September 03, 2017
Corbel Partners is your go to party when you are planning to do business in The Netherlands. Please find below a short introduction to the business environment in The Netherlands.
Open environment
The Dutch trade and investment policies are among the most open in the world. Not surprisingly this is contributed to a large extent by the Dutch legal environment providing for liberal policies towards foreign investments and non-discriminatory treatment of foreign investors. Furthermore, The Netherlands has signed bilateral trade- and investment agreements and maintains an extensive network of (tax) treaties with a large number of countries. Although the advantages of Dutch business law largely depend on business specifics, there are some general favorable aspects in Dutch law. These are summarized below.
Competitive trade and investment regulation
Provisions related to government incentives, national rules of incorporation, and access to the capital market are administered on a non-discriminatory basis. Business laws and regulations conform to international legal practices and standards, and apply equally to foreign and Dutch companies.
There are no formal foreign investment screening mechanisms, and full ownership is permitted in those sectors open to foreign investment. The rules on acquisition, mergers, takeovers and reinvestment are on a non-discriminatory basis. Furthermore, there are no restrictions on the conversion or repatriation of capital and earnings (including branch profits, dividends, interest, royalties), or management and technical service fees.
The Netherlands is party to a vast number of international agreements relating to tax, trade, investment, harmonization and mutual recognition. Legal reforms are conducted regularly to implement international agreements and generally accepted codes in national law.
Liberal and practical contract law
Dutch contract law operates upon the principle of freedom of contract. In principle parties are free to conclude their agreement in any form, in any language and under any law or set of rules.
Protection of property
There are full rights of private ownership and establishment of business enterprises in the Netherlands, except for the gaming industry, which is regulated by the Dutch state.
The Netherlands maintains h4 protection on all types of property, including intellectual property, and the usage rights on property. Expropriation may only take place in the public interest and with adequate compensation.
Efficient judiciary - specialized court for corporate proceedings
The Dutch Enterprise Chamber is a specialized business court, which is unique within the EU. Since its establishment in the early 1970s, the Enterprise Chamber has successfully resolved numerous business disputes while also actively contributing to the Dutch corporate governance practice in general. The judges of this Enterprise Chamber consist of experts in commercial fields as well as the legal profession. They have proven their ability to act swiftly and decisively in a wide range of corporate disputes, including conflicts regarding corporate control. This unique feature is well appreciated by institutional investors as well as other businesses, companies and investors around the world.
Flexible company law
Dutch company law can be characterized as flexible. This flexibility has made The Netherlands the jurisdiction of choice for the domicile of many globally operating companies such as IKEA, NYSE Euronext, EADS and STMicroelectronics, but e.g. also for the Rolling Stones. Currently further liberalization of Dutch company law is pending which will expectedly be implemented in the near future resulting in even more flexibility in terms of legal forms, shareholder friendly corporate governance and group control.
Dutch Taxes
Corporate tax
Public and private companies pay corporate tax on their profits. Special rules apply to companies that form a tax group and to companies that own more than 5% of another company. Public and private companies usually have to pay corporation tax on their profits. In certain circumstances, foundations and associations must also file corporation tax returns. Some legal entities, such as tax investment institutions, do not pay corporation tax. The Tax and Customs Administration may also exempt some legal entities that make collective investments from corporation tax.
Natural persons (such as the self-employed) pay tax on their profits through their income tax returns.
Corporate tax rates
The corporate tax rate depends on the taxable amount. The taxable amount is the taxable profit in a year less deductible losses.
- If the taxable amount is less than €200,000, the tax rate in 2017 is 20%.
- If the taxable amount is €200,000 or higher, the tax rate in 2017 is 25%.
In 2018 until 2021 the tax rates will change for the better, we can advice how you can take advantage of this. A reduced rate applies to activities covered by the innovation box. The innovation box provides tax relief to encourage innovative research. All profits earned from innovative activities are taxed at this special rate.
Tax groups with subsidiary companies
In principle, every company pays its own corporation tax. However, if a parent company forms a tax group with one or more of its subsidiaries, the Tax and Customs Administration will on request treat the companies as a single taxpayer. The main benefit of a tax group is that a loss incurred by one company can be deducted from the profits earned by other companies in the group. The formation of a tax group is subject to certain conditions. The main condition is that the parent company holds at least 95% of the shares in the subsidiary. In addition, the parent company and subsidiary must:
- have the same financial year;
- apply the same accounting policies;
- be established in the Netherlands.
Exemption for substantial holdings
Subsidiary companies distribute their profits to their parent companies in the form of dividend. The substantial holding exemption exempts the parent company from paying tax on dividends. This prevents it being taxed twice within the same group of companies. The substantial holding exemption is available only to shareholders who hold at least a 5% stake in a company. The exemption applies to substantial holdings in resident and non-resident companies. It is a key feature of the Dutch tax regime. Since profits are not taxed twice, subsidiaries located outside the Netherlands can compete with local companies on an equal tax footing. The substantial holding exemption does not apply to holdings in an investment vehicle that is subject to a reduced tax rate.
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