NETHERLANDS INFORMATION: LOW-TAX AND INCENTIVE REGIMES

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 announced in 2004 that it would cut the country's corporate tax rate to 31.5% in 2006 from 34.5%.

Presenting the last budget prior to the election on November 22, 2006, Holland's long-serving Finance Minister Gerrit Zalm stated that the government would continue to cut the rate of corporate income tax, which fell to 25.5% in 2007 from 29.1%. This represents a 5% cut in corporate tax since 2005.

In anticipation of confirmation of the Marks & Spencer ruling on cross-border loss relief by the European Court of Justice, the government proposed to allow relief for losses incurred in other EU Member States. In addition, participation rules would be relaxed by eliminating the nonportfolio and "subject to tax" requirements. For "passive" participations, a "sufficient" tax rate test (possibly 10%) would be introduced.

Ruling in December 2005, the ECJ stated that companies could offset losses incurred by foreign subsidiaries as long as there was no "real possibility" that these could be absorbed at the local level at the time the claim was made.

According to the ruling, M&S could therefore claim tax relief for losses outside its home market, with the proviso that loss-making subsidiaries were unable to claim tax relief in their country of establishment.

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.
  

Netherlands Knowledge Base

- NETHERLANDS INDIVIDUAL NON-RESIDENT TAXATION
- NETHERLANDS CORPORATE NON-RESIDENT TAXATION
- NETHERLANDS SPECIAL EXPATRIATE FISCAL REGIME
- NETHERLANDS DUTCH HOLDING COMPANIES
- NETHERLANDS INTEREST CONDUIT COMPANIES
- NETHERLANDS ROYALTY CONDUIT COMPANIES
- NETHERLANDS ANTILLES AND ARUBA
- NETHERLANDS THE FISCAL UNIT
- NETHERLANDS TAXATION OF FOREIGN BRANCHES