European Holding Companies

Netherland Holding Company Information

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Netherland Holding Company Overview


Definition

The Dutch Holding Company is an ordinary company which falls within the scope of general tax law and therefore benefits from the double taxation treaties and the European tax directives. There are no limitations on the activities of the company.
The Dutch holding company may be used to combine various activities such as collecting dividends, interest and royalties from subsidiaries.

Legal Form

A Dutch company can be constituted either as a “besloten vennootschap” (private limited company- BV) or a “naamloze vennootschap” (public limited company- NV).

Formation

The minimum share capital for incorporation of a Dutch company is €18.000 for a private limited company (BV) and €45.000 for a public limited company (NV).
A company incorporated as a “NV2 may have bearer shares.

Taxation

A Dutch company is fully subject to tax at a normal rate of 31,5% being eligible to benefit from the double tax treaties concluded between the Netherlands and third countries and from EU directives.
A 0,55% capital duty is levied when capital is contributed at the formation of a resident company and on any increase in its capital. However, several exemptions may be applied.

Income

Corporate income tax is charged on worldwide profits of companies resident in the Netherlands. However, the taxable profit is not necessarily calculated on the basis of the annual financial statements.
Expenses incurred in connection with the conduct of a business are, in principle, deductible. If expenses exceed normal arm’s length charges and are incurred directly or indirectly for the benefit of shareholders or related parties, the excess is considered a non-deductible profit distribution and possibly regarded as hidden distribution of dividends.
The costs of running the subsidiary are not deductible from the taxable profits of the parent Dutch company if participation exemption is applied. However, according to changes in the law effective from 1 January 2004, the Dutch holding company is able to receive tax free dividends and capital gains from its subsidiary and is allowed to deduct expenses, including interest on loans.

» Dividends Exemption

The general rule is that all dividends paid by a subsidiary to a Dutch parent company are subject to corporate income tax.
Under the EU Parent-subsidiary Directive, if a Dutch company holds at least 25% of the shares of another EU company no tax will be imposed on dividends.
Where a Dutch holding company comes within the “participation exemption rules” all income received from the subsidiary whether by way of dividends or otherwise is tax free if the following conditions are met:
- the Dutch holding company must hold at least 5% of the subsidiary’s shares (a trading company that owns shares in another corporate entity is deemed a holding company for purposes of the participation exemption rules) ;
- shares must be held since the beginning of the fiscal year but not as current assets ;
- the parent company must be involved in the management of the subsidiary ;
- the subsidiary must not be a « tax exempt portfolio investment company » or a Dutch qualified investment company or if the subsidiary is a company covered by the art. 2 of the EU Council Directive of 23 July 1990 own at least 25% of the nominal paid up capital ;
- the foreign subsidiary must be subject to a profits tax (the rate of tax is not important) ;
- a debt-to-equity ratio must not exceed 85 :15.

» Capital Gains Exemption

No distinction is made between capital gains and other income. All income is taxed at the corporate tax rate. However, under the participation exemption, all capital gains on the sale of shares of a subsidiary are tax free in the Netherlands irrespective of whether the subsidiary is resident or non-resident.

» Interest and Royalties

See income above.

Besides the common advantages of a holding company, the Dutch company may also enjoy from the following:

» Exemption from Withholding Tax on Payment of Dividends

Dividends paid by a Dutch company are exempt from withholding tax provided the EU parent corporation has held 25% (10% for Germany, Greece and UK) of the shares of the Dutch subsidiary for an uninterrupted period of 1 year (before or after the distribution).
Due to the tax treaties with the Netherlands Antilles and Aruba, dividends may be paid to these offshore jurisdictions being subject to a low withholding tax of 8,3%. The withholding tax shall be reduced to 0% from 1 January 2006.

» Exemption from Withholding Tax on Payment of Interest and Royalties

Under Dutch domestic law, interest and royalties paid by a Dutch company are not subject to withholding taxes.

Netherlands Key Elements

	Formation
	Legal Form:		Private limited company (BV); Public limited company (NV)
	Minimum Subscribed Capital:		€45.000 (NV) €18.000 (BV)
	Minimum Paid-Up Capital:		€45.000 (NV) €18.000 (BV)
	Number of Shareholders:		1 (NV) 1 (BV)
	Type of Shares:		Registered or bearer (NV) Registered (BV)
	Substance Requirements:		Yes
	Taxation
	Capital Duty:		0,55%
	Net Worth Tax:		0%
	Corporate Income Tax:		31,5%; 27% to the first €22.600
	Double Tax Treaties:		100
	Dividends Exemption:		100%
	Holding Requirements:		5%
	Capital Gains Exemption:		Yes
	Holding Requirements:		5%
	Tax Credit:		Yes
	Relief of Losses:		Carried back 3 years;
	CFC Rules:		No
	Debt-to-Equity Ratio:		3:1
	Withholding Taxes
	Dividends:		EU Parent Co- 0%2 Treaty Countries- 0%-20% Others- 25%
	Interest:		0%
	Royalties:		0%
	Liquidation:		Nil

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Double Tax Treaties	39KB