- Vehicles For Estate Planning Purposes
- Other Forms/entities
- Other Relevant Matters
The Kingdom of the Netherlands was founded in 1813.
The Netherlands is a constitutional monarchy with a parliamentary system with ministerial responsibility. Although legally the monarch forms part of the government, it is the responsible ministers who make policy.
The Netherlands is a founding member of the EU.
The currency is the euro (EUR).
Vehicles For Estate Planning Purposes
The concept of the Anglo-Saxon Trust is not codified in the Netherlands. However, the ‘foundation’ (which is a civil law legal entity and regularly used in practice) has similar uses to a trust.
Since 1996, the Netherlands has been a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition,1 July 1985.
A foundation (stichting) is usually set up for social and charitable purposes. A foundation may not pay non-charitable or non-profit payments to its founders, members of its executive board or any third person. A foundation is established by a notarial deed.
For international estate planning and asset protection, Dutch foundations are often used in the form of a Stichting Administratiekantoor (STAK). STAKs are often used to hold shares in Dutch limited liability companies. Depository receipts are issued, entitling the holder to all shareholders’ rights, excluding voting rights. Voting power remains with the STAK, thus splitting economic and legal ownership. To some extent, STAKs are comparable with voting trusts.
Apart from STAKs, charitable or philanthropic foundations are also used for estate planning purposes.
In the Netherlands, multiple types of company forms exist. The corporations or entities most often used in practice are the limited liability companies (Naamloze Vennootschap (NV) and Besloten Vennootschap met beperkte aansprakelijkheid (BV)).
Minimum capital requirements for NVs are EUR45,000 (BVs, EUR18,000). NVs can issue both registered and bearer shares (BVs, only registered shares).
Limited partnerships (commanditaire vennootschappen – CVs) are often used as vehicles for corporate and individual investors when structuring international transactions. A ‘closed’ CV is considered tax transparent for corporate income tax purposes.
Generally speaking, resident companies are taxed on their worldwide income. Non-resident companies (mainly branch offices of foreign companies) doing business in the Netherlands, are taxable only on income derived from sources in the Netherlands. The current Dutch corporate income tax rate is 20 per cent on the profits up to EUR200,000 and 25 per cent on the excess (previously 25.5 per cent).
Individuals living in the Netherlands qualify as resident taxpayers. Individuals living abroad and receiving income from the Netherlands that is taxable in the Netherlands qualify as non-resident taxpayers. Both are subject to Dutch income tax, paying personal income tax at a fixed rate or progressive rates up to a maximum rate of 52 per cent, depending on the type of income.
The standard VAT rate is 19 per cent, however, for some specific goods and services, a 6 per cent or 0 per cent rate applies while other specific goods and services are exempted from VAT. Whether an entrepreneur files VAT returns on a monthly or quarterly basis in principle depends on the size of the turnover of the respective enterprise. As part of the 2010 measures to combat the economic crisis, quarterly filing was allowed for enterprises that are normally required to file VAT-returns on a monthly basis. This option is made permanent from 2011 onwards.
B. Main Estate Tax Features
I. Inheritance Tax And Gift Tax
Inheritance tax does not tax the total estate of the deceased, but taxes every beneficiary on their share in the inheritance. Gifts from the deceased to the beneficiary during a period of 180 days before death are also included. Because the beneficiary is liable to pay the gift tax, they can deduct the gift tax from the inheritance tax due. Where a beneficiary is not resident in the Netherlands the tax authorities have a right of redress against all the resident beneficiaries in respect of the tax debt of the non-resident beneficiary.
The beneficiary of a gift is liable to pay the gift tax. The tax administration sends a tax return to the person who has presumably made the taxable gift. The donor verifies that they have made a donation. Their motives are important for the donation to qualify as a taxable gift. Donor and beneficiary may file the tax return together within two months after the gift is made. In the case of gifts from parents to children, a tax return must be filed within two months from the end of the year.
Dutch inheritance tax is levied on the total value of the property received as an inheritance. Gift tax is levied on all gifts made by Dutch residents. The rate for both taxes is the same and is divided in three tax rate groups with their own rates:
- spouses and direct descendants are taxed at a rate of 10 per cent on the first EUR118,708, and at a rate of 20 per cent on inheritances and gifts exceeding the value of EUR118,708
- for direct descendants in the second degree or further removed, the rates are increased by 80 per cent. Therefore, a rate of 18 per cent applies on the first EUR118,708 and a rate of 36 per cent applies for grandchildren and great-grandchildren on inheritances and gifts exceeding the value of EUR188,708
- all other beneficiaries are taxed at a rate of 30 per cent on the first EUR118,708 and a rate of 40 per cent on inheritances and gifts exceeding the value of EUR118,708.
For both taxes there exists a variety of exemptions (e.g. inheritances received by spouses, children and charities). Some exemptions are subject to a specified maximum.
A special exemption apply to the transfer of business assets due to inheritance or donation. This exemption applies to the value of the business assets up to EUR1,006,000 and 83 per cent of the value exceeding EUR1,006,000. The exemption applies per business and not per beneficiary.
Ii. Transfer Tax
6 per cent transfer tax is levied on the acquisition of property situated in the Netherlands. The acquisition of a substantial interest (one-third or more) in real estate companies is also subject to 6 per cent Dutch transfer tax. Presently, a real estate company is defined as:
1) A company of which the assets, at the time of the share transfer or at any point in time in the 12 months preceding the share transfer, consist for more than 50 per cent of real estate (on a fair market value), and 30 per cent or more of these assets consists of real estate located in the Netherlands; and
2) The company’s activities mainly consist of the exploitation of the real estate as mentioned under 1.
C. Main Corporate Tax Features
I. Participation Exemption
Income such as dividends and capital gains on shares are exempt from corporate income tax provided the following conditions are met:
- the recipient company owns at least 5 per cent of the nominal paid-up capital of the subsidiary, and
- the participation does not qualify as a portfolio investment or as a passive financing company (this is called the ‘Motive Test’).
If the Motive Test is not met, the participation exemption nevertheless applies if one of the following conditions is met:
- Less than 50 per cent of the directly and indirectly held assets of the subsidiary consist of low-taxed free portfolio assets;
- The subsidiary is subject to a profit tax against a regular statutory tax rate of at least 10 per cent, resulting in a tax due that is realistic according to Dutch tax standards.
If the participation exemption applies, dividends are also exempt from withholding tax.
Ii. Withholding Taxes
In general, a 15 per cent withholding tax is imposed on dividends (or interest treated as dividends). Subject to conditions to prevent abuse, the tax withheld is credited against the recipient’s Dutch corporate income tax liability.
Under the domestic law implementing the provisions of the EU Parent-Subsidiary Directive, dividends, liquidation proceeds and other profit distributions paid by resident companies to their EU parent companies are exempt from dividend withholding tax.
There is no withholding tax on interest, except for interest on profit-sharing bonds. There is no withholding tax on royalties.
Iii. Interest Deduction Limitations
Based on Dutch thin capitalisation rules, the deductibility of interest on group financing (loans) is subject to a 3:1 debt/equity ratio. In addition, base erosion rules apply.
Iv. Innovation Box
Under the application of the Innovation box, income derived from self-developed intellectual property (IP) is subject to an effective Dutch corporate income tax rate of 5 per cent. The income includes all income that can be attributed to the IP, including capital gains upon the (partial) disposal of the IP.
In order to successfully claim the application of the Innovation box, the following requirements must (in short) be met:
- a patent (octrooi) must be granted for the IP after 31 December 2006
- an R&D certificate (S&O verklaring) was granted after 31 December 2007 in relation to the development of the IP
- the IP must be self-developed, and
- the patent or the R&D certified IP must substantially contribute to the profit derived by the company’s IP.
The reduced rate applies to income exceeding the production costs incurred in relation to the patent or research and development activities. Income derived from trademarks, logos and similar assets, however, do not fall within the scope of the Innovation box.
V. Carry Back For Losses
The Dutch government introduced a temporary option for corporate income taxpayers to extend the loss carry back period from one to three years for losses incurred in the 2009 and 2010 taxable years. From 2011 this option is extended to losses realised in the 2011 taxable year. The option to extend the carry back period is made in the corporate income tax return and is subject to two conditions:
- if a taxpayer opts for the extension, the loss carry forward period will be reduced from nine to six years, and
- the maximum amount of tax losses to be carried to the second and third year preceding the loss year will be limited to EUR10 million for each year.
Vi. Forfeiture Of Tax Losses In Case Of Change Of Ownership
As a general rule, a substantial change (30 per cent or more) in the ultimate interest in the taxpayer results in forfeiture of Dutch tax losses from years prior to the year in which the change of ownership occurred, unless certain asset- and activities-tests are fulfilled.
As of 2011, the loss forfeiture rule is extended to taxable results realised in the year of the change in the ultimate interest in the taxpayer:
- taxable results realised prior to the change in the ultimate interest in the taxpayer may only be offset against results in the years preceding the year of the change, and
- likewise, taxable results realized after the change in the ultimate interest in the taxpayer may only be offset against results in the years after the year of change.
The Dutch government introduced a temporary possibility for accelerated and random depreciation of business assets in order stimulate investments. Investments in most assets made between 1 January 2009 and 31 December 2010 may be depreciated in two years, with a maximum of 50 per cent per year. From 2011 this regime is extended for one additional year, i.e. investments made in the 2011 calendar year can benefit from accelerated and random depreciation in 2011 and 2012. The accelerated and random depreciation is applicable to most business assets (exceptions apply to (inter alia) buildings, certain infrastructure projects, immaterial fixed assets acquired to be leased to third parties).
Other Relevant Matters
A. Anti-money Laundering
In the fight against money laundering, the European Parliament adopted a Directive in 2001 (no. 2001/97/EC) extending identification and reporting obligations in respect of unusual transactions. As a result, the Disclosure of Unusual Transactions Act of 1993 (MOT) and the Identification (Provision of Services) Act (WID) apply to services by notaries, lawyers, attorneys, tax advisors and accountants as of 1 June 2003. Obligations imposed by law now require these advisors to ‘identify’ clients before providing advisory services.
B. Ruling Practice
Advance tax rulings may be requested by both resident and non-resident taxpayers on the tax consequences of certain transactions (including transfer pricing).