A briefing on Dutch taxes at the level of corporate investment
The sphere of financial affairs in Netherlands is broadly approachable due to an organization of Dutch taxes in such a manner that they encourage both national and foreign investment. Subsequently, corporate revenues are taxed and then the tax (belasting) is dealt with by the Belastingdienst – the Dutch taxes and customs organization established by the Dutch Ministry of Finance – in such a way that the intricate paths of the belasting legislation do not interfere with the investors’ interest.
Corporate entities, the same as natural persons (individuals) who pay an annual income tax, are subject to another type of income tax, more precisely to Dutch taxes on corporate income. Both public companies and private companies which register profit are answerable to Dutch taxes on corporate income. Both national corporate entities (which may or may not function internationally as well) and international corporate entities, which have extensions in the Netherlands and therefore are additionally assimilated under Dutch law, will be considered as liable to Dutch taxes. The same as natural persons, corporate entities will be considered either resident taxpayers or non-resident tax payers according to the location of their main offices and to the location of the customary board meetings of the stockholders.
At the most basic level, the taxable revenues registered by a corporate entity throughout a year (excluding from here deductible deficits) are charged. The belasting rate throughout 2006 is a little more than a quarter – 25.5%, to be precise – from the first €22,689 of the revenues liable to Dutch taxes, and is approaching 29.6% for the surplus. As of 2007, the first €22,689 is ratable at 24.5%, while for the surplus the rate decreases at 29.1%.
A point likely to attract the attention of corporate entities is the participation exemption law; this states that none of the revenues derived from stockholdings is liable to Dutch taxes on corporate income. Of course, there are certain rules as to who benefits from participation exemption. If the corporate entity stockholder is considered a capital spending, therefore an investment body, then he is not going to benefit from participation exemption. Also, in case foreign entity stockholders apply for participation exemption, they must keep in mind that they must be liable to taxes and pay their taxes where they holds the stocks; in addition, they must bring proof that their stocks are not maintained as an investment; if the latter situation is proved to be real, then participation exemption does not apply.
Therefore, who benefits from participation exemption? Basically, if the taxpayer retains at least 5% of the paid-up total value of stock shares issued by a corporation, and in case his situation does not belong to any of the exceptions from participation exemption mentioned above, then participation exemption is going to apply. Also, the taxpayer can benefit from participation exemption in the case where he retains less than 5% of the paid-up total value of stock shares, but title (proprietorship) of the stocks is required by the standard management of the corporation.
Also, to what concerns tax return on corporate revenues, the belasting regulations apply on corporations, both national and foreign. Thus, an annual tax return on corporate income must be registered with the Belastingdienst in the first semester from the end of the financial year (which is the regular, calendar year). Also, from the return form the Belastingdienst must be able to extract all the data necessary for establishing the corporate revenues which are liable to Dutch taxes; in consequence, the tax return form must be filed as accurately and as completely as possible. Don’t worry; you will not miss filing your tax return, because the Belastingdienst makes certain that every corporation is kept up-to-date with its situation concerning Dutch taxes. Subsequently, the tax office sends letters to taxpayers on a regular basis.
As a reminder, the Dutch tax return must be filed with the Belastingdienst for each year in which a corporation has activated in the Netherlands. Fortunately, filing the tax return is electronically enabled for corporations, as a matter of fact, the single way of filing tax return to what concerns companies. Also, both private and public limited corporations need to register their tax return.
About the Author: Even if Dutch taxes legislation, the same as any other legislation, can be a bit confusing, the belasting (tax) regulations will function properly at the level of corporate entities in the case where annual tax return is filed and where an expert’s piece of advice is solicited.