Companies with holding activities in the Netherlands can benefit from the participation exemption regime for benefits derived from qualifying shareholdings, thus resulting in a full exemption from corporate income tax. Combined with the extensive tax treaty network and approachable Dutch tax authorities, the Netherlands has been tried and tested as an internationally accepted and widely used jurisdiction to establish investment holding platforms.

Introduction

The Netherlands is widely known as a favourable location to establish an investment platform from where investments can be held and managed. Business rationale and the commercial reality are leading factors when choosing the Netherlands, but the Dutch tax environment very much adds to the attractive investment climate from an international perspective.

Dutch tax laws have not codified an explicit ‘holding regime’ to facilitate such activities, although a combination of factors effectively contribute to a conducive environment: the extensive bilateral tax treaty network combined with favourable domestic tax features such as the participation exemption for corporate income tax (CIT) purposes and the absence of several withholding taxes.

Importantly, the Dutch tax authorities are a reliable and knowledgeable partner that provide a high degree of customer service to foreign investors. An open and approachable attitude together with the possibility of obtaining certainty in advance through e.g. advanced pricing agreements make the Netherlands a prime location for holding multiple investments.

Participation exemption

Pursuant to the participation exemption regime, benefits derived from a qualifying shareholding, including dividends and capital gains, are exempt from CIT.

Generally, the participation exemption applies to an interest in a subsidiary: i) if the subsidiary has a capital divided into shares; ii) of which the taxpayer owns at least 5% of the nominal paid-up share capital; and iii) the subsidiary does not qualify as a ‘portfolio investment’, or if it is in fact a portfolio investment – or simply deemed as one – the subsidiary is considered a ‘qualifying portfolio investment’.

A subsidiary is considered to be a ‘portfolio investment’ if the taxpayer holds the subsidiary as a passive investment – i.e. if the subsidiary is held with the motive of obtaining a return that may be expected from normal asset management and not with a business intention (the ‘motive test’). Even if there is a business intention, a subsidiary would still qualify as a ‘portfolio investment’ (i.e. passive investment) if:

 (i) more than half of its assets consist of small shareholdings (i.e. less than 5%) or

 (ii) the subsidiary predominantly carries out a group financing and/or licensing function.

A subsidiary is considered a ‘qualifying portfolio investment’ if it is or is deemed to be a portfolio investment and meets either of the two following tests: (a) the ‘subject-to-tax test’ or (b) the ‘asset test’. The ‘subject-to-tax test’ is met if the subsidiary is subject to a profit tax that results in a ‘realistic levy’ based on Dutch tax principles (a profit tax with a statutory rate of at least 10% and no special deviations in the tax base). The asset test is met if the (direct and indirect) assets of the subsidiary generally consist of less than 50% of so-called ‘low-taxed free portfolio investments’.

Withholding taxes

The Netherlands does not levy withholding tax on interest and royalty payments (unless interest and royalties are reclassified to dividend). Furthermore, there is no net wealth tax, stamp-duty and lump-sum tax in the Netherlands.

Dividends distributed by a Dutch company (i.e. NVs, BVs and non-transparent limited partnerships) are subject to 15% Dutch dividend withholding tax (in Dutch: ‘dividendbelasting’). However, an exemption applies for qualifying EU (or EEA) companies (i.e. companies that hold at least 5% of the shares in the Dutch distributing entity).

Non-EU/EEA companies will often be entitled to a reduced tax treaty rate as the Dutch tax treaty policy aims to minimize withholding taxes on outbound payments in treaties.

This article is based on existing legislation (2019). When considering establishing a holding company in the Netherlands to manage cross border investments, feel free to contact Hans de Kruijs.