1.1 In the Netherlands, what pre-entry estate and gift tax planning can be undertaken?
It is recommended to consider making donations before migrating to The Netherlands.
In the case of involvement in a trust and/or trust-like entity, the tax consequences of such involvement should be carefully considered. The Netherlands has specific tax regulations for trusts and trust-like entities that may have important tax consequences (see section 6 below).
Like in any emigration case, last Wills and Testaments, and post and/or prenuptial agreements, should be carefully reviewed.
1.2 In the Netherlands, what pre-entry income tax planning can be undertaken?
For substantial shareholdings (≥5% equity stake) in foreign companies, a step up for capital gains tax purposes (Box 2) will, generally speaking, be granted. A step up may also be granted for substantial shareholdings in Dutch companies, but this is subject to strict conditions.
Expatriates may want to consider applying for the so-called “30%-ruling”. Under this regulation employees who have specific knowledge that is scarcely available on the Dutch labour market, may be granted a maximum of 30% of their salary as a tax-free allowance for extra-territorial costs. If the employee has started before 2012, the preferential tax regime is available for 120 months, starting from the date of employment in The Netherlands. From 1 January 2012, the preferential tax regime is available for 96 months. An additional benefit is that taxpayers that have been granted the 30%-ruling may apply to be taxed as partial non-resident taxpayers. As such they will – for the duration of the 30%-ruling – be taxed as non-resident taxpayers in Box 2 (income from substantial shareholdings) and Box 3 (income from savings and investments) of Dutch income tax. This basically means that income (dividend and capital gains) from foreign substantial shareholdings and from portfolio investments and bank accounts are tax-exempt. The 30%-ruling can, therefore, also be highly attractive for High Net Worth Individuals.
1.3 In the Netherlands, can pre-entry planning be undertaken for any other taxes?
Upon immigration, it is advisable to take notice of the customs exemption for the removal of goods and the exemption for Private Vehicle and Motorcycle Tax (see question 3.4 below).
2.1 To what extent is domicile relevant in determining liability to taxation in the Netherlands?
Domicile is irrelevant for Dutch tax purposes.
2.2 If domicile is relevant, how is it defined for taxation purposes?
This is not applicable in the Netherlands.
2.3 To what extent is residence relevant in determining liability to taxation in the Netherlands?
Resident taxpayers are subject to Dutch income tax on the total amount of their income. Non-resident taxpayers are subject to Dutch income tax on their Dutch income only.
If a resident taxpayer makes a donation, this donation is subject to Dutch gift tax, payable by the recipient. Upon the death of a resident taxpayer, all acquisitions as a result of that person’s death are subject to Dutch inheritance tax, payable by the recipients. A non-resident donor or deceased is not subject to Dutch gift or inheritance tax, with the exception that the donation of Dutch real estate will trigger real estate transfer tax (for both resident and non-resident donors). The acquisition of Dutch real estate by means of inheritance is exempt from Dutch real estate transfer tax.
2.4 If residence is relevant, how is it defined for taxation purposes?
The residence of a person has to be determined on the basis of all relevant facts and circumstances.
For Dutch inheritance and gift tax purposes, a Dutch national that emigrated from the Netherlands is deemed resident for a period of ten years after emigration. For Dutch gift tax purposes all persons that emigrate from the Netherlands are deemed resident for a period of one year after emigration.
2.5 To what extent is nationality relevant in determining liability to taxation in the Netherlands?
Nationality is mainly relevant for the determination of tax residence for Dutch inheritance and gift tax purposes (see question 2.4 above).
2.6 If nationality is relevant, how is it defined for taxation purposes?
Nationality means Dutch citizenship. Dutch citizenship is regulated by the Kingdom act regarding Dutch citizenship.
3.1 What gift or estate taxes apply that are relevant to persons becoming established in the Netherlands?
All acquisitions as a result of the death of a resident taxpayer are subject to inheritance tax. This does not only concern the assets that are directly acquired from the estate. The Inheritance and Gift Tax Act 1956 (“ITA”) holds various (fiction) provisions to prevent tax avoidance by transactions during a lifetime. Gift tax is imposed on the value of all that is acquired by gift from an individual who was (deemed to be) resident of the Netherlands at the time of the gift. Gift tax rates are equal to inheritance tax rates and are as follows (rates for 2012):
|0 – 115,708||10%||18%||30%|
|115,708 – and more||20%||36%||40%|
Various thresholds apply for inheritance tax and gift tax. Important thresholds for inheritance tax are (amounts for 2012): the spousal exemption of EUR 603,600; and the exemption for (grand-)children of EUR 19,114. An important threshold for gift tax is (amount for 2012) the annual exemption for children of EUR 5,030. A one time increase of this exemption is allowed if the child is aged between 18 and 35 at the time of the gift. The increase is permitted up to an amount of EUR 24,144. If the donation was made for the acquisition of a principal residence or the financing of an education, which is more expensive than average studies, the increase is permitted up to an amount of EUR 50,300.
In case of a business succession (either by means of a gift or by way of inheritance), the ITA provides for three main facilities:
- the difference between the liquidation value of a business and the value as a going concern can be tax exempt conditionally;
- the first EUR 1,006,000 of the value of the business as a going concern and 83% of the excess above the first EUR 1,006,000 of the value as a going concern can be tax exempt conditionally; and
- for the tax on the remaining 17% of the value as a going concern, a conditional extension for payment of the tax for a period of ten years can be obtained.
All three facilities are conditional and upon request of the acquirer. The main condition is that the business must be continued for a period of at least five years after the gift or death of the deceased. For gifts, additionally, the donor must have owned the business for at least five years preceding the gift. For acquisitions by way of inheritance, the deceased must have owned the business for at least one year immediately prior to his death.
It should be noted that in its decision of 13 July 2012, the district court of Breda ruled that the business succession facilities for inheritance (and gift) tax contravene the prohibition of discrimination under article 14 of the European Convention on Human Rights and article 26 of the International Covenant on Civil and Political Rights. The district court thus permitted the application of the business succession facilities on non-business assets. The state secretary of Finance has lodged an appeal against this decision. The result of this process is uncertain. Charities registered with the Dutch tax authorities and certain institutions that serve social interests are exempt from inheritance and gift tax.
3.2 How and to what extent are persons who become established in the Netherlands liable to income tax?
The taxable income of resident taxpayers consists of:
- Box 1 income from work and principal residence;
- Box 2 income from a substantial shareholding; and
- Box 3 income from savings and investments.
The income from work and home ownership (Box 1) is taxed at progressive rates. The maximum rate is 52%. For non-entrepreneurs (such as employees), only a limited number of deductions apply. The income from the principal residence is fictitious income. The income is calculated as a certain per mille of the “notional rental value” of the residence. The most important deduction is the interest paid on a loan contracted for the acquisition, improvement and maintenance of the principal, owner-occupied residence (“mortgage loan”). This interest is deductible for a maximum period of 30 years, whereby – for loans contracted before 2001 – the 30-year period starts on 1 January 2001. Currently, there is a pending proposal to exclude interest-only mortgage loans that are concluded after 1 January 2013 from the mortgage interest deduction.
For the purposes of Box 2, a substantial shareholding exists if:
- a taxpayer holds, directly or indirectly, either alone or together with his partner, at least 5% of the nominal issued share capital of a Dutch or foreign company, or option rights on 5% of the issued share capital; or
- a taxpayer holds profit rights in a Dutch or foreign company which represents 5% of the annual profit of the company, or 5% of the liquidation proceeds.
The income from a substantial shareholding consists of all income from such shareholding (therefore dividends and capital gains), minus all deductible costs.
Box 3 contains the income from savings and investments (i.e., all income that is not taxed in Boxes 1 and 2). It is not the actual income that is being taxed. The income in Box 3 is a 4% yield, calculated on the value of the assets in Box 3 on 1 January of the concerning year. The tax rate is 30%, creating an effective 1.2% tax to be paid on the value of savings and investments on 1 January of a year. Financing costs of investments are not deductible. Debts will, however, be deducted from the value of savings and investments. As mentioned under question 1.2, resident taxpayers that have been granted the 30%-ruling may opt to be taxed as non-resident taxpayers in Boxes 2 and 3.
3.3 What other direct taxes (if any) apply to persons who become established in the Netherlands?
This is not applicable in the Netherlands.
3.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in the Netherlands?
Dutch VAT will be charged on supplies of goods and services in the Netherlands. The basic VAT-rate is 21%. Certain supplies, like educational services, medical services and financial services, are VAT-exempt. The low VAT rate of 6% applies to the supply of, for example, food, (non-alcoholic) drinks, medicines, books, daily newspapers, magazines and to services like, for example, passenger transport, hairdressing and the letting of holiday homes.
For migrations from an EU country to the Netherlands, generally speaking, no customs declaration has to be made for the removal of personal goods. For cars, there are certain conditions to make use of an exemption for Private Vehicle and Motorcycle Tax. Special attention may also need to be given to specific goods like pets and goods with a cultural value.
In the case of a migration to the Netherlands from a non-EU country, one will, generally speaking, be allowed to import removal goods without paying taxes. However, one must apply for a permit in this respect.
3.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in the Netherlands?
Anti-avoidance taxation provisions apply if a Dutch resident taxpayer owns a substantial shareholding in a foreign company (5% or more, see question 3.2 above). If: (i) this company is subject to tax at a lower rate than what would be acceptable from a Dutch perspective (≤10%); and (ii) the assets of this company consist of portfolio investments for more than 50% of the total assets, this will result in an annual deemed income from substantial investments of 4% of the value of the shares in these companies. This deemed income is taxed in Box 2 at 25%, so resulting in an effective 1% annual tax payable. Actual profit distributions that are made during the tax year are offset against the deemed income of 4%. Any remaining deemed return is added to the cost base of the shareholding and will thus reduce the taxable future capital gains.
4.1 What liabilities are there to direct taxes on the remittance of assets or funds into the Netherlands?
The Netherlands does not attach tax consequences to the remittance of assets or funds into the country.
4.2 What taxes are there on the importation of assets into the Netherlands, including excise taxes?
Upon the importation of assets, other than upon immigration, it is possible that customs duty, excise duty, VAT and Private Vehicle and Motorcycle Tax are due. Generally speaking, for importation from other EU countries, no customs duty is payable. Excisable goods may, however, be subject to excise duty. Cars, motorbikes and trailers may be subject to Private Vehicle and Motorcycle Tax. There are no limitations on money and securities that one brings from other EU-countries.
Customs duty, excise duty and VAT will be payable on ‘additional goods’ that are imported from non-EU countries. If one brings money and securities from non-EU countries to the Netherlands (or another EU country) with a total value of EUR 10,000 or more, then one must submit a declaration to Customs.
4.3 Are there any particular tax issues in relation to the purchase of residential properties?
The transfer of residential properties is taxed with 2% real estate transfer tax. It is advisable to take notice of the mortgage interest deduction for owner-occupied houses and the announced changes thereof. See question 3.2 above.
5.1 What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in the Netherlands?
The Netherlands is party to the HCCH Convention on the Conflict of Law Relating to the Form of Testamentary Dispositions 1961. Under this convention, a Will made in another jurisdiction is recognised as valid, if its form complies with the internal law of the:
- place where the testator made it;
- country of the testator’s nationality, domicile or habitual residence (either at the time when he made the Will or at the time of his death); or
- place where the assets are located (for immovable property).
Under Dutch conflict of law rules, the succession laws of the deceased’s last residence will apply, provided the deceased was also a citizen of that state. The succession laws of the deceased’s last residence also apply if the deceased had his residence in that state for at least five years immediately prior to his death. The testator may elect either the law of his residency or the law of his citizenship country to govern the succession to his estate. The formalities of a choice of law clause are the same as for a will.
5.2 Are there particular rules that apply to real estate held in the Netherlands or elsewhere?
The transfer and encumbering of Dutch real property are governed by Dutch law. In Dutch international succession law no distinction is made between movable and immovable property.
6.1 Are trusts recognised in the Netherlands?
Although Dutch law does not have a trust concept of its own, the trust is recognised in the Netherlands as the Netherlands is a party to the HCCH Convention on the Law Applicable to Trusts and on their Recognition 1985 (“Hague Trust Convention”). This Convention came into effect in the Netherlands on 1 February 1996.
6.2 If trusts are recognised in the Netherlands, how are they taxed in the Netherlands?
Since 1 January 2010 Dutch tax law provides for specific regulations for trusts (and trust-like entities). The regulations are drafted for irrevocable discretionary trusts that have a more than secondary private purpose and, therefore, do not apply to charitable trusts. For Dutch income tax purposes, the trust assets are attributed to the settlor during his lifetime. Upon his death, the assets are attributed to his heirs, according to their portion in the estate. This attribution is a deemed acquisition for inheritance tax purposes. If an heir can prove that he will not acquire assets from the trust, the trust assets will not be attributed to him, but to the other heirs, if any. In the absence of heirs, the trust assets will be attributed to the beneficiaries of the trust. Any distributions of trust assets during the lifetime of the settlor are considered donations by the settlor. Given the system of attribution, the settlement of assets into a discretionary trust itself is not considered a taxable gift. The attribution rules do not apply for personal income tax purposes (they do apply for inheritance and gift tax) if, and insofar as, the trust’s profit and/or income is effectively taxed (abroad or in the Netherlands) at a rate of at least 10%, to be determined by Dutch standards.
6.3 If trusts are recognised, how are trusts affected by succession and forced heirship rules in the Netherlands?
Generally speaking, trust assets are not affected by succession and forced heirship rules. However, it is possible that the settlement of assets into trust is regarded as a gift that infringes forced heirship entitlements. This could result in a claim of a forced heir on the trust assets. Under the Hague Trust Convention, a trust may not be recognised if it infringes forced heirship entitlements.
6.4 Are foundations recognised in the Netherlands?
A distinction needs to be made between foundations according to Dutch law and other (foreign) foundations. Both foundations are recognised. A foreign foundation that has more than a secondary private purpose, such as a Curacao private foundation, will generally speaking be taxed in a similar way as an irrevocable discretionary trust (see question 6.2).
6.5 If foundations are recognised, how are they taxed in the Netherlands?
Foundations that do not qualify for the specific regime for trusts (and trust-like entities) can be subject to Dutch corporate income tax (see question 8.1). Such foundations are subject to inheritance and gift tax if they have not been registered with the Dutch tax authorities as a charity or do not qualify as an institution that serves social interests. A foundation can be a VAT-entrepreneur.
6.6 If foundations are recognised, how are foundations affected by succession and forced heirship rules in the Netherlands?
See question 6.3.
7.1 What restrictions or qualifications does the Netherlands impose for entry into the country?
Foreign nationals who wish to reside in the Netherlands for more than three months require a residence permit. An application must be filed with the Immigration and Naturalisation Service (IND). Most foreign nationals first need to apply for a Regular Provisional Residence Permit (MVV) before entering the Netherlands. For a stay of less than three months no residence permit or MVV is required. In such case one can suffice with a visum. For EU (except for Romanians and Bulgarians), EER and Swiss nationals, specific rules apply. Citizens from these states do not require a residence permit, but should instead register with the IND, stating the purpose of their stay.
Employers are required to obtain work permits before hiring employees from outside the EU. In most cases the employer is required to demonstrate that no qualified Dutch or EU nationals are available to fill in the vacancy. The maximum length of a work permit is three years.
7.2 Does the Netherlands have any investor and other special categories for entry?
Work permits are not required for employees qualifying as ‘highly skilled knowledge migrants’ and for certain scientific researchers.
7.3 What are the requirements in the Netherlands in order to qualify for nationality?
There are three ways to become a Dutch national: (i) by operation of law (birth or acknowledgment); (ii) by means of the option procedure; and (iii) by means of naturalisation. The option procedure applies to a number of groups, for example to children of emigrants who were born in the Netherlands, Aruba, Curacao, St Maarten or the public bodies of Bonaire, St Eustatius or Saba. Naturalisation is, generally speaking, possible for adults having lived legally in the Netherlands, Aruba, Curacao or St Maarten for a minimum period of five years, that have an indefinite residence permit. Spouses, partners and legal cohabitants of Dutch nationals may submit an application for naturalisation after three years. Additionally, one must be sufficiently integrated and be able to read, speak, write and understand the Dutch language. Also there are certain requirements regarding criminal proceedings/punishments and the (giving up of the) foreign nationality. Finally, one must make a declaration of solidarity to the laws of the Kingdom of the Netherlands.
7.4 Are there any taxation implications in obtaining nationality in the Netherlands?
There are no taxation implications in obtaining Dutch nationality except for the fact that one will become subject to the residence fictions of the ITA (see question 2.4).
8.1 What is the test for a corporation to be taxable in the Netherlands?
Corporate income tax is levied from entities specified in the Corporate Income Tax Act. Examples are public companies with limited liability, private companies with limited liability, limited partnerships with open end and cooperatives. These entities are deemed to run a business with all their assets. Associations and foundations are subject to corporate income tax only insofar as they run a business or (potentially) compete with other businesses.
Non-resident entities are taxable in the Netherlands to the extent that they gain income from certain Dutch sources (permanent establishment, Dutch real estate and – under certain conditions – a substantial shareholding (5% or more) in a resident entity). Resident entities are subject to tax on their worldwide profit.
The Dutch corporate income tax rate is 25%. For profits below EUR 200,000, a 20% rate applies.
8.2 How are branches of foreign corporations taxed in the Netherlands?
Profits from a Dutch enterprise of a non-resident taxpayer (a “permanent establishment”) are taxable in the Netherlands. Dutch tax laws do not contain a general definition of permanent establishment.
9.1 Has the Netherlands entered into income tax and capital gains tax treaties and, if so, what is their impact?
The Netherlands has entered into income tax and capital gains tax treaties with approximately 90 countries. The Dutch treaty policy aims to counteract double taxation, to provide legal security for taxpayers and to exchange information and to promote mutual assistance in the collection of taxes.
9.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?
Dutch tax treaties are mainly based on the OECD Model. Some treaties have features of the UN Model Convention. The Netherlands also has its own model convention that is – for the greatest part – based on the OECD Model.
9.3 Has the Netherlands entered into estate and gift tax treaties and, if so, what is their impact?
The Netherlands has entered into inheritance tax treaties with Austria, Finland, Israel, Sweden, Switzerland, the United Kingdom and the United States of America. The treaties with Austria and the United Kingdom also apply for gift tax. Additionally, the Tax Regulation for the Kingdom of The Netherlands (BRK) that applies between Aruba, the Netherlands, Bonaire, St Eustatius, Saba, Curacao and St Maarten contains regulations for inheritance and gift tax.
The treaties aim to counteract double taxation and to provide legal security for taxpayers.
9.4 Do the estate or gift tax treaties generally follow the OECD or another model?
The treaties with Switzerland, Sweden and Finland stem from before the completion of the OECD model and – as such – are not based thereon. The other treaties have similarities with the OECD model.