Netherlands

Tax residency – Corporate residency is determined by the place of effective management. However, in principle, all companies incorporated under the Dutch Civil Law, are deemed to be tax resident in the Netherlands.

Basis – Corporate income tax is levied on worldwide income.

Tax rate – Corporate tax is levied at 19% on the first EUR 200,000 of taxable profits, and 25.8% on the rest.

Capital gains – Capital gains are treated as ordinary income and taxed at the standard rate. However, capital gains derived from the disposal of holdings may be tax-exempt provided that the Dutch company holds at least 5% of the shares, and the participation is not held as a portfolio investment, among other conditions.

Dividends – Dividends received are subject to Corporate Income Tax. However, as with capital gains, if the Dutch company holds at least 5% of the shares, the participation is not held as a portfolio investment, and the subsidiary is subject to a reasonable effective tax rate, dividends received may be tax-exempt.

If distributed profits are tax deductible by the subsidiary, for instance under the EU’s Parent-Subsidiary Directive, the tax-exemption may not apply.

If the participation exemption is not available, a credit for the underlying tax may be obtained.

Interests – Interests are subject to corporate income tax.

Royalties – Royalties are generally subject to corporate income tax.

Withholding Taxes – Dividends paid to resident or non-residents are usually subject to a 15% withholding tax unless the tax rate is reduced or exempted under a tax treaty or exempted under the EU parent-subsidiary directive.

Currently, there is no withholding tax on interests, royalties and technical fees.

Foreign-source income – Certain foreign-source income such as foreign branch income or real estate income may be exempted or excluded from the tax base.

Double taxation of foreign dividends, interest and royalties is relieved by a tax credit provided by Dutch tax treaties or unilaterally if the payer is a resident of a developing country designated by Ministerial Order. If no relief applies, a deduction of the foreign tax paid is allowed.

Dividends and capital gains that qualify for the aforementioned participation exemption may not be subject to taxes.

Losses – Losses arising from taxable income may be carried forward for 9 years and carried back for 1 year.

Inventory - Inventory may be valued at the lower of acquisition/production costs or market value. First in first out (FIFO), Last in first out (LIFO) or average cost methods are generally permitted.

Anti-avoidance rules – There is transfer pricing legislation in Luxembourg. Transactions between related entities have to be governed by OECD’s arm’s-length principle and must be documented.

Acceptable transfer pricing methods include the comparable uncontrolled price, resale price, cost plus, profit split and transactional net margin methods. It is possible to enter into an advance pricing agreement for the use of certain transfer pricing methods.

There are no thin capitalization rules.

Netherlands has implemented certain tax law modifications to meet OECD’s BEPS standards and has conscripted to local law the EU Anti-Tax Avoidance Directive 1 (ATAD1).

Anti-avoidance measures include the introduction of controlled foreign company (CFC) rules – certain non-distributed income of a CFC, namely dividends, interests, royalties, certain capital gains, and other income, will be subject to Dutch corporate tax.

CFC rules are applicable to the aforementioned income type accrued by foreign subsidiaries located in low-tax jurisdictions, in which a Dutch company has a 50% or more interest, or by a low-taxed foreign permanent establishment.

Low-tax jurisdictions are those that have no corporate income tax or have corporate income tax lower than 9%, or jurisdictions that are considered non-cooperative jurisdictions for tax purposes by the EU. The Dutch Ministry of Finance publishes a list every year of jurisdictions to which CFC measures apply.

Certain exceptions apply if a subsidiary’s passive income is less than 30% of its total income or if the subsidiary meets certain economic substance requirements in its jurisdiction of establishment – such as salary expenses of over EUR 100,000 and office space for a period of 24 months. Note that Dutch tax authorities will no longer grant tax rulings for transactions with companies established in the aforementioned low-tax jurisdictions.

Anti-avoidance provisions also include the so-called ‘earnings stripping rule’ for groups, which limits the deductibility of net interest expenses (interest revenue – borrowing costs) up to 30% of taxable profits. Net interest expenses up to EUR 1,000,000 (lower than EU standards) are not caught by the earnings stripping rule. Non-deductible interest expenses will be allowed to be carried forward indefinitely.

In addition, a 20.5% withholding tax on royalty and interest payments to low-tax jurisdictions included in the aforementioned list published by the Dutch Ministry of Finance.

Labor taxes –National Insurance Tax, Employee Insurance Contribution, and Dutch Health Insurance are paid by both the employer and employee. The employer must withhold social security contributions from the employee’s salary at an aggregate rate of 27.65% (2018) calculated on the first EUR 33,994 (2018) of each employee’s gross salary.

Tax credits and incentives – There are additional deductions available for investments in energy-efficient assets and environmental assets. Companies conducting certain R&D activities may be eligible for a reduction of wage taxes.

An exemption from corporate taxes may apply to investment funds whose profit is made available to the shareholders and holders of certificates of participation no later than eight months after year-end, as well as for funds whose investments are limited to financial instruments such as shares, bonds, options, and futures traded on qualifying stock markets.

An IP Box regime applies with respect to profits, including royalties, derived from a self-developed intangible asset. In such caes, a company may elect, fulfilling certain conditions, for the application of a lower effective rate on taxable profits derived from qualifying intangible assets. The effective tax rate of the innovation box is 9%.

Personal income tax – An individual is deemed to be tax resident in the Netherlands based on a series of facts and circumstances such as permanent home, employment duties, family residence, registration with local authorities, local bank accounts and local assets and the intended length of stay in the Netherlands.

Foreigners have usually deemed tax residents if their family is residing in the Netherlands or if they stay in the Netherlands for more than 1 year. However, expats may opt for several tax benefits if they fulfill certain conditions.

Tax residents are subject to tax on their worldwide income.

Employment, enterprise and housing income is taxed at progressive rates of 36.55% up to 51.95%, although a 14% base deduction may apply for entrepreneurs. Interests are taxed at 25% and income from savings and investments is usually taxed based on a fixed presumed gain (assets minus debt) at a rate of 30%. Calculation of presumed gains is based on past market returns realized.

Capital gains are usually taxed at progressive rates 36.55% up to 51.95%, exceptions may apply.

Other taxes – Transfer of immovable property is usually taxed at 6%. There is a municipal tax levied on real property. Inheritances received from Dutch residents are taxed at rates between 10% and 40%.

There is a landlord tax, charged to landlords that rent out more than 50 houses.

The sale of goods and services are subject to V.A.T. at a standard rate of 21%. Reduced rates and exemptions may apply.