Netherlands: Country and Foreign Investment
Although the Netherlands has a sophisticated tax system with high tax rates some aspects of its fiscal system are extremely attractive and make it the ideal location in which to base international trading operations. Attractive fiscal incentives are further enhanced by a complex network of double taxation treaties (few of which contain any anti avoidance provisions) and by the existence of a procedure of advance tax rulings whereby the tax authorities who are autonomous and approachable can at short notice specify the fiscal consequences of certain business structures provided that material financial interests are involved and the propositions are reasonable.
The Dutch government included a series of tax incentives in its 2010 Tax Plan, specifically designed to make enterprise simpler and therefore more attractive to entrepreneurs.
Key tax incentives contained in the government’s 2010 Tax Plan include the following measures:
- In the area of research and development (R&D) the "patents box" scheme will be replaced by an "innovation box" scheme for innovative entrepreneurs. As a result, income derived from R&D will only be taxed at a rate of 5%, and the ceiling for the scheme will be removed.
- In order to enable entrepreneurs to increase their cash flow, they will have the option of offsetting losses incurred in 2009 and 2010 against profits made in the three previous years. The system of accelerated depreciation will continue in 2010.
- The profit exemption for small and medium-size businesses is to be increased by 1.5% to 12%. In addition, entrepreneurs will no longer have to devote a minimum period of time to their business in order to qualify for the measure, enabling individuals to carry on a business alongside salaried employment.
- In a bid to foster business growth, the small-scale investment tax credit (KIA) is to increase by 29%.
- A number of tax incentives designed to benefit directors of a company in which they are also major shareholders (DGAs) are contained in the plan. These initiatives include extending the measure granting exemption from income tax to the transfer of a business by a DGA to a co-entrepreneur and relaxing customary pay arrangements.
The 2010 Tax Plan also includes a number of separate legislative proposals, designed to simplify certain tax rules and reduce the administrative and regulatory burden. The main simplifications are as follows:
- A new work-related costs scheme will be introduced. An exemption of 1.5% of the wage bill for tax purposes is to replace a cumbersome system of numerous tax-free allowances and benefits in kind from employers.
- From 2010, employers will no longer be required to deduct social insurance contributions and healthcare insurance contributions from pay to employees aged under 23 who earn less than the minimum salary. From 2011, this will also apply to the levying of wage withholding tax.
- A standard definition of wages for wage withholding tax, various social insurance contributions and income-related healthcare insurance contributions will be introduced, representing a saving for employers of around EUR380m.
From 1 January 2012, a tax deduction of 40% may be made for costs directly attributable to R&D activities. For expenditure exceeding EUR1m, the deduction can be spread over five years.
The Netherlands' Tax Plan 2013 includes:
- measures to abolish the thin capitalization rule (currently 3:1);
- a crisis tax of 16% to be paid in 2013 and payable by the employer on salaries exceeding EUR150,000;