SubscribeFor centuries, the Netherlands has been a nation of traders.
To ensure that this longstanding tradition endures, the Dutch government has created a competitive fiscal regime that stimulates entrepreneurship and foreign investment in the Netherlands.
Although the Netherlands with its present corporate tax rate of 29.6 % ranks in the middle of the European scale, the State Secretary of Finance, Mr. Joop Wijn, has recently submitted a proposal to reduce this rate to 25.5% by 1 January 2007, creating even better tax conditions for foreign investors.
As an incentive to small and medium sized enterprises, the starting tax rate will be lowered in 2007:
- For profits up to 25,000 Euro: from the current 25.5% to 20%
- For income between 25,000 and 60,000 Euro: to 23.5%
Also in the proposal, the conditions for application of Participation Exemption - in which benefits from a qualifying participation are fully exempt from corporation tax - will be relaxed. Presently, in order to qualify, the Dutch parent company must hold at least 5% of the nominal paid-up share capital.
With respect to foreign participations, the foreign company must meet the subject-to-tax requirement and the shares must not be held as a portfolio investment.
Mr. Wijn has proposed to consider any shareholding of 5% or more to be a qualifying participation, regardless of whether it is subject to profit tax. As for the portfolio requirement, it is proposed that the company in which the shareholding is held, should be an active company, e.g. engaged, directly or indirectly, in operational activities.
Mr. Wijn (picture) also announced plans to reduce the national dividend withholding tax rate in 2007 from the current 25% to 15%.
Under many tax treaties, the dividend withholding tax rate is in fact much lower than the present statutory rate of 25%. Already, on interest and royalties, the Netherlands does not levy withholding tax.
Another interesting aspect of the proposal is the creation of an optional box for group financing and R&D (intellectual property & patents):
- The balance of interest income from and expenses relating to group financing would then be taxed at a much lower rate of 5%. In order for the tax paying company to benefit, all other companies in the same group would have to opt for this interest box.
- The R&D box will give the taxpayer the opportunity to allocate royalties or other eligible income derived from the intellectual property or patents to this box, with a tax rate of 10%.
As taxation is a significant factor for international groups in the choice of locations in which to establish, the Dutch tax authorities seek to be as open and accessible as possible.
One of the specific features of the Dutch tax system is the possibility to discuss in advance the tax treatment of certain operations or transactions. Herewith, the taxpayer can find out with certainty in advance, in the form of a written advance tax ruling by the tax inspector, what fiscal effects a planned transaction will have.
Finally, the fact that the Netherlands has signed treaties for the avoidance of double taxation with more than 75 countries, including of course the United Kingdom, emphasizes its commitment to international trade.