- Business Environment
- Economic Environment
- Offshore Environment
- Corporate Legislation
The Netherlands is situated in northwest Europe with much of its coastline facing eastern England. The Netherlands lies to the west of Germany and to the north of Belgium.
The Netherlands is a geographically low-lying country, with about 27% of its area and 60% of its population located below sea level. Significant areas have been gained through land reclamation and preserved through an elaborate system of polders and dikes.
The population of the Netherlands is estimated in 2008 for 16.440.113 people.
The official language is Dutch, which is spoken by a majority of the inhabitants, the exception being some groups of immigrants.
The Netherlands has been a constitutional monarchy since 1815 and a parliamentary democracy since 1848; before that it had been a republic from 1581 to 1806, a kingdom between 1806 and 1810, and a part of France between 1810 and 1813. The Netherlands is described as a consociational state. Dutch politics and governance are characterized by an effort to achieve broad consensus on important issues, within both the political community and society as a whole. In 2007, The Economist ranked The Netherlands as the third most democratic country in the world.
Among other affiliations the country is a founding member of the European Union (EU), NATO, the OECD, and has signed the Kyoto protocol.
The Netherlands’ location gives it prime access to markets in the UK and Germany, with the port of Rotterdam being the largest port in Europe. Other important parts of the economy are the international trade (Dutch colonialism started with cooperative private enterprises such as the VOC), banking and transport.
The Netherlands has a prosperous economy with a good reputation for stable industrial relations, a reasonably high level of unemployment and moderate inflation. The Dutch economy depends heavily on foreign trade: nowadays more than half of the Dutch GDP comes from its international trade. The country has a distributing role: a large fraction of the imported goods are re-exported, with only minimal further processing or none at all.
The Netherlands has an average to good score for many aspects of the investment
climate. This applies especially to the secondary conditions for economic growth,
such as the macro-economic conditions and functioning of government. The country
also has high scores for human capital and supply of labour.
The Netherlands has a strategic location to serve and service markets worldwide. Several Asian-based multinationals have already set up regional branches in the Netherlands.
The Dutch labour force is highly educated. The number of annual hours worked per person employed in the Netherlands is low. At 1409 hours, it was ranked last of all EU and OECD countries in 2007.
During the past decade, labour costs in the Netherlands have risen more strongly
than in a number of other selected countries. The competitive position of the
Netherlands has therefore deteriorated for this aspect, although the country still
occupied a middle position among the benchmark countries in 2007.
Services such as transportation, distribution and logistics are the most profitable sectors. Other key sectors are the metalworking, oil refining, chemical and food processing industries.
The country continues is one of the leading European nations for attracting foreign direct investment and is one of the five largest investors in the US.
The Netherlands was among the best-performing countries, behind only Germany
and Sweden in 2004, when it came to the number of patent applications to the European
Patent Office (EPO) as a ratio to the labour force. It was also in the top three
countries from which relatively the greatest number of triadic patent applications
originated (these are patents that apply in Europe, the US and Japan).
In the field of innovation – crucial for the development of productivity and ultimately
economic growth – the Netherlands scores less than most other countries with
which it would like to compare itself. The opportunities that are presented by markets
and newly developed knowledge appear not to be exploited as much in the
Netherlands as they are in other nations. Entrepreneurs also spend relatively little
on R&D, which puts pressure on the future prospects for growth and innovation.
On the Index of Economic Freedom Netherlands is the 13th most free market capitalist economy out of 157 surveyed countries
The Netherlands has the 16th largest economy in the world, and ranks 10th in GDP (nominal) per capita. Between 1998 and 2000 annual economic growth (GDP) averaged nearly 4%, well above the European average. Growth slowed considerably in 2001-05 due to the global economic slowdown, but accelerated to 4.1% in the third quarter of 2007.
Import and export of services account for 60% of the GDP. Most exports are exported to other EU members, followed by Asia.
In recent years, macro-economic conditions for entrepreneurs in the Netherlands have been relatively favorable. Inflation and interest rates have been relatively low, with the added factor that inflation has been less prone to fluctuations.
Number of businesses
The number of businesses in the Netherlands has been growing annually since
1995, given that more companies have been founded every year than have been
wound up. During the last decade this growth has gradually leveled off, especially
after the period of economic prosperity. In spite of this, in 2005 the net growth
of the number of businesses in the Netherlands is among the highest of the countries
under review. Firm turbulence (the sum of start-ups and closures) in the Netherlands
is at an average level.
Historically, the Netherlands has had an outward-oriented economy, in which international
trade and foreign investment play an important role. It was one of the countries where the
first multinational companies, such as Royal Dutch Shell and Philips, emerged. To ensure
that the companies were not taxed twice – first in the countries where their subsidiaries
were located and again in the Netherlands where the head office was established – the
Dutch government has actively worked to conclude double tax treaties with the countries
in which Dutch multinationals have been active.
Around the end of the 1970s and beginning of the 1980s, the Netherlands started to gain a reputation as a ‘conduit’ country for capital flows of multinationals wishing to avoid taxation.
Many international investors choose The Netherlands as the location for financial holding and investment companies, due to the countries combination of tax treaties and low-tax regime for interests and royalties. Another reason is the advance tax ruling system that gives certainty to
multinationals about how the income of their Dutch subsidiaries will be taxed.
It is estimated that almost 20.000 companies are established in The Netherlands to route financial flows through the Netherlands purely for fiscal reasons, are and this number has been increasing rapidly in recent years.
In 2002, the last year for which figures are available, gross SFI flows through the Netherlands
amounted to €3,600 billion or over 8 times Dutch GNP. Most SFIs are managed by one of the 132 specialised trust offices. However, the majority of SFI transactions can be attributed to a small group of multinationals that control about 100 to 125 SFIs, and have offices of their own.
It has been estimated that the activities of the 12,500 SFIs present in the Netherlands, which facilitate these flows and largely consist of ‘treaty shopping companies’ and ‘headquarters’, generate some 2,500 direct jobs and a total direct revenue for the Dutch state of €1.7 billion.
Residents are liable to tax on their worldwide income; non-residents are taxed only on Netherlands-source income. For certain foreign-source dividends, exemptions
may apply. Local branches and subsidiaries are treated the same in determining
corporate income tax. However, branches are usually exempt from withholding tax on
profit remittances to foreign head offices.
Whether or not a company is deemed resident for tax purposes has important fiscal consequences. A company is resident in Holland if either:
• Incorporation: The company was incorporated in Holland.
• Central Management & Control: The company was not incorporated in Holland but central management and control is effected from the Netherlands.
A company which is incorporated in Holland is always tax resident in Holland irrespective of whether or not it migrates to a foreign jurisdiction. A company incorporated in a foreign jurisdiction which migrated to Holland but which subsequently re-domiciles to a foreign country can lose its Dutch tax residential status so long as central management and control is no longer exercised from Holland.
Non-resident companies are only assessed on certain sources of income arising in Holland.
Tax year and filing/reporting requirements
The fiscal year in The Netherlands is the calendar year. All tax returns must be filed before the 1st of April of the next calendar year, after incorporation. Payment must be made after determination of the assessment.
Taxable Income and rates
Dutch corporate income tax is due on all profits derived from conducting the business, including trading income, foreign-source income, passive income and capital gains. In principle, all costs relating to the business are deductible
The Netherlands has a 3-tier system with progressive tax rates. From 1 January
2008, the applicable tax rates and brackets are: EUR 0 to EUR 40,000 – 20%; EUR
40,000 to EUR 200,000 – 23.5%; and income exceeding EUR 200,000 – 25.5%.
Dividends received by a Dutch resident company are exempt unless the subsidiary qualifies as a low-taxed portfolio company (i.e. the effective tax rate is less than 10% based on Dutch tax principles and more than 50% of the assets of the subsidiary consist of “passive” assets based
on the fair market value of the assets). In the latter case, a fixed credit for the underlying
tax can be obtained.
Capital gains realized from the sale of an active or a non-low-taxed participation of at least 5% are exempt. Other capital gains are taxed at an effective rate of approximately 25.5%. Gains arising on a merger may be exempt if certain requirements are met.
Losses may be carried back for 1 year and carried forward for 9 years.
Transitional provisions apply to losses incurred before 2003. Special restrictions
apply to losses incurred by a company that conducts mainly finance and holding
The participation exemption applies to dividends and capital gains derived from shareholdings of at least 5% provided the participation does not qualify as a low-taxed portfolio company. A fixed credit is available for low-taxed portfolio participations.
WHT & Tax treaties
If the participation exemption applies, dividends are exempt from dividend withholding tax. Dividend withholding tax at 15% is in principle due on other dividends paid to foreign shareholders, but the rate is frequently reduced by treaty.
Withholding taxes do not apply on the payment of interests or royalties.
The Netherlands has sign at least 89 tax treaties. The following tax treaties have been ratified in Dutch Law:
Albania, Austria, Argentina, Armenia, Australia, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belgium, Bosnia-Herzegovina, Brazil, Bulgaria, Canada, Czech, China, Croatia, Denmark, Germany, Egypt, Estonia, Finland, France, Georgia, Ghana, Greece, Hungary, Ireland, Iceland, India, Indonesia, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait , Kirgizia, Latvia, Lithuania, Luxemburg, Macedonia, Malawi, Malaysia, Malta, Morocco, Mexico, Moldavia, Mongolia, Montenegro, New-Zeeland, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovenia, Slovakia, South Africa, South Korea, Spain, Sri Lanka, Suriname, Sweden, Switzerland, Tadzhikistan, Taiwan, Thailand, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uzbekistan, Venezuela, Vietnam, Zambia, Zimbabwe.
For anti-avoidance purposes, intercompany transactions should be conducted at arm’s length. The tax authorities may scrutinize tax avoidance schemes and may ignore artificial transactions without economic substance or replace them with transactions which reflect real market values. Transfer pricing legislation includes an obligation to maintain transfer
pricing documentation. It is possible to enter into an advance pricing agreement for the use of a certain transfer pricing method.
The Netherlands do not have CFC rules. However, certain types of portfolio investment subsidiary companies, to which the participation exemption does not apply(located in a taxhaven), must be valued at fair market value. Therefore the profits will be taxed in the hands of the parent company in The Netherlands.
As a result of the Bosal-case in 2004, thin capitalisation rules have been introduced by the Dutch government. Interests on debts exceeding the 3:1 debt to equite ratio, may not be deducted from the company’s taxable income.
The abuse of law doctrine applies where the motive of a transaction or series of transactions is the avoidance of tax and the
purpose and objective of the tax legislation is violated by the transaction or series of transactions.
There is no registration threshold in The Netherlands, which means that all companies have to apply for a VAT-number.
Standard VAT rate of 19% with a reduced rate of 6% for certain goods and services.
VAT returns may have to be filed monthly, quarterly or yearly, depending on the amount of VAT payable.
30% incentive for foreign employees
Before January 1, 2001, non-residents of Holland who were offered employment by a resident Dutch entity could have applied for preferential income tax treatment which, if granted by the Ministry of Finance, resulted in 35% of the applicant’s earnings being tax free.However, after that date the allowance was reduced to 30% and the top Dutch tax rate was reduced to 52% from 60%.
Group interest and royalty box
To attract businesses and investors, the Dutch government introduced the interest and patent box. Interests received within this ‘box’ are effectively taxed at 5%. Received royalties are effectively taxed at 10%.
The fundament legislation that governs the formation, existence and governance of corporate entities in The Netherlands is Book 2 of the ‘Burgelijk Wetboek’.
The Netherlands has adopted the civil law legislation.
The Dutch corporate legislation offers two legal entities: the B.V. (Besloten Vennootschap), which can be compared with the German Gmbh or the English Limited, and the N.V. (Naamloze Vennootschap) which is the public type of limited liability company(can be compared with the English Plc.). The law of the B.V. is based on the older law of the N.V. The law is not modernized and is not easy to use by entrepreneurs.
Approximately 140 banks, or branches are established in The Netherlands.
The Dutch banks are regulated by the Nederlandsche Bank (Dutch Central Bank).
The Nederlandsche bank ensures stabile prices, maintains the payments infrastructure and regulate the Dutch financial institutions in order to keep them solid.
The Dutch banking system is highly developed and very modern.
The Netherlands offer personalized banking for private clients, aiming to structure and enhance their wealth with services ranging from discretionary portfolio management to international estate planning.
Some of the key banks in the Netherlands include: