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The Netherlands - European Union Member

General Rating = 10/10

Recommended Function = Holding and Administrative Office Functions, Double Taxation Treaty exploitation, EU Directive/Regulation exploitation

COUNTRY SYNOPSIS: The Dutch United Provinces declared their independence from Spain in 1579; during the 17th century, they became a leading seafaring and commercial power, with settlements and colonies around the world. After a 20-year French occupation, a Kingdom of the Netherlands was formed in 1815. In 1830 Belgium seceded and formed a separate kingdom. The Netherlands remained neutral in World War I, but suffered invasion and occupation by Germany in World War II. A modern, industrialized nation*, with many multi-nationals headquartered in the country such as Philips, Royal Dutch Shell, Unilever etc. The Netherlands has a population of 16,491,461 but occupies a land mass of less than half that of the Republic of Ireland.

TAX PLANNING CREDENTIALS: The Netherlands was one of the first jurisdictions to create tax planning vehicles primarily due to its history as one of the great trading powers. Particularly well know for providing 'Administrative' office facilities for the international branches of Dutch multi-nationals; where-by Dutch corporate taxes taxes (@35%) would only apply to the operating cost of the Dutch branch and not on all its received income (known as the Dutch 'turn') provided such 'surplus' income was forwarded to an 'overhead' holding company normally based in either the Netherlands Antilles or Luxembourg. It should be noted, that the Netherlands, unlike most other developed countries has a long-tradition of taking a lenient position in respect corporate tax and for example doesn't adopt a 'reverse burden of proof' when conducting tax investigations. Not a cheap jurisdiction by any means but still very useful for medium to large firms requiring protection from the extensive and very sophisticated Dutch double taxation treaty network or for those seeking to benefit from the EU Parent/Subsidiary Directive 90/435.

LOCATION: Western Europe, bordering the North Sea, between Belgium and Germany.

TYPES OF DUTCH COMPANIES: There are two principal companies basically analogous to UK private limited and public limited companies:

  • Naamloze vennootschap (NV) public open stock companies equivalent to UK PLC companies. They require relatively high paid-up share capital and are subject to full accountancy and officer disclosure together with an annual audit requirement. The minimum capitalisation is € 85,641.56
  • Besloten vennootschap met besperkte aansprakelijkheid (BV) is a private closed stock company equivalent to a UK private limited company. This type of company is almost universally used by the tax planning industry and provided a company's assets are less than approximately €1.3 million there is no need to file full financial statements or even appoint an auditor. The minimum capitalisation is €17,128.31

ADVANTAGES OF DUTCH COMPANIES:

  • Unrivalled tax treaty network with direct access to low tax regime of the Netherlands Antilles.
  •  Generally very favourable treaties due to the country's prestigious reputation and status as a major industrial power. In particular, the treaties with Switzerland, Luxembourg and Malta can afford benefits.
  • Unlike smaller tax planning jurisdictions, treaty partners are very unlikely to unilaterally rescind or vary previously negotiated instruments.
  • Full membership of the European Union can have beneficial consequences on dividend distributions to other member states. For example, the E.U. Parent/Subsidiaries Directive (90/435), means that once a Dutch parent holds, at least, 25% of the paid up capital of a subsidiary company located in another E.U. member state, then the participation exemption will apply even if the investments are of a portfolio nature.
  • Highly qualified professionals and regulatory bodies.
  • Excellent communications.

DISADVANTAGES OF DUTCH COMPANIES:

The Netherlands high profile use in tax planning has resulted in the introduction of anti-avoidance provisions by certain countries, including the United States, and the United Kingdom. In many cases, it is necessary to establish a 'Qualifying Participation Exemption' (Q.P.E.) if a significant reduction in withholding taxes is to be afforded. In fact, in many cases such establishment can result in no or little tax liability. The requirements of a Q.P.E. are as follows:

  • The Dutch resident company has a 5% or more direct equity stake in the paid up capital of the payer company. Alternatively, it must be shown that the dividend payments have been received in the normal course of the Dutch company's business
  • The non-resident dividend payor must be subject to a variable tax rate depending on gross profits. In other words, territories such as Cyprus would be fine as this is subject to a 10.00% tax rate on its worldwide profits. However, traditional offshore havens, such as Jersey or the Isle of Man, could not benefit as they are only subject to flat rate duties
  • Non-resident payers must be seen to be part of a company's, or group of companies, business structure. Dutch law specifically prohibits the use of the participation exemption in circumstances where the payer can be seen to be making general and/or passive portfolio investments. Therefore, the Netherlands would not be suitable for those purchasing general stock from international stock exchanges or other similar bodies

TAXATION

Dutch companies are only subject to tax on their world-wide income and not on their world-wide assets. The standard corporate tax rate is 35% and is payable by all companies deemed Dutch resident. Whether a company is resident for tax purposes depends on where effective management and control are exercised. In particular, it is important to note that the Dutch, in common with most western European tax authorities, will seek to tax any entity which is locally managed and controlled. Therefore, the full 35% tax rate will be payable even if there exists a foreign entity already subject to tax. In other words, a possible double taxation position could exist especially where no, or unfavourable, tax treaties exist.


EXAMPLES OF DUTCH COMPANIES BEING USED IN TAX PLANNING

FINANCE COMPANIES: The establishment of a finance/lending company is one of the most common tax planning methods. Most importantly, interest payments made by British, American and many other countries, to a Dutch financing company are not subject to withholding taxes. Where withholding taxes do apply they are normally at a significantly discounted level.


THE TAXATION OF FINANCE COMPANIES

(i) Non-related loans: Where loans are made by a Dutch company to non-residents of Holland, then the Dutch company will be taxed on the profits made as a result of the transaction minus overheads at the normal rate of 35%. Of course, the real benefits of a Dutch structure can be enjoyed when the sums have originally been lent by a third party company, normally from a tax free or low tax jurisdiction. It is always wise to get tax clearance to confirm that the Dutch tax authorities accept the 'non-related' status.

(ii) Related Loans: Where loans are for the benefit of subsidiaries and/or connected companies, the Dutch authorities require a 'turn', normally based on 1/8 of a percent of the loan amount

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INTELLECTUAL PROPERTY COMPANIES: The Netherlands can afford significant benefits to those licensing intellectual property rights. As with finance companies, it provides both an unrivalled treaty network and favourable tax treatment.


THE TAXATION OF INTELLECTUAL PROPERTY COMPANIES

(i) Non-related licensing: Where royalty payments are made by a Dutch company to non-residents of Holland, then the it will be taxed on the profits made as a result of the transaction, minus overheads at the normal rate of 35%. It is important to note that the spread between the company's inputs and outputs must correlate with those expected from a similar firm operating in Holland.

(ii) Related Licensing: Once again the Dutch authorities expect to receive a 'turn' on the licensing transaction involving non-residents which will vary from 7% to 2% depending on the amount of royalties received. The Dutch corporation tax rate of 35% will apply to the 'turn 1 amount.

* Source CIA World Fact Book 2007



Banking Confidentiality
= 8/10

Banking Facilities = 10/10 Excellent

Legal System = Civil Law

Tax Treaty Network = 10/10 Excellent

Development = 10/10 Excellent

Reputation = 10/10 Excellent

Efficiency = 10/10 Excellent

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