Tax Environment

Profitability is your company's first priority. You'll find the Netherlands' corporate tax structure advantageous to achieving your goals. The Dutch tax system has a number of features that companies find extremely beneficial in international tax planning.

Here is a brief overview of those tax advantages:

A Wide Tax Treaty Network
The Netherlands has tax treaties with many nations and, in particular, a strong bilateral agreement with the US. The treaties avoid double taxation on income and capital, and reduce withholding taxes on dividends -- often to 0%.

The Advance Tax Ruling Practice
This covenant between Dutch tax authorities and the taxpayer, agreed to in advance, ensures they view a company's tax situation in a certain way in cross-border situations. It allows companies to obtain a pre-determined tax ruling regarding what will be taxed. Armed with this knowledge, companies have certainty about their future tax position for a specified number of years.

The Participation Exemption
This feature exempts from Dutch corporate income tax any and all benefits related to a qualifying shareholding -- such as cash dividends, dividends-in-kind, bonus shares, hidden profit distributions and capital gains.

Tax Break for Expatriates
The Netherlands allows a tax-free reimbursement of 30% of the employee's salary, provided that the employee has been recruited or assigned from abroad and has specific expertise scarce in the Dutch labor market.

Lowered Corporate Tax Rate
In the case of a branch of a foreign entity, corporate income tax may be avoided if the activities in the Netherlands do not constitute a permanent establishment or permanent representative.

Business Losses
These may be carried back one year and carried forward nine years to offset against profits of subsequent years.

Withholding Tax
The Netherlands assesses no withholding tax on outgoing interest and royalty payments.

Working on Profit - A corporate tax environment ideally suited to foreign investors

The Dutch "Working on Profit" initiative, the newly reformed corporate tax structure, went into effect on January 1st 2007.

The "Working on Profit" legislation includes a new 25.5% corporate income tax rate. This rate considerably improves the investment climate for medium to large foreign firms, and is lower than the national average of the EU-25 (25.8%) and far below the average of the EU-15 (29.5%). For smaller firms, even lower rates will apply -- 20% for the first € 25,000 of taxable profits and 23.5% for profits between € 25,000 and € 60,000.

Also reduced is the dividend tax rate, down from 25% to 15%.

"Working on Profit" also includes measures that will fuel innovation. A 10% tax rate will apply for income from innovations ("patent box"). Pending approval by the European Commission, financing profits within a group will be subject to a separate rate of 5% ("interest box").

Together with the key advantages of the existing tax system in the Netherlands - e.g. the US-Dutch tax treaty, the abolishment of capital tax, the 30% regulation for foreign employees, and advance tax rulings and pricing agreements - this new bill produces a pro-business climate that is uniquely suited to foreign direct investment, further enhancing the Netherlands' position as a premier EU business location.