tax law purposes and tax treaty purposes, may be eligible to opt for this regime. Under conditions, taxpayers that are resident abroad may also be included in a Dutch fiscal unity insofar as they run a business in the Netherlands through a permanent establishment.

The main requirements to apply for this facility are that the parent company holds directly or indirectly at least 95 per cent of the shares in one or more Dutch resident companies, the place of effective management should be located in the Netherlands and the entities should be subject to the same tax regime.

The advantages of the fiscal unity include:

  • Filing a single CIT return.
  • Offsetting of losses during the existence of the fiscal unity.
  • Elimination of certain intercompany transactions.

A fiscal unity only comes into existence after a request has been filed with the Tax Authorities and can have maximum retroactive effect of three months (provided that the conditions have been met during this term).

Disadvantages of a fiscal unity may be that each company is jointly and severally liable for the corporate income tax debts of the fiscal unity and the more limited application of certain tax incentives.

It is possible to form a fiscal unity between a Dutch parent company and its Dutch sub-subsidiary, excluding the intermediary holding company if the intermediary holding company is an EU/EEA resident company and other conditions are met. It is also possible to form a fiscal unity between two Dutch sister companies excluding their parent company, if the parent company is an EU/EEA company and other conditions are met. Also forming a fiscal unity with a Dutch permanent establishment of an EU company has been made considerably easier. 

With effect of 1 January 2018 some changes were made resulting from ECJ case law which ruled the ‘per element approach’ applicable to the Dutch regime. The amendments result, among others, in disregarding the fiscal unity for the purpose of the provision on the interest on related party debts, the provision of the participation exemption regime on portfolio investment participations, the ‘anti-mismatch’ rule of the participation exemption regime and the provision on loss utilisation in cases of significant changes in ultimate ownership.

Net operating losses

Tax losses can be carried back one year and carried forward six years (whereas tax losses up to and including 2018 can be carried forward nine years). As of 2022, there will not be a time limit on deductibility of tax losses anymore. On the other hand, only the first 1 million euro profit can be used for offsetting losses in full. Loss relief against any further profit will be limited to 50 per cent of such profit.

Specific anti abuse rules however may completely prohibit the utilisation of net operating losses after a change of 30 per cent or more of the ultimate control in a company.

No cross-border relief is available with regard to foreign permanent establishments. Foreign source losses cannot be offset against Dutch source profits. An exception applies to ‘final losses’, losses realised upon the discontinuation of foreign business operations. Under certain conditions, the ‘liquidation and cessation loss regime’ allows final losses of foreign permanent establishments to be taken into account for Dutch CIT calculation purposes.

Foreign income and double tax relief

The worldwide income of a resident corporate taxpayer is included in the Dutch CIT base, but the Dutch system usually subsequently provides for double tax relief. The Netherlands has concluded roughly 100 tax treaties for the avoidance of international double taxation. In case no treaty applies, the Netherlands often unilaterally provides for double tax relief. In addition, taxpayers may benefit from the favourable rules provided by EU directives and EU law. The Netherlands, like over 90 other jurisdictions, signed the OECD’s multilateral instrument (‘MLI’) to swiftly implement several measures to update its tax treaties and lessen possibilities for tax avoidance. Along with 50 other jurisdictions, the Netherlands also ratified the MLI which means it may affect their mutual tax treaties.

Double taxation of foreign dividends (if not exempt under the participation exemption), interest, and royalties is relieved by a tax credit provided for in Dutch tax treaties or, if the payer of the income tax is a resident of a developing country, designated by Ministerial Decree unilaterally. If no treaty or unilateral relief applies, a deduction of the foreign tax paid is allowed in computing the net taxable income.

The Dutch tax law provides for double tax relief for Dutch resident corporate taxpayers deriving profits from foreign business activities. The taxpayer’s worldwide profits are determined according to Dutch tax standards and subsequently reduced by an amount equal to the ‘positive and negative business income items derived from foreign sources’ on a per-country basis. The eligible income items include, for example, the business profits attributable to a permanent establishment located abroad and the income from immovable property located in the other state.

In most circumstances, foreign dividend is exempt from Dutch CIT under the participation exemption, as previously discussed. As a consequence, foreign withholding tax cannot be credited, and constitutes a real cost for the companies concerned. However, if a Dutch company re-distributes such dividends, a credit of the foreign withholding tax may be granted against Dutch dividend withholding tax due on the distribution. The credit amounts to a maximum of three per cent of the gross dividend paid. Note that the Netherlands, as a tax treaty policy, aims to achieve an agreement on a low or nil withholding tax rate for dividends from a participation in a bilateral tax treaty. As of 1 January 2022, the Dutch government aims to limit the offsetting of dividend tax and gambling tax against corporate income tax. This measure will limit the offsetting of withholding taxes to the annual amount of corporation tax due. Withholding taxes that could not be set off will be carried forward for offsetting in the next year. Until the offsetting is curtailed, there is a policy decision which approves that, subject to conditions, foreign taxpayers can also make use of the - at present still - broader offsetting rules for domestic taxpayers.

Exit tax

If, for any reason, you wish to migrate your company from the Netherlands, an exit tax is due on realised and unrealised profits (hidden reserves and goodwill). The taxable amount is calculated at the time of migration and is formalised in an assessment. If the new place of residence is within an EU/EEA Member State, the tax due may, on request, be paid in 5 annual instalments. The company has to comply with certain administrative requirements and may have to provide security in order to obtain the deferral. At the time of writing this publication, there is a discussion going on about an initiative bill that, under certain circumstances, would levy a dividend tax on migration from the Netherlands. It is uncertain if and per when this proposed legislation will enter into force. 

What we can do for you?

  • Advise you on the application of Dutch CIT and (dividend) withholding tax to your business
  • Assist you in complying with the formal and administrative rules
  • Inform you on the impact of the Parent-Subsidiary Directive - or any other EU directive -, and the changes to your business
  • Advise and assist you on the application of the innovation box regime to your business
  • Advise you on the application of the fiscal unity regime and participation exemption to your business
  • Determine the impact of anti-avoidance provisions like CFC legislation and interest deduction limitation rules such as the 30 per cent EBITDA restriction

Value added tax

EU context

The system of value added tax (VAT) in the Netherlands is based on EU regulation and is essentially the same as that used in the rest of the EU. However, there still are some significant differences in details between various Member States of the EU, especially with regard to the VAT rates, formal VAT requirements and the applicable business context.

The VAT system

VAT is effectively a tax on consumer expenditure. So, in theory, the final burden of the tax should not be on business activity. This objective is achieved by an arrangement known as the input VAT deduction system. When a business buys goods or services, it usually pays VAT to the supplier (input tax). When the business sells goods or services, whether to another business or to a final consumer, it is usually required to charge VAT (output tax) unless the supplies are specifically relieved from VAT. If the business makes only taxable supplies, it must periodically total the input VAT it incurs and deduct this from the total output VAT charged, paying (or claiming) the balance to (from) the Dutch Tax Authorities. The result is that the end consumers bear the total cost of VAT on the final price of the goods or services they purchase.

VAT is charged on the supply of goods and services created in the Netherlands by a taxable person in the course of exercising a business, unless the supplies are zero-rated or exempt. A VAT taxable person is anyone performing business activities in the Netherlands. Furthermore, the intra-Community (i.e. within the EU) acquisition in the Netherlands by taxable persons or non-taxable legal persons, the intra-Community acquisition of a new means of transport by any person, and the importation of goods are also considered taxable events.

All the above-mentioned events are taxable if performed in the Netherlands, even when they are carried out by non-residents.

The Netherlands furthermore allows legally independent businesses that are closely bound to one another by financial, economic and organisational links to be treated as a single taxable person (fiscal unity/VAT group).

If the business is liable for VAT on its transactions in the Netherlands, it will have to register for VAT.

Special attention needs to be given to the VAT position of holding and/or financing companies.

Rates

Currently, the standard VAT rate in the Netherlands is 21 per cent. A reduced VAT of nine per cent applies to certain essential goods and services, for example food and drinks, passenger transport and certain labour-intensive repair and maintenance activities. A zero per cent rate applies to, for example, the export of goods. 

Additionally, various types of supplies are exempt from VAT, such as educational and medical services. The difference between zero per cent VAT (zero rate) and an exemption is that the VAT incurred on costs that are incurred for VAT exempt transactions cannot be settled with input VAT. Zero-rated transactions in principle allow for a full deduction of input VAT.

Deferment of import VAT

In contrast to some other EU Member States, the Netherlands has implemented a system that provides for the deferment of actual payment of import VAT at the time of importation. Instead of paying import VAT when the goods are imported into the EU, the payment can be deferred to the periodic VAT return. Under this system, the import VAT should be declared but this amount can simultaneously be deducted in the same VAT return. As a result, in principle there is no actual payment of VAT at import, thus avoiding cash flow disadvantages.

Form-free administration and e-invoicing

Contrary to some other European countries, form-free administration is allowed in the Netherlands. There are some general requirements regarding the content and readability of the administration, as well as the obligation to retain the administration for seven years (ten years when it relates to immovable property), but basically the entrepreneur is free to determine how the administration is organised, as long as data can be made available in a legible and comprehensible way upon request of the Dutch Tax Authorities. This makes it relatively easy for businesses in the Netherlands to comply with the Dutch administrative obligations compared to other EU Member States.

Another advantage is that the Netherlands has introduced legislation that allows for form-free e-invoicing. This means that, although the standard invoicing requirements have to be met, the way in which the electronic invoices are sent is up to the entrepreneur, as long as the authenticity of origin, the integrity and completeness of the content and the readability of the electronically stored invoices are guaranteed.

VAT refund request

General VAT refund requests are processed within a couple of weeks in the Netherlands, which is advantageous from a cash flow perspective. 

Quick Fixes

Effective 1 January 2020, the Netherlands implemented four quick fixes aiming to improve the day-to-day functioning of the VAT system for EU cross-border B2B trade.

These Quick Fixes (QF) have consequences for the company’s administrative systems, VAT registrations, contracts, (electronic) documents and invoices.

QF 1: VAT identification number and EU Sales Listing

As of 1 January 2020, obtaining and validating the customer’s VAT ID number as well as filing correct recapitulative statements (EU Sales Listings) are a hard condition for the application of the zero VAT rate.

As a practical consequence, there is an increased need for businesses to include all VAT identification numbers of customers in their ERP systems. The reason is that they should be able to raise invoices stating the correct VAT-identification number of their customers and to submit EU Sales Listings with the correct information.

It is therefore important to validate these VAT identification numbers periodically (or even before each shipment) in the EU VIES-system. Proper documentation of these controls is also very important in this respect. In addition, the submission of a recapitulative statement (EU Sales Listing) with correct information is a hard condition for the application of the zero VAT rate. In the Netherlands, the supplier is allowed to repair any omissions.

QF 2: Proof of transport

A common framework for the documentary proof needed for application of the zero VAT rate to intra-Community supplies was introduced.

In case of transport by or on behalf of the supplier, the proof should consist of two supporting documents drawn up independently of each other, e.g.: a signed CMR in combination with the transport insurance policy for the respective supply of goods. When the buyer arranges for the transport, the supplier should also possess a written statement from the buyer/acquirer. If the supplier is in possession of the required evidence, it is presumed that the goods have been transported from one EU Member State to another. The Tax Authorities may rebut this presumption if they can demonstrate that transportation did not take place after all.

These new rules did not affect current (Dutch) practice. All proof that was previously considered sufficient evidence based on Dutch rules and CJEU/national case law is still accepted as sufficient proof of transportation. The EU rule was an add-on to the existing Dutch rules: it provides for a rebuttable presumption.

QF 3: Call-off stock

In case of call-off stock, a supplier moves goods to a warehouse/stocking location of a known customer to enable the customer to pick the goods from the stock at a later stage and trigger a VAT supply.

If a company transfers own stock to a warehouse in another EU Member State, the supplier must report a (fictitious) intra-Community supply in the Member State of departure and a corresponding intra-Community acquisition in the Member State of arrival. The subsequent removal of goods from that stock is a domestic supply in the country of the warehouse. By default, the transfer of stock and the subsequent supply require the supplier to register for VAT purposes in this EU country and to fulfill the relevant VAT obligations. Under the regime as introduced in 2020, subject to conditions, the physical transfer does not constitute a fictitious intra-Community supply, so that the supplier does not have to register in the Member State of the customer. One of the conditions is that the customer calls off the goods within one year.

The rules on call-off stock provide for a uniform system because of which the transfer of call-off stock is treated equally in all EU Member States. The application of these call-off stock rules is not optional: it is a mandatory regime. 

QF 4: Chain transactions

Cross-border chain transactions consist of successive supplies of goods between traders in more than one Member State, but with only one cross-border transport movement, usually from the first to the last party in the supply chain.

For VAT, this transport movement can only be assigned to one of the supplies in the chain and hence the zero VAT rate for intra-Community supplies can be applied only to one leg of the supply chain. The other supplies in the chain normally lead to ‘local’ VAT and to VAT-registrations in the respective Member State(s).

Under the rules per 2020, the zero-rated intra-Community supply is by default assigned to the supply to the supplier in the supply chain who arranges the transport or has the transport arranged in their own name.

Yet if such suppliers (intermediaries/middlemen) are not the first company in the supply chain, and provide a VAT identification number of the Member State in which the dispatch commences, they are considered to perform the zero-rated intra-Community supply themselves. Under those circumstances, the supply to the intermediary is a local supply and the supply by the intermediary is the zero-rated intra-Community supply.

What we can do for you?

  • Developing a VAT Control Framework
  • Adjusting the ERP system (accounting system) for VAT purposes
  • Mapping the potential risks and opportunities for VAT purposes 
  • Help you with finding solutions for extending SAP-systems that give an insight into all data which is relevant to determine the VAT payable (e.g. PwC’s Taxmarc)
  • Help you map out the consequences of the quick fixes

Customs and excise

EU: customs union

Due to its excellent logistical infrastructure, the Netherlands is often chosen as a primary logistic hub for the EU. Since Brexit this is also more and more the case for UK companies that want to import goods into the EU. If your business imports goods into the Netherlands from outside the EU, the goods will have to be declared for customs purposes and may be subject to customs duties and VAT. The EU is a customs union, which means that the EU is treated as a single territory for customs purposes and that in principle the same rules and rates apply in each Member State. This means that, once goods are in ‘free circulation’ (i.e. all duties paid and import formalities completed) in one Member State, such as the Netherlands, they can move freely between all other Member States, without further payment of customs duties or further customs formalities.

However, although the rules are the same throughout the EU, the interpretation and/or application may differ in the various EU countries. As a result of the long tradition of being a trading country with an open and business friendly environment, the Dutch Customs Authorities are known for their flexible solutions in terms of customs supervision. This does not mean that lower duties are levied or no controls are performed, but it does mean that the Dutch Customs Authorities typically try performing their controls and supervision in such a manner that it has little impact on the company’s operations.

Customs duties

There are essentially three areas that determine the amount of customs duties payable on goods imported from outside the EU. These are:

Classification

The amount of customs duties depends on how the goods are classified in the EU Combined Nomenclature (the EU list of codes and duty rates for customs purposes), as this determines whether goods are subject to ad valorem customs duty rates (i.e. a set percentage of the value) or to specific customs duty rates (e.g. a set amount per volume) or no customs duties at all (i.e. a zero rate).

Upon application, the Dutch Customs Authorities will issue a decision on the classification of the product. A Binding Tariff Information (BTI) provides security on the classification as it binds both the holder of the BTI as well as the Customs Authorities in each EU member state. We can assist with determining the classification of your goods and subsequently with the preparation and substantiation of the BTI application.

Valuation

Where goods are subject to ad valorem customs duties, the EU customs valuation rules are based upon the WTO valuation rules and likewise require that as a basic rule a transaction value method is applied. This means that the price actually paid or payable is the basis for the customs value, i.e. the value is based upon a buy-sell transaction. The transactions between related parties are basically acceptable as a basis for transaction value. However, the Customs Authorities may request that the arm’s length nature of the prices is demonstrated. Only where such transaction value is not available or cannot be applied, alternative methods may apply.

When using a buy-sell transaction as the basis for the customs value, certain cost elements may need to be added in case these are not included in the price paid, e.g. freight and insurance to the EU border, assists, R&D costs or royalty payments. Certain elements e.g. inland freight or inland installation may, in certain circumstances, be excluded, in case these are included in the price paid.

Origin

The EU has many free trade agreements and preferential trade arrangements in place with a large number of countries. These allow goods that, on the basis of the specified strict rules, qualify as originating from such a country to enter the EU at a reduced or zero customs duty rate. However, the EU does also apply trade defence measures upon importation of goods, such as anti-dumping, anti-subsidy (also known as countervailing) or safeguard measures, which generally take the form of additional duties. These are often applied to goods originating from specifically listed countries. Careful consideration must therefore be given to the customs implications of any sourcing or production decisions.

Unlike the US the EU does not have a general refund system for customs duties paid. This means that when goods are imported and subsequently re-exported the customs duties paid upon importation will not be refunded. Therefore, in order to avoid unnecessary payment of customs duties for products that are not destined for the EU market, various suspension arrangements can be applied, e.g. for transportation (customs transit), for storage (customs (bonded) warehousing) or for processing (inward processing). Some of these arrangements may also be applied for postponing the payment of customs duties and import VAT. For the application of such suspension regimes typically authorisations are required, which may only be available for EU established companies.

There is a range of customs reliefs that an importer may use provided that the criteria are met.

Furthermore, simplified procedures are available for customs formalities upon import, transit and/or export. These simplified procedures will often allow a more flexible handling of the (logistical) operations, with customs supervision being performed in the company’s administration rather than with a physical customs check/supervision. The simplifications can also relate to self-issuing certificates of origin for exports, or origin statements on commercial documents such as invoices (authorised exporter). Based on such origin certificates or origin statements, the imports in the country of destination may be subject to reduced customs duty rates.

In recent years, the EU has concluded various free trade agreements, of which the ones with Japan, Singapore and Vietnam are the latest.

Excise duty

Excise duty is a consumption tax payable on certain consumer goods that have been specified in a European context. Excisable goods include: beer, wine, spirits, tobacco and mineral oil products. The amounts of duties payable may be substantial and the rules regarding excise formalities are complex. It is therefore important to seek advice before imports commence.

UCC

The new ‘Union Customs Code’ has entered into effect on 1 May 2016 and has introduced some radical changes. Although the general principles as mentioned above remain the same, the provisions relating to customs value, for example, have changed, and furthermore, it is no longer possible to determine customs value on the basis of a ‘First Sale’.

Game of Trade

PwC has recently developed the Game of Trade. ‘Game of Trade’ is a strategic digital game. This engaging simulation allows organisations and governments to raise awareness about the impact of trade wars. Business leaders can explore the effects of tariff increases, non-tariff measures and protectionist policies on business operations, international trade and supply chains.

What we can do for you?

  • Assist you with getting insight in the classification of your products (and the corresponding duty rate)
  • Apply for a Binding Tariff Information (BTI)
  • Assist with the implementation of Global Trade Management systems
  • Determining a correct customs value; evaluate which elements should be included or excluded from your customs value
  • Help your business to get in control of its customs processes. For this purpose, there are a number of tools (e.g. our Customs Monitoring Tool and our Customs Insights Tool) that have proven to help businesses to be in control
  • Evaluate whether using free trade arrangements can lower the amount of payable customs duties in the EU 
  • Assess whether any customs suspension regimes and/or simplifications may be applicable
  • Assist you with the application of customs authorisations (e.g. AEO, authorised exporter)
  • Help with getting the relevant authorisations (such as a tax warehouse authorisation) to be able to store and transport excise goods under suspension of excise duties
  • Assist with the process of determining whether goods would qualify as excise goods

Personal income tax

The Netherlands taxes its residents on their worldwide income; non-residents are subject to tax only on income derived from specific sources in the Netherlands (mainly income from employment, directors’ fees, business income, and income from Dutch immovable property).

Residence

The facts and circumstances determine an individual’s residence. In case of a dispute, the Dutch tax courts will examine the durable ties of a personal nature with the Netherlands. An expatriate is generally considered a resident of the Netherlands if, as a married person, his/her family accompanies him/her to the Netherlands, or if, as a single person, he or she stays in the Netherlands for more than one year.

Qualifying non-resident taxpayer

Qualifying non-resident taxpayers of the Netherlands (i.e. individuals who reside in the EU, EEA, Switzerland or the BES islands (Bonaire, St. Eustatius and Saba) and who earn 90 per cent of their worldwide income in the Netherlands) are also eligible for personal/familial deductions, tax credits, et cetera, which are normally only available to Dutch tax residents.

Under the provisions of the 30 per cent ruling (see ‘Extraterritorial costs and the 30 per cent ruling’), employees who are considered resident taxpayers may opt to be treated as partial non-residents. ‘Partial’ in this respect implies that they are treated as residents for box 1 and as non-residents for box 2 and box 3 purposes (please find the explanation of the boxes underneath).

Boxes

In the Netherlands, worldwide income is divided into three different types of taxable income, and each type of income is taxed separately under its own scheme, referred to as a ‘box’. Each box has its own tax rate(s). An individual’s taxable income is based on the aggregate income in these three boxes:

Box 1

Scope

Box 1 refers to taxable income from work and home ownership. It includes entrepreneurial and employment income and home ownership of a principal residence (deemed income).

Rates

Box 1 has a progressive rate.

Income (EUR) Tax rate (%) Social security (%) Total (%)
0 - 35,129 9.45 27.65 37.10
35,129 - 68,507 37.10 None 37.10
> 68,507 49,50 None 49.50

Income determination

Regarding box 1, we will only discuss income from employment and home ownership, as these are most relevant for employees of foreign companies doing business in the Netherlands.

If an employee is on a Dutch payroll, wage tax will be withheld from its salary. The amount withheld and paid by the employer is applied as a prepayment of income taxes for the employee. Within an employment relationship, all benefits in kind are, in principle, considered taxable income. Such benefits include accommodation allowances, private use of the company car, employee stock options, home-leave allowances, and pre- and post-assignment bonuses. Employer-paid reimbursement of relocation costs relating to the acceptance of new employment is not taxable. The same applies for employer contributions towards approved pension schemes, as the future pension terms will be taxed. Income and benefits from equity based remuneration is generally taxable at the moment the benefit vests (shares) or is exercised (stock options).

The rules regarding ‘excessive’ remuneration, brings ‘lucrative investments’ (carried interest arrangements) under taxation in box 1. The income from a lucrative investment, both income and capital gains, will in principle be considered ‘income arising from other activities’ and, as such, be taxable in box 1. Under certain circumstances the income may be taxed in box 2 (lower tax rate of 26.90 per cent).

Mortgage interest payments in relation to the financing, renovation, or maintenance of the primary residence may be deducted from box 1 income. To determine the net amount of the deduction, deemed income of, generally, 0.50 per cent of the value of the property is taken into account. An increased rate applies when the value exceeds 1,110,000 euro 2.35 per cent on the portion exceeding 1,110,000 euro. The interest paid on mortgage loans concluded on or after 1 January 2013 can only be deducted if the full mortgage loan is paid off on a periodical basis within 30 years. Starting from 1 January 2014, the maximum effective tax rate against which the mortgage interest is deducted is lowered. In the year 2021 the mortgage interest paid can be deducted against a (maximum) tax rate of 43 per cent. The mortgage interest deduction will be further reduced in steps to 37.03 per cent in 2024.

Levy rebates

Qualifying taxpayers are entitled to ‘levy rebates’. In addition to the general levy rebate, several other levy rebates may be claimed, depending on the personal situation of the taxpayer (e.g. the single parent rebate).

Box 2

Scope

Box 2 refers to taxable income from a substantial interest.

Rates

As from 2021 the box 2 rate is increased from 26.25 to 26.9 per cent.

Income determination

A Dutch resident that holds at least five per cent of the shares or a class of shares of a company, or that holds rights to acquire a five per cent interest in a company, has a ‘substantial interest’. The benefits derived from this substantial interest are taxable in box 2. These benefits include dividends and the gain on the sale of one or more of the shares or rights. Taxation in box 2 will apply to a non-resident only if he holds a substantial interest in a Dutch-based company.

Box 3

Scope

Box 3 applies to (deemed) taxable income from savings and investments.

Rates

Box 3 income is taxed at a flat rate of 31 per cent (see table below for fixed return on investment).

Income determination

Income from savings and investments is, as such, not taxable. However, the net assets (assets minus debts) valued at 1 January are deemed to generate a fixed return on investment per year. The fixed return on investment depends on the amount of the net assets. This fixed return is taxed in box 3. All net assets that are not intended for daily use and that are not taxed in box 1 or box 2 classify for the box 3 taxable base.

For residents and non-residents, part of the taxable base is exempt (2021: 50,000 euro per adult) and several specific deductions apply. Non-residents are subject to taxation only on the net value of a limited number of Dutch assets, including Dutch real estate not used as the primary residence, and Dutch profits rights unrelated to shares or an employment.

Assets Notional yield Effective tax rate
Up to  €50,000 Tax free 0.00%
€50,000 - €100,000 1.90% 0,59%
€100,000 - €1,000,000 4.50% 1.40%
€1,000,000 and more 5.69% 1.76%

Foreign tax relief

Residents and most partial non-residents are entitled to relief from double taxation under tax treaties or under unilateral relief provisions.

Social security

The Netherlands has an extensive compulsory social security system, to which both the employer and the employee must contribute. As the social security contributions are capped, the Dutch social security system is relatively inexpensive in comparison to other European social security systems.

The system can be classified as follows:

  • National insurance tax: under the national insurance tax regulations, contributions are levied up to a maximum income of 35,129 euro. At present, the contributions are capped at 9,713 euro per annum. From this amount several levy rebates may be deducted. National insurance contributions paid by an employee are not deductible from taxable income. National insurance contributions and income taxes are included as a combined amount in the first income tax bracket.
  • Employee’s insurance: this is paid by the employer. It includes unemployment and disability benefits. The average maximum annual contribution amounts to approximately 6.758 euro for an employee with a permanent employment contract and 9.674 euro for an employee with a temporary employment contract.
  • Health insurance: the employee should individually conclude a health insurance policy with a Dutch health insurance company irrespective of whether international health insurance is available. In addition, the employer is required to make a contribution as well. This contribution is capped at 4,082 euro.

Extra-territorial costs and the 30 per cent ruling

The actual costs incurred by employees who are hired/assigned from abroad may be reimbursed tax-free provided that these expenses can be proven. These extra-territorial costs basically include all costs that the employee would not have incurred had he or she not been assigned to the Netherlands. Costs that qualify as extra-territorial costs include, among others, costs related to double housing, language courses, residence permits, and home leave.

If certain conditions are met, a foreign employee working in the Netherlands may be granted a 30 per cent ruling. Under this ruling, a tax-free reimbursement amounting to 30 per cent of the income from active employment can be paid to the employee. Apart from the base of the 30 per cent ruling the employer can reimburse the school fees for an international school for the kids of employees tax-free in full.

The 30 per cent reimbursement is intended to cover all extra-territorial costs. If the 30 per cent ruling is applied, the actual extra-territorial costs cannot be reimbursed tax-free in addition to the 30 per cent reimbursement.

However, if the actual extra-territorial costs are higher than the 30 per cent reimbursement, you can choose to reimburse these higher actual costs tax-free if proof of the costs is available.

There are several requirements to qualify for the 30 per cent ruling:

  • The foreign employee should have specific expertise that is not available, or is scarce in the Dutch labour market. This is based upon a salary norm: the general gross salary has to amount to a minimum of 38,961 euro (i.e. 55,659 euro including tax-free reimbursement of 30 per cent). A lower norm amounting to 29,616 euro (i.e. 42,309 euro including tax-free reimbursement of 30 per cent) applies to individuals with a university degree who are younger than 30.
  • The employee must have lived outside a 150 kilometer radius of the Dutch border during more than 2/3 of a 24-month period before taking up Dutch employment in order to qualify for the 30 per cent ruling.
  • An application for the 30 per cent ruling must be filed within four months after starting the Dutch employment. If this period is exceeded, the ruling, if granted, will only apply as of the month following the month in which the application was filed. The 30 per cent ruling may only be applied if the employee is included in a Dutch wage tax administration.

As of January 2019, the maximum term of the 30 per cent ruling and the tax-free reimbursement of actual extra-territorial costs have been reduced from eight to five years. Transitional law is applicable for existing cases for a maximum period of two years. 

The 30 per cent ruling lapses at the end of the next wage tax period following the wage tax period in which the Dutch employment was terminated. The 30 per cent ruling cannot be applied on post-departure income. Hence, the 30 per cent ruling can, in principle, not be applied on bonuses and equity income that becomes taxable after having left the Netherlands in most situations.

Example of the 30 per cent ruling

The example shows the difference in effective tax rate between applying the 30% ruling and reimbursement of the actual tax-free costs for an employee with an income of 75,000 euro and 10,000 euro actual extraterritorial costs. 

  With 30% ruling Without 30% ruling  
Paid by employer € 75,000 € 75,000  
Less: extra-territorial costs € 22,500 (30% of remuneration) € 10,000 (actual costs)  -/-
Wage for income tax € 52,500 € 65,000  
Less: Income tax € 9,764 € 14,401 -/-
Less: National insurance tax € 9,713 € 9,713 -/-
Plus: Levy rebates € 4,151 € 2,654 +
Net income € 59,674 € 53,540  
Effective tax rate 20% 29%  

Payroll taxes 

Entrepreneurs who have their residence (or a permanent establishment) in the Netherlands and who employ personnel, are obliged to withhold and pay payroll taxes. Entrepreneurs who do not have their residence in the Netherlands but do have employees that are taxed in the Netherlands for their employment income, can choose to become a withholding agent for the payroll taxes in the Netherlands. 

Withholding agents for the payroll taxes are obliged to withhold wage tax and the national insurance contributions from the employee’s wage and bear the cost of the employee’s insurance contributions and the income-related contribution pursuant to the Health Care Insurance Act (jointly: payroll taxes). Please note that the social security premiums are only due in case the employee is covered by the Dutch social security system.

The wage tax and national insurance contribution are a withholding tax on the income tax of employees. The insurance contributions and the income-related contribution pursuant to the Health Care Insurance Act are costs for the employer. For 2021, the maximum premium for the employee’s insurance contributions is approximately 6,757 euro for an employee with a permanent employment contract and 9,673 euro for an employee with a temporary employment contract. The maximum income-related contribution pursuant to the Health Care Insurance Act is 4,082 euro

The wages are understood to mean everything the employee receives pursuant to the employment contract although some items may be tax exempt (under the general work-related cost scheme or specific exemptions). Employers who provide reimbursements or benefits in kind to employees will have to assess the wage tax implications. When no specific exemption applies (specific exemptions apply for example to entitlements to Dutch pension benefits and certain jubilee bonuses), the reimbursement or benefit in kind is individual wage for the employee or can be included in the work-related cost scheme. 

Work-related cost scheme

Under the work-related cost scheme, the employer can provide reimbursements and benefits in kind tax-free. The work-related costs budget for 2021 is 3 per cent for the first 400,000 euro of the total fiscal wages, and 1.18 per cent for the remaining amount of the taxable wage bill. In addition, a number of specific benefits can be provided tax-free, without being included in the work-related costs budget. In case the work-related costs budget is exceeded, the employer has to pay a final levy of 80 per cent on the amount in excess.

It is important to note that under the work-related cost scheme, the scale of the reimbursements must not substantially deviate (30 per cent) from what is considered usual in similar circumstances. Besides, certain benefits cannot be provided tax-free under the work-related cost scheme, because they are compulsory individual wage for the employee. This applies for instance to the private use of a company car. 

What we can do for you?

 

  • Provide clarity in view of the changes and transitional law of the 30 per cent ruling 
  • Advise on tax efficient wage tax payments and the work-related cost scheme
  • Set up a Dutch payroll administration and apply for a voluntary registration as withholding agent.
  • Assist you to understand and manage the risk and compliance of your global talent deployments (preparation of income tax returns, most efficient application for your social security statements and 30 per cent ruling applications)
  • Putting the right people in the right locations, at the right times, in a cost effective and efficient way (manage your global workforce with our technology and benefit from the applicable tax, pension and social security benefits)

 

Other taxes

Real Estate Transfer Tax

Acquisition of economic or legal ownership of non-residential immovable property in the Netherlands is subject to a eight per cent transfer tax on market value (2021). Some exemptions are available, e.g. for mergers, split ups and reorganisations. 

The real estate transfer tax on dwellings is subject to a lower rate of two per cent, however - as of 2021 - under the specific condition that the home will actually be occupied by the acquirer for permanent living by him or herself. Homes to be acquired for rental purposes remain subject to the general transfer tax rate of eight per cent. Furthermore, the acquisition of the mere economic ownership of a home will remain subject to the eight per cent rate, in any case. 

As per 2021 a new real estate transfer tax exemption has been introduced to facilitate starters on the housing market. This exemption is applicable to any adult younger than 35 years of age when purchasing a dwelling for which the exemption is claimed. The exemption is only applicable on homes with a maximum purchase price of 400,000 euro’s (this condition takes effect on 1 April 2021). Furthermore, this exemption is subject to the condition that the home will actually be occupied by the acquirer for permanent living by him or herself. Someone can only claim this exemption for the acquisition of a home once in his or her lifetime. In some cases persons who have already purchased a home without using the exemption, can still claim the exemption for a successive acquisition if they are still younger than 35 years of age at the moment of the successive acquisition.

The acquisition of shares in an entity that owns real estate may also be subject to transfer tax if that entity is characterised as a ‘real estate entity’. The threshold for qualifying as a real estate entity is met if, at the time of acquisition of the shares or in the preceding year, more than 50 per cent of the assets of the entity consists of or has consisted of real estate situated within and/or outside the Netherlands, and at least 30 per cent consists of or has consisted of real estate situated within the Netherlands. 

Dividend withholding tax

Dividends from Dutch corporations are generally subject to a 15 per cent Dutch dividend withholding tax. In general, in a business-driven structure this does not apply to a Dutch cooperative. Dividend withholding tax on dividends received by taxpayers or corporate entities is creditable against the personal income tax and the corporate income tax due (if the income is not exempt under the participation exemption).

On request and under conditions - mostly EU/EEA - certain non-resident shareholders who qualify as beneficial owner of revenues with regard to which they do not pay personal income tax or corporate income tax in the Netherlands can receive a refund of withheld dividend tax. This is the case insofar as this levy is higher than the personal income tax or corporate income tax they would owe if they would have resided or been based in the Netherlands. 

Dividends paid to corporate entities in other EU/EEA countries are often exempt from dividend tax due to the EU Parent/Subsidiary Directive or EU/EEA law. This exemption also applies to dividends paid to corporate entities in countries with which the Netherlands has a bilateral tax treaty. The exemption for the withholding of Dutch dividend withholding tax is subject to targeted anti-abuse rules, which are interpreted in accordance with the OECD BEPS Project.

A ‘holding cooperative’ might be obliged to withhold dividend withholding tax if, in the preceding year, at least 70 per cent of the actual operations of a holding cooperative domiciled in the Netherlands consist of holding activities. Cooperatives that have membership rights comparable to shares remain obliged to withhold dividend tax regardless of their qualification as a holding cooperative. 

Withholding tax on interest and royalties

As per 1 January 2021, the Netherlands has a conditional withholding tax on outbound interest and royalty payments to affiliated entities in countries which levy no tax on profits or at a statutory rate of less than 9 per cent, countries on the EU list of non-cooperative jurisdictions, and in tax abuse situations. The withholding tax rate is equal to the highest corporate income tax rate, being 25 per cent.

Car taxes and regional taxes

Apart from the taxes already mentioned, some other taxes are part of the Dutch tax system. The most important are:

  • An individual who owns/uses a car in the Netherlands may become liable to Dutch road tax.
  • A municipal tax applies to the ownership and/or use of immovable property.
  • Inheritance and gift tax is imposed on the fair market value of the inheritance or gift.
  • A variety of environmental taxes, such as energy tax and tax on mains water.

What we can do for you?

  • Assess whether an obligation to withhold dividend tax exists
  • Inform you on the developments regarding potential, changes to the withholding taxation on dividends and the introduction of a withholding tax on interest and royalties
  • Help you to determine your tax liability, both for withholding tax and income tax purposes
  • Inform you about the conditions and application of a bilateral tax treaty
  • Advise you on the application of national and international law
  • Assist you in complying with the formal and administrative rules such as notification deadlines, application forms, objection and appeal

Tax incentives

The Netherlands is a very attractive place for performing research and development (R&D) work and for investment. The Dutch tax system features several tax incentives to stimulate innovation and business activities. 

Research and development incentives

Apart from the innovation box (see ‘Innovation box regime’), the Dutch tax system stimulates R&D activities by providing for a reduction of wage tax due on the wages of employees engaged in R&D of technologically new products.

R&D costs

A company can reduce the costs of its R&D activities by making use of the scheme for reducing the payroll tax and national insurance contributions to be remitted (Wet bevordering speur- en ontwikkelingswerk: WBSO). The WBSO rebate for R&D covers salary costs and other costs and expenses related to R&D. The subsidy accrues to the employer when the employee is credited for the normal amount of wage tax. For the year 2021, the regular reduction of the payroll tax and social security contributions amounts to 40 per cent of the first 350,000 euro in R&D costs (first bracket) and sixteen per cent of the excess R&D costs. The rebate is limited at the total amount of wage tax due. For start-ups, the reduction may amount to 50 per cent of the first bracket.

To obtain the relief under the R&D incentive programme, taxpayers must file an electronic/online application with RVO.nl, a department of the Ministry of Economic Affairs. If approved, the taxpayer will receive an R&D declaration. The budget for this subsidy is fixed, so the amount of the subsidy is dependent on budget availability. Note that, subject to certain conditions, self-developed and utilised software falls within the scope of the R&D incentive.

Job-related investment reduction (BIK)

To enhance economic recovery, the Dutch government wants to encourage entrepreneurs to continue investing. The BIK was introduced on 1 January 2021, although it already applied to investments from 1 October 2020. Through the BIK arrangement business can receive an investment discount on investments made. Under the BIK both private and corporate entrepreneurs can, under certain conditions, offset part of their investments against their payroll taxes. For investments up to and including five million euros, 3.9 percent of the investment can be deducted from the payroll taxes. For larger investments this is 1.8 percent for the part above five million euro. By linking the investment discount to the remittance of payroll taxes, companies that are currently making losses can already benefit from this scheme despite their loss-making position. This crisis measure will last until 31 December 2022. After that, the government indicated to consider new measures to reduce the employer's costs.    

Investment incentives

Investments in certain business assets may qualify for an additional deduction for tax base calculation purposes. Not all business assets are eligible, some are explicitly excluded.

Energy-efficient and environment-improving assets

An investment in a new energy-efficient asset may qualify for an additional deduction (EIA) if the amount exceeds 2,500 euro and the asset satisfies the requirements on the Energy List 2021. The EIA amounts to 45 per cent of the qualifying investments. A similar tax incentive is available for investments in new environment-improving assets. Such an investment may qualify for an additional deduction (MIA) if the amount exceeds 2,500 euro and the asset satisfies the requirements on the Environment List 2021. The MIA is set at 36, 27 and 13.5 per cent (dependent upon eligibility) of the amount of the qualifying investments. The taxpayer must report the qualifying investment within three months to RVO.nl. Both for EIA and MIA, limitations to the maximum amount of benefit apply.

Arbitrary depreciation

If conditions are met, entrepreneurs are permitted to apply an arbitrary depreciation scheme. In contrast to a regular scheme, a higher or lower depreciation rate may be selected annually depending on which would be the most suitable at the time.

Arbitrary depreciation is available to, among others, investments in business assets that are in the interest of the protection of the Dutch environment and that meet certain requirements. For more details, refer to the paragraph “Depreciation” under Corporate income tax.

What we can do for you?

  • Inform you about the availability of tax incentives for your business / investments 
  • Advise you on the application of the tax incentives to your business
  • Assist you in complying with the formal and administrative rules such as notification deadlines, application forms, objection and appeal 

Corporate income tax

CIT return and assessment

A company incorporated under Dutch law or a foreign company tax resident in the Netherlands is required to file a corporate income tax (CIT) return annually.

The Dutch Tax Authorities will issue a preliminary CIT assessment at the start of a financial year. For financial years that do not coincide with the calendar year, other timing considerations than those discussed below are relevant.

A first preliminary CIT assessment is normally issued in January of the relevant year. Generally, the taxable amount in this first assessment is based on either the average of the two preceding years’ taxable income or on a preliminary tax return submitted by the taxpayer. The payment date is mentioned in the assessment. Normally, these assessments must be paid within six weeks after the issue date of the assessment or in eleven monthly instalments, starting at the end of the second month of the current year (i.e. February to December). However, the amount due on the assessment can also be paid in one lump sum payment. A taxpayer will then receive a discount on the amount payable. We note that it is being considered to abolish the payment discount.

Please note that at any time the taxpayer has the possibility to request the Dutch Tax Authorities to issue a revised preliminary CIT assessment. Such a request can be filed electronically and is normally accepted, after which a revised preliminary assessment will follow.

Following the end of a financial year, a CIT return should be filed within five months, with a possible extension of five months (before 1 June respectively 1 November of the subsequent financial year in case of a financial year equal to the calendar year). If the CIT return is prepared by a professional tax firm like PwC, under certain conditions a longer extension for filing the CIT return can be obtained, up to a total of sixteen months after the end of a financial year. This means that for financial years that end on 31 December 2020, an extension for filing the CIT return may be granted up to 1 May 2022. The maximum extension of eleven months (in addition to the standard five months) after the end of the financial year also applies to companies with a financial year that is not equal to the calendar year.

After the tax return has been filed, a revised preliminary tax assessment is often issued. Once the Dutch Tax Authorities have examined the CIT return, the final CIT assessment will be issued. The final assessment should be issued within a period of three years as from year end plus the period of the extension granted for filing the tax return. An objection against the final CIT assessment must be filed within six weeks after the date of the assessment. 

Payment

Tax is payable within six weeks of the date of assessment. Interest is payable on any difference between the final assessment and the preliminary assessments. The interest is calculated from six months following the financial year up until the payment date of the final assessment. It is advisable to ensure that a correct preliminary tax assessment is imposed, given the high level of tax interest payable of at least 4 per cent. In situations where the final assessment shows a lower amount of tax due than the preliminary assessment, please note that ordinarily no interest is refunded to the taxable entity. In light of the above, it is important to make sure the preliminary assessments are as close to the expected final assessments as possible.

What we can do for you?

  • Prepare corporate income tax returns
  • Prepare tax accounting positions for annual accounts (Dutch GAAP, IFRS or US GAAP)
  • Advise and implement on tax (compliance) process set-up
  • Advise on and delivery of tax technology solutions (accounting, monitoring, country-by-country reporting, workflow)
  • Unlock the potential of your existing ERP systems for tax

Additional assessments

The Dutch Tax Authorities can raise an additional assessment after the final assessment is raised within five years after the fiscal year has ended, if new data become available of which the tax inspector could not reasonably have been aware at the time the final assessment was made. This period of five years is prolonged by the period with which the filing of the tax return has been extended. With regard to income from abroad, such additional assessments are allowed within twelve years. An additional assessment may involve interest and a penalty of up to 100 per cent of that assessment. This penalty is not tax deductible.

Master File & Local File / Country-by-country reporting

The country-by-country report needs to be submitted to the Dutch Tax Authorities within twelve months after the end of the financial year. Furthermore, Dutch companies forming part of a multinational group with a consolidated turnover of at least 50 million euro must retain a master file and a local file as part of the administration, irrespective of the tax jurisdiction of its ultimate parent company. These need to be in the administration of the Dutch companies in the timeframe set for filing the tax return.

A Dutch group entity of a multinational group with a turnover of at least 750 million euro must notify the Tax Authorities whether the ultimate parent company or surrogate parent company will file the country-by-country report. If not, it must notify the Tax Authorities which group company and its tax residence will file the report. This notification should be made at the latest on the final day of the financial year. 

ATAD II documentation requirement

Although the ATAD II does not provide for a specific documentation requirement, under Dutch ATAD II legislation, a taxpayer must include in its records all data that is relevant to determine whether a payment falls within the scope of ATAD II. If a taxpayer takes the position that a payment does not fall within the scope of ATAD II, documentation that supports this position must also be included in the relevant file. If the taxpayer does not have this information on file, the burden of proof will shift to the taxpayer who must then demonstrate that the ATAD II rules do not apply.

What we can do for you?

  • Preparation of CbC report, including data gathering, process design etc.
  • Filing of CbC report and CbC notification
  • Analysis and understanding of CbC data
  • Conversion from client data into XML for filing of CbC report
  • Preparation of Master File and Local File
  • Global support CbC filing requirements

Dividend withholding tax 

Dividend payments, distributions treated as dividends and interest on certain profit participating loans paid by resident companies to residents or non-residents are subject to dividend withholding tax.

The tax is withheld by the distributing company at the moment the dividends are put at the disposal of the recipient. The distributing company must file a self assessment and pay the tax withheld to the Tax Authorities within one month of the distribution. In most cases a self assessment has to be filed even though no dividend withholding tax is due.

In some situations and subject to several conditions, if a Dutch entity has received a dividend from a subsidiary that is resident within the Netherlands or a country that has concluded a tax treaty with the Netherlands and that was subject to withholding tax in that jurisdiction, it is possible that Dutch dividend withholding tax due on subsequent dividend distributions by the Dutch entity to its shareholders is lowered by three per cent (of the distribution by the Dutch entity).

Additional assessments can be imposed by the tax inspector within five years after the calendar year in which the tax liability incurred or the dividend withholding tax refund was made. In case of an omission in the self tax assessment or in case the dividend withholding tax is not paid or not paid within the stipulated period, a penalty may be imposed.

What we can do for you?

  • Asses the dividend withholding position
  • Prepare dividend withholding returns

Value added tax

VAT return

The tax period is usually a calendar quarter. However, the taxpayer can request the Dutch Tax Authorities to file a monthly VAT return. If the taxpayer is in a refund position, this could lead to a cash flow advantage. The taxpayer can also request filing a yearly VAT return provided that some specific conditions are met. The tax authorities can oblige you to file a monthly VAT return in case of late filing or late payment. Due to the COVID-crisis for VAT, there was the possibility of temporarily deferring payment of tax until 31 December 2020 at the latest.

VAT returns are due by the last day of the month following the tax period to which they relate for companies established in the Netherlands. For foreign companies with only a VAT registration in the Netherlands, the returns are due by the last day of the second month following the tax period to which they relate. Taxable persons filing an annual return are automatically allowed to defer filing until 31 March of the following year. This applies even if no business has been conducted in the Netherlands during that period or if there is no right to refund of Dutch VAT.

As VAT returns must in general be filed electronically there is no need for rescheduling these dates because of weekend or bank holidays. VAT returns can be filed 24/7. The VAT payable regarding a tax period ultimately has to be paid when the VAT return has to be filed.

Adjustments can be made to a submitted VAT return by lodging an objection within six weeks after filing the VAT return (in most cases within six weeks after the ultimate date of payment of the VAT due). Furthermore, an additional VAT return can be submitted within five years after filing the VAT return. However, in the latter case, no formal appeal is allowed if the changes are rejected by the Tax Authorities. A special electronic form exists for filing additional VAT returns. A special form is required if the correction of VAT payable to the Tax Authorities is more than 1,000 euro.

Recapitulative statement

A recapitulative statement needs to be submitted if the taxpayer supplied goods or services to an entrepreneur in another EU country and, in the case of the supply of goods, these goods are dispatched from the Netherlands. Taxpayers transporting their own goods to another EU country must also submit these statements. The period for which the taxable person must submit a recapitulative statement depends on the actual situation (the amount of supplies and/or acquisitions and the type of transactions). The following situations are possible: monthly, bimonthly, quarterly and annually.

In the Netherlands the threshold for monthly listing of intra-community supplies of goods (the so-called ‘Opgaaf ICP’) is 50,000 euro. The ‘Opgaaf ICP’ for services can be filed on a quarterly basis. If a taxable person is allowed to file annual VAT returns, it is possible, provided certain conditions are met, to apply for annual submission of the statements. The statements are generally due by the last day of the month following the applicable reporting period.

Intrastat declaration

Intrastat declarations have to be filed for dispatches of goods to other EU countries if these dispatches exceed 1,000,000 euro per year and (separately) for arrivals of goods from other EU countries if these exceed 800,000 euro per year. The Intrastat declarations must be filed monthly and are due on the tenth day of the calendar month following the period to which they relate.

What we can do for you?

  • Prepare and file the VAT returns, recapitulative statements, Intrastat declarations and refund requests
  • Matching general ledger and VAT return

Personal income tax

PIT return

Tax returns must be filed after each calendar year, in principle before 1 May. Extensions may be possible.

Advance payment or preliminary tax refund

Generally speaking, if taxpayers have sizeable income that is not subject to wage tax withholding, they may be required to make advance payments of estimated additional income tax. If the employee has income tax deductions that are not considered in the Dutch payroll (e.g. the mortgage interest deduction), it is also possible to file a preliminary tax refund form in order to claim monthly income tax refunds during the calendar year.

Payroll taxes

Payroll taxes are calculated for each wage period, i.e. the period for which the employee receives his/her wage (usually monthly or four-weekly). The employer is required to timely and correctly file the payroll tax returns per wage period. The payroll tax return consists of a collective section (general information concerning the employer) and an employee’s section (detailed information concerning each employee. As of 2019 in this section the foreign home address of the employee needs to be included in order to implement the correct levy rebate).

The Tax Authorities use the detailed information for purposes including the award of benefits and the pre-completed income tax returns. Consequently, it is important that the details are up-to-date, correct and complete. For this reason the employer must always adjust or supplement any misstatements or shortcomings in payroll tax returns.

The amount due on each payroll tax return has to be paid within the deadline given by the Tax Authorities. 

What we can do for you?

  • Payroll tax compliance review
  • Employment tax reorganisation services
  • Prepare Dutch personal income tax returns
  • File requests for preliminary assessments
  • Set up and run Dutch payroll processes
  • Run our digital assessment tool to identify risks and opportunities

Human Resources and employment law

The most important long-term asset of almost any business is its qualified personnel. As mentioned before, the Netherlands is internationally renowned for its high-quality labour market. In addition, Dutch employees are flexible and have an excellent work ethic.

Continue to next chapter

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