Tax benefits in The Netherlands for foreign investors

The Netherlands as the gateway to Europe. For many years, The Netherlands has been a preferred location for foreign companies to establish a business.  The location, the political stability and the beneficial tax regime have made The Netherlands a premium alternative in this respect.  Recently, other countries have started initiatives in copying Dutch tax benefits and at the same time EU legislation has mitigated the competitive advantage of The Netherlands.  Just in time, the Dutch government has realized the need to take action in this respect and have, over the last few years, initiated several tax law changes in order to keep ahead of the competition.

General and traditional benefits
The general Dutch corporate income tax rate is 25.5%.  This rate is more than competitive in the region as all countries surrounding The Netherlands have (much) higher corporate income tax rates.  Also the taxes on income distributed are in general much lower than in other countries. The international tax treaty network (The Netherlands has concluded more tax treaties than most other countries) and the membership of the EU (and corresponding access to EU treaties) ascertain minimal taxation on payments to the group.

Traditionally, the Dutch participation exemption has been a major attractor of companies to The Netherlands.  This facility allows the receipt of dividends and capital gains from subsidiaries free of tax in The Netherlands.  This has made (and makes) the Netherlands very attractive for expansion into Europe and the rest of the world. 

Another traditional benefit of The Netherlands is the open attitude of the Dutch tax authorities.  Contrary to many other countries, The Netherlands offer the possibility to discuss tax positions in advance with the Dutch tax authorities.  These discussions can be formalized in agreements (or rulings) with the Dutch tax authorities that offer optimum certainty in advance.

Also at the individual income tax level, The Netherlands has traditionally been very welcoming to foreign companies and their expatriates.  Under the so-called 30% provision, expatriates with certain skills can receive 30% of their income as a tax free allowance.  A benefit that, of course, also benefits the employer in negotiating (net) salaries.

Recent announcements to strengthen the investment climate
At present, various discussions are taking place with the intention to influence the Dutch investment climate in positive way.  The main idea behind the current  discussions is that tax benefits should be available mainly to companies with actual business activities in The Netherlands and less to companies that use The Netherlands for tax purposes only.
The main topics of the current discussions are the introduction of an interest box system allowing companies that use The Netherlands as a group financing country to be taxed (on that income) at an effective tax rate of 5% only.  This combined with a substantial simplification of the Dutch participation exemption could be reason enough for foreign companies to establish their European Headquarter, Finance or Treasury center in The Netherlands.

At the same time, several measures are suggested to avoid the erosion of the Dutch tax basis without economic justification (except for tax savings).  These measures will mainly hurt companies that have minimized their Dutch tax basis by high leverage tax schemes.  In other words, The Dutch tax basis is eroded by loans from group companies that would most likely not have been provided by banks or unrelated debt providers.  The good news in this respect is that The Dutch government has already indicated that the financial income from the suggested measures will be given back to the tax payer by means of additional tax relief for active businesses. In other words, the general tax cost for active business in The Netherlands should be reduced by the measures.
Based on the current information, it may be expected that the above mentioned initiatives will be effected in 2010 (participation exemption) and 2011 (interest related measures).
Conclusion

It is fair to say that The Netherlands are still a premium location for foreign investments.  The Dutch government is aware of the necessity to improve the investment climate on a continuous basis in order to attract investors to The Netherlands.  On the tax side, many benefits already exist and will continue to be created in the (near) future.

Patrick van Min
Deloitte
+31 (0)88-2882888
www.deloitte.nl