KNOWLEDGE BASE

EUROPEAN HOLDING COMPANIES

The Dutch Holding Company

Overview Related Resources Netherlands Key Elements

HOW TO PROCEED

OVERVIEW

The Dutch Holding Company is an ordinary company which falls within the scope of general tax law and therefore benefits from the double taxation treaties and the European tax directives. There are no limitations on the activities of the company.

The Dutch holding company may be used to combine various activities such as collecting dividends, interest and royalties from subsidiaries.

As of 1st October 2012 a simplified version of the Dutch BV (The Flex-BV) will be introduced which will apply to all new companies but also for existing companies. Although some of the requirements will be relaxed automatically for existing companies to take full advantage of the Flex-BV Act an amendment of the articles of association will be required.

The changes remove the requirement for a minimum share capital of €18,000 for incorporation of a Private Limited Company (BV). A BV from 1st October can be established with 1 share of 1 cent and the mandatory authorized share capital will become optional.

The Flex-BV removes some of the previous legal requirements making the management of the company easier to set up in accordance with the member’s wishes. The corporate governance changes include:

  • General meetings of shareholders may be held outside the Netherlands
  • Written resolutions of shareholders may be adopted by a majority
  • Annual General Meetings may be replaced by written resolutions

Legal Form

A Dutch company can be constituted either as a “besloten vennootschap” (private limited company- BV) or a “naamloze vennootschap” (public limited company- NV).

Formation

A Public Limited Company (NV) required a minimum share capital of €45.000 and a company incorporated as a “NV2 may have bearer shares.

    From 1st October 2012 the Flex-BV has the following amendments:
  • No Bank Declaration is required
  • No Auditor Declaration on contributions in kind is required
  • Nominal value of shares can be denominated in any currency
  • A Private Limited Company (BV) requires no minimum capital.

Taxation

Corporate Tax Rates are:

  • 20% for taxable income up to €200,000
  • 25% for taxable income in excess of €200,000

A 0,55% capital duty is levied when capital is contributed at the formation of a resident company and on any increase in its capital. However, several exemptions may be applied.

VAT

From 1st October 2012 the standard VAT rate will increase from 19% to 21%.

Income

Corporate income tax is charged on worldwide profits of companies resident in the Netherlands. However, the taxable profit is not necessarily calculated on the basis of the annual financial statements.

Expenses incurred in connection with the conduct of a business are, in principle, deductible. If expenses exceed normal arm’s length charges and are incurred directly or indirectly for the benefit of shareholders or related parties, the excess is considered a non-deductible profit distribution and possibly regarded as hidden distribution of dividends.

The costs of running the subsidiary are not deductible from the taxable profits of the parent Dutch company if participation exemption is applied. However the Dutch holding company is able to receive tax free dividends and capital gains from its subsidiary and is allowed to deduct expenses, including interest on loans.

Exemption from Dutch corporate tax is allowed on:

  • capital gains and dividends derived from qualifying subsidiaries ("participation exemption");
  • income attributable to a foreign business enterprise ("permanent establishment").

Research & Development Tax Break 2012

In October 2011 the Dutch State Secretary announced a Research and Development allowance relating to non-wage costs and investment related to the development of new products and services. Companies will benefit from a deduction from profits of 40% in 2012.

Dividends Exemption

The general rule is that all dividends paid by a subsidiary to a Dutch parent company are subject to corporate income tax.

Under the EU Parent-subsidiary Directive, if a Dutch company holds at least 25% of the shares of another EU company no tax will be imposed on dividends.

Where a Dutch holding company comes within the “participation exemption rules” all income received from the subsidiary whether by way of dividends or otherwise is tax free if the following conditions are met:

  • the Dutch holding company must hold at least 5% of the subsidiary’s shares (a trading company that owns shares in another corporate entity is deemed a holding company for purposes of the participation exemption rules);
  • shares must be held since the beginning of the fiscal year but not as current assets;
  • the parent company must be involved in the management of the subsidiary.
Capital Gains Exemption

No distinction is made between capital gains and other income. All income is taxed at the corporate tax rate. However, under the participation exemption, all capital gains on the sale of shares of a subsidiary are tax free in the Netherlands irrespective of whether the subsidiary is resident or non-resident.

Interest and Royalties

See income above.

Some Advantages of the Dutch Holding Company

Besides the common advantages of a holding company, the Dutch company may also enjoy from the following:

Exemption from Withholding Tax on Payment of Dividends

Dividends paid by a Dutch company to an entity in another EU Member state are exempt from withholding tax if the following provisions are met:

  • Each company is resident in the European Union (EU) or an European Economic Area (EEA) state, and
  • The EU or EEA investor holds a minimum of 5% in its EU shareholding, which qualifies under the Dutch participation exemption rules if the place of residence of the EU/EEA investor would have been the Netherlands.

The 15% dividend withholding tax rate may be reduced under a tax treaty concluded by the Netherlands.

Exemption from Withholding Tax on Payment of Interest and Royalties

Under Dutch domestic law, interest and royalties paid by a Dutch company are not subject to withholding taxes.

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RELATED RESOURCES

Double Tax Treaties

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NETHERLANDS KEY ELEMENTS

Formation
Legal Form: Private limited company (BV);
Public limited company (NV)
Minimum Subscribed Capital: €45.000 (NV)
€0.1 (BV)
Minimum Paid-Up Capital: €45.000 (NV)
€0.1 (BV)
Number of Shareholders: 1 (NV)
1 (BV)
Type of Shares: Registered or bearer (NV)
Registered (BV)
Substance Requirements: Yes
Taxation
Capital Duty: 0%
Net Worth Tax: 0%
Corporate Income Tax: 20% for taxable income up to  €200,000
25% for taxable income above €200,00
Double Tax Treaties: 95
Dividends Exemption: 100%
Holding Requirements: 5%
Capital Gains Exemption: Yes
Holding Requirements: 5%
Tax Credit: Yes
Relief of Losses: Carried back 3 years
CFC Rules: No
Debt-to-Equity Ratio: 3:1
Withholding Taxes
Dividends: EU Parent Co- 0%2
Treaty Countries- 0%-20%
Others- 25%
Interest: 0%
Royalties: 0%
Liquidation: Nil

2If conditions are met.

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