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Netherlands Country Report
February 2008
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CONTRACT SI2.ICNPROCE009493100
IMPLEMENTED BY FOR
DEMOLIN, BRULARD, BARTHELEMY COMMISSION EUROPEENNE - HOCHE - - DG ENTREPRISE AND INDUSTRY -
Study on Effects of Tax Systems on the Retention of Earnings and the Increase of Own Equity
Jean ALBERT Team Leader
- ANNEX 15 - -THE NETHERLANDS - - COUNTRY REPORT -
Submitted by Eric J.H. VERMEULEN Country Expert
February 15, 2008
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Mazars Paardekooper Hoffman N.V. Eric J.H. Vermeulen Rivium Promenade 200 2909 LM Capelle aan den IJssel The Netherlands Tel 00 31 10 277 1584 INTRODUCTION Mazars was successful in obtaining the European Commission project “Effects of Tax
Systems on the Retention of Earnings and the Increase of Own Equity”. The context of the
Project is SME health, competitiveness and growth. These are hindered by weak own
equity base of many companies in Europe and the difficult access to finance that SMEs
face.
In The Netherlands, the most common manner to run an enterprise is to run it by a
corporation, which run their business with their whole equity. When a corporation will
realise a profit, this company will have to pay 25,5% Corporate Income Tax. After that,
the company might wish to pay out dividend. In case the corporation will pay out
dividend, the business owner (most of the times one shareholder) will have to pay 25%
income tax (in 2007 22%). Distribution of earnings is not advantageous because it will thus
lead to double taxation. Retention of earnings does postpone individual Income tax duty.
Other examples to lower the tax burden in a year are depreciation of assets, making
reservations for provisions and use of valuation rules.
THE NETHERLANDS
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PART 1 GENERAL QUESTIONS
1. What are the main characteristics of the tax systems applicable on enterprises
and business owners in your Country (corporate income tax, income tax,
capital gains tax, other profit based taxes, capital based taxes, other taxes…)?
Most businesses in The Netherlands are run by corporations, which run their
business with their whole equity. When a corporation will realise a profit, this
company will have to pay 25,5% corporate Income tax. If the company pays out
dividend, the business owner will have to pay 25% income tax (in 2007 22% and 25%
above EUR 250.000) if he holds at least 5% of the shares of the corporation. There
is no specific capital gains tax, capital gains are taxed either with corporate
income tax, otherwise with individual income tax (maximum 52%). Capital gains
will be taxed with corporate income tax when the corporation will realise a capital
gain (as a result of the transfer of business assets). Capital gains will be taxed with
individual income tax when the business owner will transfer his shares in the
corporation (25%) or if he transfers business assets as sole trader or in case of a
partnership (maximum 52%).
Distribution of earnings is not advantageous. Retention of earnings does postpone
individual Income tax duty. Therefore it might be better to wait before to pay out
dividend.
1.1 Corporate Income
1.1.1 What are the general principles for the computation of taxable profits?
For purposes of the corporate income tax, the first thing what should be
determined is whether the company (a Small or Medium sized Enterprise)
has its principal place of business in The Netherlands1. In case the company
has its principal place of business in The Netherlands, the Dutch tax-
administration will tax the company for its results.
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After the determination that the company has its principal place of
business in The Netherlands, the second thing what should be determined is
which results are subject to corporate income tax. The “Corporate Income
Tax Act 1969” contains a provision in article 8, which refers to the Income
Tax Act 2001. The profit of a company, liable for corporate income tax,
should be determined in accordance with this “Income Tax Act 2001”. As a
result, the amount of the profit should be assessed in accordance with
sound commercial practice. Sound commercial practice is a vague term,
however, the following remarks can be made. The term leaves the
enterprise a high degree of freedom to choose its own system to calculate
its yearly profit. Sound commercial practice requires consistent accounting
principles. The term “sound commercial practice” has been introduced in
1893.2 However, a general definition which includes all descriptions of
“sound commercial practice” and which is applicable at any time, has not
been made.
1.1.2 What are the main differences between tax balance sheet and
commercial balance sheet?
For the determination of the taxable result, the starting point of the tax
balance sheet is the commercial balance sheet. Therefore, in general, the
tax balance sheet and the commercial balance sheet are equal. However,
there are some differences between the balance sheets.
First of all, the valuation of participations is different in the commercial
and the tax balance sheet. Participations are often valuated at the net-
asset value in the commercial balance sheet. In the tax balance sheet,
participations are valuated at cost price, unless the socalled “participation
exemption” is not applicable.
Another difference between the commercial and the tax balance sheet is
that there are provisions to which the company could contribute funds. In
the tax balance sheet, some of these provisions do not exist however or are
1 Article 2, paragraph 1, under a, Corporate Income Tax Act 1969 (=Vpb) 2 J.A. Fray – Weekblad voor Fiscaal Recht 1955/4270
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part of the fiscal equity. Examples of these provisions are “deferred tax
liabilities”, provisions for maintenance and vacancy.
A difference between the tax balance sheet and the commercial balance
sheet is also that business assets do not have to be valuated in the same
way in the different balance sheets. As a result, business assets can have
different values in the tax balance sheet and in the commercial balance
sheet. For example, the Supreme Court decided already in 1954 that a
business owner does not have to follow the commercial figures for tax
purposes regarding valuation of stocks.3
Finally, the period in which the company depreciates its business assets is
sometimes different according to commercial rules than it is according to
tax rules. This also results in different amounts of the business assets in the
commercial and tax balance sheet.
1.1.3 What are the most important adjustments for the computation of
taxable profits/taxable gains on the base of accounting profits?
The most important adjustments for the computation of taxable
profits/taxable gains on the base of accounting profits are the provisions
that are inserted in the commercial balance sheet and should be eliminated
in the tax balance sheet because they are not admitted for tax purposes.
Examples of such provisions are mentioned under 1.2.
Another important adjustment for the computation of taxable
profits/taxable gains is that the profit and loss account shows an amount of
the corporate income tax due. The profit and loss account for tax purposes
does not show such an amount.
3 HR 17 March 1954, nr 11.681, BNB 1954/128
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1.2 Income
1.2.1 What are the general principles of income taxation of business owners
on business income, wages, distributed earnings, interest on loans and
capital gain (sale of shares)?
Business owners are generally not taxable for the business income, unless
they are sole traders or the partnership in which they participate is
transparent for tax purposes. In that case the results of the company are
taxable results of the business owner and will be taxed with income tax4. If
the partnership is not transparent or a company drives the business, the
company itself will be taxed for its results5.
If the business owner is receiving a salary from the corporation, this salary
is subject to wage tax. The maximum rate of wage tax is 52%6. Salaries are
deductible from the profits of the corporation.
The treatment of distributed earnings can be described as follows. If the
individual business owner holds a substantial interest in a corporation (5%
or more of the shares)7, and the corporation distributes earnings to the
business owner, the earnings are taxable with 25%8 income tax (Box 2). It
does not matter whether this corporation has its principal place of business
in The Netherlands or in another country. If the interest is less than 5%, the
distributed earnings will not be taxable directly. However, at the end of
the year, the business owner will have to declare the amount of certain of
his assets (including shares, bank savings and the amount of the earnings)
minus certain debts (Box 3). The taxable result of Box 3 is equal to 4%9 of
the average of this amount and the amount of the assets minus debts at the
beginning of the year. The calculated (fictitious) result is taxable at a rate
4 Article 3.2 Income Tax Act 2001 5 Article 2, paragraph 1 under a Corporate Income Tax Act 1969 6 Article 20a Wage Tax Act 1964 7 Article 4.6 Income Tax Act 2001 8 Article 2.12 Income Tax Act 2001 9 Article 5.2 Income Tax Act 2001
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of 30%10, therefore effectively 1,2% (30% of 4%) of the net wealth has to be
paid annually.
In case the business owner will receive interest on a loan, granted to his
own corporation, the received interest will be taxed progressively in Box
1.11 The maximum rate that is applicable is 52%. The corporation can
deduct the interest paid as costs however.
Capital gains arising from the transfer of shares, held by the business owner
can be treated in two different ways, depending on the percentage of
shares held by the business owner. If the percentage of the shares held by
the business owner is at least 5%, the capital gain realised will be taxed at
25% (Box 2). If the interest held is less than 5%, the capital gain will not be
taxed directly but via the Box 3 system as mentioned before.
1.2.2 Is there a different tax treatment for income from different income
sources?
As of 1 January 2001, The Netherlands has a new tax system with regard to
the individual income tax. The individual income tax (inkomstenbelasting)
is an annual tax imposed under the Individual Income Tax Act 2001 (Wet
inkomstenbelasting 2001, IB). For individuals, the tax year is equal to the
calendar year and the income of an individual should be classified into one
of three boxes. Each type of income in each Box must be calculated
separately. Each Box has a different income calculation and a different tax
rate applies for each Box.
The Individual Income Tax Act 2001 knows three categories (Boxes):
earned income and income from owner-occupied dwellings (belastbaar
inkomen uit werk en woning) - taxed at progressive rates (maximum 52%);
capital gains and other income from a substantial shareholding in a company
(belastbaar inkomen uit aanmerkelijk belang) - taxed at 25%; and
income from savings and investments (belastbaar inkomen uit sparen en
beleggen) –(equal to 4% of the average amount of the assets and debts at
10 Article 2.13 Income Tax Act 2001
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the beginning and the end of the year. The calculated result is taxable at a
rate of 30%, therefore effectively 1,2% (30% of 4%) of the net wealth.
These abovementioned categories are referred to as Box 1, Box 2 and Box 3
income respectively.
Depending on the source of income, the income will thus be treated
differently for tax purposes.
1.3 Capital
The
Netherlands RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 Corporate tax
1. Tax rate Standard 34,5% 34,5% 34,5% 31,5% 29,6 Reduced 29% 29% 29% 27% 25,5% Minimum Tax - - - - - Special Rates Results of
Investment institutions will be taxed at a rate of 0%.
Results of Investment institutions will be taxed at a rate of 0%.
Results of Investment institutions will be taxed at a rate of 0%.
Results of Investment institutions will be taxed at a rate of 0%.
Results of Investment institutions will be taxed at a rate of 0%.
Non profit tax (local tax on corporations, energy tax…)
Municipalities are allowed to levy taxes in accordance with the Municipality law.
Municipalities are allowed to levy taxes in accordance with the Municipality law.
Municipalities are allowed to levy taxes in accordance with the Municipality law.
Municipalities are allowed to levy taxes in accordance with the Municipality law.
Municipalities are allowed to levy taxes in accordance with the Municipality law.
2. Tax accounting rules
Without postponement, an annual return for the corporate income tax should be filed before 1 June of the subsequent year.
Without postponement, an annual return for the corporate income tax should be filed before 1 June of the subsequent year.
Without postponement, an annual return for the corporate income tax should be filed before 1 June of the subsequent year. As of the
Without postponement, an annual return for the corporate income tax should be filed before 1 June of the subsequent year. As of the
Without postponement, an annual return for the corporate income tax should be filed before 1 June of the subsequent year. As of the
11 Article 3.92 Income Tax Act 2001
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 tax year 2004, annual returns for corporate income tax should be filed electronically.
tax year 2004, annual returns for corporate income tax should be filed electronically.
tax year 2004, annual returns for corporate income tax should be filed electronically.
3. Depreciation
Basis Cost price Cost price Cost price Cost price Cost price Methods Linear
Degressive Progressive
Linear Degressive Progressive
Linear Degressive Progressive
Linear Degressive Progressive
Linear Degressive Progressive
Rates - - - - - Accounting In accounts In accounts In accounts In accounts In accounts Intangibles Possible,
intangible assets are depreciated linearly most of the times.
Possible, intangible assets are depreciated linearly most of the times.
Possible, intangible assets are depreciated linearly most of the times.
Possible, intangible assets are depreciated linearly most of the times.
Possible, intangible assets are depreciated linearly most of the times.
Non depreciable assets
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investments.
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investments.
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investments.
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investments.
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investments.
4. Provisions Risks and futures expenses
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
Bad debts It is not possible to
It is not possible to
It is not possible to
It is not possible to
It is not possible to
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RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to revaluate the amount of “debtors” in the tax balance sheet.
allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to revaluate the amount of “debtors” in the tax balance sheet.
allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to revaluate the amount of “debtors” in the tax balance sheet.
allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to revaluate the amount of “debtors” in the tax balance sheet.
allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to revaluate the amount of “debtors” in the tax balance sheet.
Pensions It is possible for managing directors with a substantial interest in a company to allocate funds to a provision for pension for him/his spouse.
It is possible for managing directors with a substantial interest in a company to allocate funds to a provision for pension for him/his spouse.
It is possible for managing directors with a substantial interest in a company to allocate funds to a provision for pension for him/his spouse.
It is possible for managing directors with a substantial interest in a company to allocate funds to a provision for pension for him/his spouse.
It is possible for managing directors with a substantial interest in a company to allocate funds to a provision for pension for him/his spouse.
Repairs It is possible to allocate funds to a provision for repairs (article 3.53 IB).
It is possible to allocate funds to a provision for repairs (article 3.53 IB).
It is possible to allocate funds to a provision for repairs (article 3.53 IB).
It is possible to allocate funds to a provision for repairs (article 3.53 IB).
It is possible to allocate funds to a provision for repairs (article 3.53 IB).
5. Losses Carry forward
Unlimited in time.
Unlimited in time.
Unlimited in time.
Unlimited in time.
Unlimited in time.12
Carry back Three years. Three years. Three years. Three years. Three years.13 Transfer of losses
Not possible as separate asset. If the interest in an inactive company will change with at least 30% in comparison with the oldest year with a loss, the loss of
Not possible as separate asset. If the interest in an inactive company will change with at least 30% in comparison with the oldest year with a loss, the loss of
Not possible as separate asset. If the interest in an inactive company will change with at least 30% in comparison with the oldest year with a loss, the loss of
Not possible as separate asset. If the interest in an inactive company will change with at least 30% in comparison with the oldest year with a loss, the loss of
Not possible as separate asset. If the interest in an inactive company will change with at least 30% in comparison with the oldest year with a loss, the loss of
12 As of 1 January 2007, the period for carry forward is 9 years. 13 As of 1 January 2007, the period for carry back is 1 year.
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RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 that year can not be set off against future profits.14
that year can not be set off against future profits.15
that year can not be set off against future profits.16
that year can not be set off against future profits.17
that year can not be set off against future profits.18
5. Inventories
Valuation rules
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
Allocation methods
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
Personal Income tax
Interest Income
Might be taxable in Box 1 at a maximum of 52%, otherwise it will not be taxed.
Might be taxable in Box 1 at a maximum of 52%, otherwise it will not be taxed.
Might be taxable in Box 1 at a maximum of 52%, otherwise it will not be taxed.
Might be taxable in Box 1 at a maximum of 52%, otherwise it will not be taxed.
Might be taxable in Box 1 at a maximum of 52%, otherwise it will not be taxed.
Dividends Taxable at a rate of 25% if the business owner holds a substantial interest in the corporation. Otherwise the dividend will not be taxed directly.
Taxable at a rate of 25% if the business owner holds a substantial interest in the corporation. Otherwise the dividend will not be taxed directly.
Taxable at a rate of 25% if the business owner holds a substantial interest in the corporation. Otherwise the dividend will not be taxed directly.
Taxable at a rate of 25% if the business owner holds a substantial interest in the corporation. Otherwise the dividend will not be taxed directly.
Taxable at a rate of 25% if the business owner holds a substantial interest in the corporation. Otherwise the dividend will not be taxed directly.
Employment income
Employment income is taxable with individual income tax at a maximum rate of 52%.
Employment income is taxable with individual income tax at a maximum rate of 52%.
Employment income is taxable with individual income tax at a maximum rate of 52%.
Employment income is taxable with individual income tax at a maximum rate of 52%.
Employment income is taxable with individual income tax at a maximum rate of 52%.
Capital gains tax
14 Article 20A Corporate Income Tax Act 1969 15 Idem 16 Idem 17 Idem 18 Idem
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RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 Sale of fixed assets
The capital gain will be taxed with regular corporate income tax at a rate of 34,5%19. No special tax is applicable.
The capital gain will be taxed with regular corporate income tax at a rate of 34,5%20. No special tax is applicable.
The capital gain will be taxed with regular corporate income tax at a rate of 34,5%21. No special tax is applicable.
The capital gain will be taxed with regular corporate income tax at a rate of 31,5%22. No special tax is applicable.
The capital gain will be taxed with regular corporate income tax at a rate of 29,6%23. No special tax is applicable.
Timing rules In general the capital gain will be taxed at the moment it comes up, this is the moment of realization of the gain. An exception is when the company will allocate the realised capital gain into a re-investment provision24.
In general the capital gain will be taxed at the moment it comes up, this is the moment of realization of the gain. An exception is when the company will allocate the realised capital gain into a re-investment provision25.
In general the capital gain will be taxed at the moment it comes up, this is the moment of realization of the gain. An exception is when the company will allocate the realised capital gain into a re-investment provision26.
In general the capital gain will be taxed at the moment it comes up, this is the moment of realization of the gain. An exception is when the company will allocate the realised capital gain into a re-investment provision27.
In general the capital gain will be taxed at the moment it comes up, this is the moment of realization of the gain. An exception is when the company will allocate the realised capital gain into a re-investment provision28.
Accounting rules
There are no specific accounting rules for capital gains.
There are no specific accounting rules for capital gains.
There are no specific accounting rules for capital gains.
There are no specific accounting rules for capital gains.
There are no specific accounting rules for capital gains.
Inflation N.A. N.A. N.A. N.A. N.A.
Rates No specific corporate income tax
No specific corporate income tax
No specific corporate income tax
No specific corporate income tax
No specific corporate income tax
19 Article 22 Corporate Income Tax Act 1969 20 Idem 21 Idem 22 Idem 23 Idem 24 Article 3.51 Income Tax Act 2001 25 Idem 26 Idem 27 Idem 28 Idem
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RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 rates apply for capital gains.
rates apply for capital gains.
rates apply for capital gains.
rates apply for capital gains.
rates apply for capital gains.
Exemptions A capital gain realized by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
A capital gain realized by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
A capital gain realized by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
A capital gain realized by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
A capital gain realized by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
Sale of shares
If the corporation will sell shares in a company in which the corporation has a substantial interest, the capital gain will not be taxed as a result of the applicability of the participation exemption29. If the interest is
If the corporation will sell shares in a company in which the corporation has a substantial interest, the capital gain will not be taxed as a result of the applicability of the participation exemption30. If the interest is
If the corporation will sell shares in a company in which the corporation has a substantial interest, the capital gain will not be taxed as a result of the applicability of the participation exemption31. If the interest is
If the corporation will sell shares in a company in which the corporation has a substantial interest, the capital gain will not be taxed as a result of the applicability of the participation exemption32. If the interest is
If the corporation will sell shares in a company in which the corporation has a substantial interest, the capital gain will not be taxed as a result of the applicability of the participation exemption33. If the interest is
29 Article 13 Corporate Income tax Act 1969 30 Idem 31 Idem 32 Idem 33 Idem
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RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 less than 5%, the capital gain may be taxed at a general rate of 34,5%.
less than 5%, the capital gain may be taxed at a general rate of 34,5%.
less than 5%, the capital gain may be taxed at a general rate of 34,5%.
less than 5%, the capital gain may be taxed at a general rate of 31,5%.
less than 5%, the capital gain may be taxed at a general rate of 29,6%.
Capital loss Fixed assets A loss as a
result of the sale of fixed assets can be set off against positive results of the company. If the company will not have positive results, the company will have a loss in that year.
A loss as a result of the sale of fixed assets can be set off against positive results of the company. If the company will not have positive results, the company will have a loss in that year.
A loss as a result of the sale of fixed assets can be set off against positive results of the company. If the company will not have positive results, the company will have a loss in that year.
A loss as a result of the sale of fixed assets can be set off against positive results of the company. If the company will not have positive results, the company will have a loss in that year.
A loss as a result of the sale of fixed assets can be set off against positive results of the company. If the company will not have positive results, the company will have a loss in that year.
Shares As a result of the participation exemption, losses of a company realised by the transfer of shares held in participations are not deductible unless the participation is liquidated.
As a result of the participation exemption, losses of a company realised by the transfer of shares held in participations are not deductible unless the participation is liquidated.
As a result of the participation exemption, losses of a company realised by the transfer of shares held in participations are not deductible unless the participation is liquidated.
As a result of the participation exemption, losses of a company realised by the transfer of shares held in participations are not deductible unless the participation is liquidated.
As a result of the participation exemption, losses of a company realised by the transfer of shares held in participations are not deductible unless the participation is liquidated.
Wages Average cost to the Undertaking
An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at
An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at
An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at
An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at
An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at
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RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 least EUR 38.118 a year34. The costs are deductible.
least EUR 38.118 a year35. The costs are deductible.
least EUR 38.118 a year36. The costs are deductible.
least EUR 38.118 a year37. The costs are deductible.
least EUR 39.000 a year38. The costs are deductible.
Average cost to the employee
The wages earned by the employee are taxable in Box 1 at a maximum rate of 52%.
The wages earned by the employee are taxable in Box 1 at a maximum rate of 52%.
The wages earned by the employee are taxable in Box 1 at a maximum rate of 52%.
The wages earned by the employee are taxable in Box 1 at a maximum rate of 52%.
The wages earned by the employee are taxable in Box 1 at a maximum rate of 52%.
Overall tax on distributed earnings or Dividends
Timing At the moment of the distribution of the earnings are put at the disposal of the business owner.
At the moment of the distribution of the earnings are put at the disposal of the business owner.
At the moment of the distribution of the earnings are put at the disposal of the business owner.
At the moment of the distribution of the earnings are put at the disposal of the business owner.
At the moment of the distribution of the earnings are put at the disposal of the business owner.
Tax credit structure
The company will withhold Dividend tax at a rate of 25% which is credited against the personal Income tax. No credit will
The company will withhold Dividend tax at a rate of 25% which is credited against the personal Income tax. No credit will
The company will withhold Dividend tax at a rate of 25% which is credited against the personal Income tax. No credit will
The company will withhold Dividend tax at a rate of 25% which is credited against the personal Income tax. No credit will
The company will withhold Dividend tax at a rate of 25% which is credited against the personal Income tax. No credit will be
34 Wage Tax Act 1964 35 Idem 36 Idem 37 Idem 38 Idem
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RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 be given for the Corporate Income tax paid by the corporation.
be given for the Corporate Income tax paid by the corporation.
be given for the Corporate Income tax paid by the corporation.
be given for the Corporate Income tax paid by the corporation.
given for the Corporate Income tax paid by the corporation.
Excluding non profit tax
N.A. N.A. N.A. N.A. N.A.
Including non profit tax
N.A. N.A. N.A. N.A. N.A.
Deduction of expenses
General rule In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept these costs, unless these costs are not businesslike.
In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept these costs, unless these costs are not businesslike.
In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept these costs, unless these costs are not businesslike.
In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept these costs, unless these costs are not businesslike.
In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept these costs, unless these costs are not businesslike.
Non-deductibility of expenses
If expenses are made both for businesslike purposes and for private purposes, these expenses are partially or not deductible.
If expenses are made both for businesslike purposes and for private purposes, these expenses are partially or not deductible.
If expenses are made both for businesslike purposes and for private purposes, these expenses are partially or not deductible.
If expenses are made both for businesslike purposes and for private purposes, these expenses are partially or not deductible.
If expenses are made both for businesslike purposes and for private purposes, these expenses are partially or not deductible.
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 Thin capitalization
N.A. N.A. As of 2004: Interest paid by a corporation is deductible unless the debt-equity (3:1) ratio is met39.
As of 2004: Interest paid by a corporation is deductible unless the debt-equity (3:1) ratio is met40.
As of 2004: Interest paid by a corporation is deductible unless the debt-equity (3:1) ratio is met41.
Overall corporate tax on Retained earnings
No different tax treatment for distributed earnings in comparison of retained earnings.
No different tax treatment for distributed earnings in comparison of retained earnings.
No different tax treatment for distributed earnings in comparison of retained earnings.
No different tax treatment for distributed earnings in comparison of retained earnings.
No different tax treatment for distributed earnings in comparison of retained earnings.
Excluding non profit tax
N.A. N.A. N.A. N.A. N.A.
Including non profit tax
N.A. N.A. N.A. N.A. N.A.
Debt financing
Interest deductibility
Interest is generally deductible. However, under certain circumstances interest can not be deducted.
Interest is generally deductible. However, under certain circumstances interest can not be deducted.
Interest is generally deductible. However, under certain circumstances interest can not be deducted.
Interest is generally deductible. However, under certain circumstances interest can not be deducted.
Interest is generally deductible. However, under certain circumstances interest can not be deducted.
Limits on interest deductibility
Article 10 Vpb, article 10a Vpb, article 10b and article 15 paragraphs 4 and 5 Vpb.
Article 10 Vpb, article 10a Vpb, article 10b and article 15 AD Vpb.
Article 10 Vpb, article 10a Vpb, article 10b and article 15 AD Vpb.
Article 10 Vpb, article 10a Vpb, article 10b and article 15 AD Vpb.
Article 10 Vpb, article 10a Vpb, article 10b and article 15 AD Vpb.
Interest deductibility on business owner loan to Undertaking
The interest is deductible at the level of the Undertaking but will be taxed at the
The interest is deductible at the level of the Undertaking but will be taxed at the
The interest is deductible at the level of the Undertaking but will be taxed at the
The interest is deductible at the level of the Undertaking but will be taxed at the
The interest is deductible at the level of the Undertaking but will be taxed at the
39 Article 10D Corporate Income Tax 1969 40 Idem 41 Idem
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS
Table 1 2002 2003 2004 2005 2006 level of the business owner (maximum 52%).
level of the business owner (maximum 52%).
level of the business owner (maximum 52%).
level of the business owner (maximum 52%).
level of the business owner (maximum 52%).
The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS
Table 2 2002 2003 2004 2005 2006 Tax applicable to partnerships
1. Tax rate Standard Maximum 52% Maximum 52% Maximum 52% Maximum 52% Maximum 52% Reduced - - - - - Minimum Tax 32,35% 33,15% 33,55% 34,4% 34,15% Special Rates N.A. N.A. N.A. N.A. N.A. Non profit tax (local tax on corporations, energy tax…)
Municipalities are allowed to levy taxes in accordance with the Municipalities Act.
Municipalities are allowed to levy taxes in accordance with the Municipalities Act.
Municipalities are allowed to levy taxes in accordance with the Municipalities Act.
Municipalities are allowed to levy taxes in accordance with the Municipalities Act.
Municipalities are allowed to levy taxes in accordance with the Municipalities Act.
2. Tax accounting rules
Without postponement, an annual return for the individual income tax should be filed
Without postponement, an annual return for the individual income tax should be filed
Without postponement, an annual return for the individual income tax should be filed
Without postponement, an annual return for the individual income tax should be filed
Without postponement, an annual return for the individual income tax should be filed
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS
Table 2 2002 2003 2004 2005 2006 before 1 April of the subsequent year.
before 1 April of the subsequent year.
before 1 April of the subsequent year. As of the tax year 2004, annual returns for corporate income tax should be filed electronically.
before 1 April of the subsequent year. As of the tax year 2004, annual returns for corporate income tax should be filed electronically.
before 1 April of the subsequent year. As of the tax year 2004, annual returns for corporate income tax should be filed electronically.
3. Depreciation
Basis Cost price Cost price Cost price Cost price Cost price Methods Linear
Degressive Progressive
Linear Degressive Progressive
Linear Degressive Progressive
Linear Degressive Progressive
Linear Degressive Progressive
Rates - - - - - Accounting In accounts In accounts In accounts In accounts In accounts
Intangibles Possible, intangible assets are depreciated linearly most of the times.
Possible, intangible assets are depreciated linearly most of the times.
Possible, intangible assets are depreciated linearly most of the times.
Possible, intangible assets are depreciated linearly most of the times.
Possible, intangible assets are depreciated linearly most of the times.
Non depreciable assets
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investment.
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investment.
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investment.
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investment.
In general, all business assets are depreciable. An exception is the depreciation of land and portfolio investment.
4. Provisions Risks and futures expenses
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses.
The Netherlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS
Table 2 2002 2003 2004 2005 2006 for risks and future expenses.
Bad debts It is not possible to allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to re-valuate the amount of “debtors” in the tax balance sheet.
It is not possible to allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to re-valuate the amount of “debtors” in the tax balance sheet.
It is not possible to allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to re-valuate the amount of “debtors” in the tax balance sheet.
It is not possible to allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to re-valuate the amount of “debtors” in the tax balance sheet.
It is not possible to allocate funds to a provision in order to cover bad debts/debtors. However, for tax purposes it is possible to re-valuate the amount of “debtors” in the tax balance sheet.
Pensions The business can make contributions for a provision for the self-employed.
The business can make contributions for a provision for the self-employed.
The business can make contributions for a provision for the self-employed.
The business can make contributions for a provision for the self-employed.
The business can make contributions for a provision for the self-employed.
Repairs It is possible to allocate funds to a provision for repairs (article 3.53 IB).
It is possible to allocate funds to a provision for repairs (article 3.53 IB).
It is possible to allocate funds to a provision for repairs (article 3.53 IB).
It is possible to allocate funds to a provision for repairs (article 3.53 IB).
It is possible to allocate funds to a provision for repairs (article 3.53 IB).
5. Losses Carry forward
Losses from entrepreneurship can be carried forward unlimited in time42.
Losses from entrepreneurship can be carried forward unlimited in time43.
Losses from entrepreneurship can be carried forward unlimited in time44.
Losses from entrepreneurship can be carried forward unlimited in time45.
Losses from entrepreneurship can be carried forward unlimited in time46.
Carry back 3 years47 3 years48 3 years49 3 years50 3 years51
42 Article 3.150 Income Tax Act 2001 43 Idem 44 Idem 45 Idem 46 Idem 47 Idem 48 Idem 49 Idem
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS
Table 2 2002 2003 2004 2005 2006 Transfer of losses
Not possible as losses are strictly connected to the business owner.
Not possible as losses are strictly connected to the business owner.
Not possible as losses are strictly connected to the business owner.
Not possible as losses are strictly connected to the business owner.
Not possible as losses are strictly connected to the business owner.
5. Inventories
Valuation rules
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
Allocation methods
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
FIFO, LIFO and “Iron Inventories”
Personal Income tax
Interest Income
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
Dividends N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
Employment income
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
N.A. from the business owner´s point of view.
Capital gains tax
Sale of fixed assets
The capital gain will be taxed with normal income tax.
The capital gain will be taxed with normal income tax.
The capital gain will be taxed with normal income tax.
The capital gain will be taxed with normal income tax.
The capital gain will be taxed with normal income tax.
Timing rules In general the capital gain will be taxed at the moment it comes up. This is the moment of realization of the gain.
In general the capital gain will be taxed at the moment it comes up. This is the moment of realization of the gain.
In general the capital gain will be taxed at the moment it comes up. This is the moment of realization of the gain.
In general the capital gain will be taxed at the moment it comes up. This is the moment of realization of the gain.
In general the capital gain will be taxed at the moment it comes up. This is the moment of realization of the gain.
Accounting There are no There are no There are no There are no There are no 50 Idem 51 Idem
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS
Table 2 2002 2003 2004 2005 2006 rules specific
accounting rules for capital gains.
specific accounting rules for capital gains.
specific accounting rules for capital gains.
specific accounting rules for capital gains.
specific accounting rules for capital gains.
Inflation N.A. N.A. N.A. N.A. N.A. Rates The maximum
rate of income tax is 52%. The minimum rate is 32,35%52.
The maximum rate of income tax is 52%. The minimum rate is 33,15%53.
The maximum rate of income tax is 52%. The minimum rate is 33,55%54.
The maximum rate of income tax is 52%. The minimum rate is 34,4%55.
The maximum rate of income tax is 52%.The minimum rate is 34,15%56,
Exemptions A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include the amount of the capital gain in a reserve, maintained for re-investment purposes.
Sale of shares
The capital gain will be taxed in Box 2 at a rate of 25%.
The capital gain will be taxed in Box 2 at a rate of 25%.
The capital gain will be taxed in Box 2 at a rate of 25%.
The capital gain will be taxed in Box 2 at a rate of 25%.
The capital gain will be taxed in Box 2 at a rate of 25%.
Capital loss Fixed assets A loss as a result
of the sale of fixed assets can be set off against positive results of the company. If the company will not
A loss as a result of the sale of fixed assets can be set off against positive results of the company. If the company will not
A loss as a result of the sale of fixed assets can be set off against positive results of the company. If the company will not
A loss as a result of the sale of fixed assets can be set off against positive results of the company. If the company will not
A loss as a result of the sale of fixed assets can be set off against positive results of the company. If the
52 Article 2.10 Income Tax Act 2001 53 Idem 54 Idem 55 Idem 56 Idem
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS
Table 2 2002 2003 2004 2005 2006 have positive results, the company will have a loss in that year.
have positive results, the company will have a loss in that year.
have positive results, the company will have a loss in that year.
have positive results, the company will have a loss in that year.
company will not have positive results, the company will have a loss in that year.
Shares As a result of article 3.150 IB, the loss can be set off against results of the previous three years. The loss can be set off against profits unlimited in future.
As a result of article 3.150 IB, the loss can be set off against results of the previous three years. The loss can be set off against profits unlimited in future.
As a result of article 3.150 IB, the loss can be set off against results of the previous three years. The loss can be set off against profits unlimited in future.
As a result of article 3.150 IB, the loss can be set off against results of the previous three years. The loss can be set off against profits unlimited in future.
As a result of article 3.150 IB, the loss can be set off against results of the previous three years. The loss can be set off against profits unlimited in future.
Wages Average cost to the Undertaking
The costs of the wages paid are deductible.
The costs of the wages paid are deductible.
The costs of the wages paid are deductible.
The costs of the wages paid are deductible.
The costs of the wages paid are deductible.
Average cost to the employee
Income generated is taxable at a maximum rate of 52%
Income generated is taxable at a maximum rate of 52%
Income generated is taxable at a maximum rate of 52%
Income generated is taxable at a maximum rate of 52%
Income generated is taxable at a maximum rate of 52%
Dividends Timing N.A. N.A. N.A. N.A. N.A. Tax credit structure
N.A. N.A. N.A. N.A. N.A.
Deduction of expenses
General rule In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept the amounts unless certain costs are not businesslike.
In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept the amounts unless certain costs are not businesslike.
In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept the amounts unless certain costs are not businesslike.
In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept the amounts unless certain costs are not businesslike.
In general, the Undertaking can deduct all expenses of the Undertaking. The Dutch tax authorities will accept the amounts unless certain costs are not businesslike.
Non-deductibility of expenses
If expenses are made both for businesslike
If expenses are made both for businesslike
If expenses are made both for businesslike
If expenses are made both for businesslike
If expenses are made both for businesslike
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The Netherlands
RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS
Table 2 2002 2003 2004 2005 2006 purposes and for private purposes, these expenses are partially or not deductible.
purposes and for private purposes, these expenses are partially or not deductible.
purposes and for private purposes, these expenses are partially or not deductible.
purposes and for private purposes, these expenses are partially or not deductible.
purposes and for private purposes, these expenses are partially or not deductible.
Thin capitalization
N.A. N.A. N.A. N.A. N.A.
Retained earnings
No special treatment.
No special treatment.
No special treatment.
No special treatment.
No special treatment.
Debt financing
Interest deductibility
Interest paid by the partnership is deductible.
Interest paid by the partnership is deductible.
Interest paid by the partnership is deductible.
Interest paid by the partnership is deductible.
Interest paid by the partnership is deductible.
Limits on interest deductibility
N.A., but the interest should be at arm´s length.
N.A., but the interest should be at arm´s length.
N.A., but the interest should be at arm´s length.
N.A., but the interest should be at arm´s length.
N.A., but the interest should be at arm´s length.
Interest deductibility on business owner loan to Undertaking
Deductible at the level of the Undertaking unless seen as capital.
Deductible at the level of the Undertaking unless seen as capital.
Deductible at the level of the Undertaking unless seen as capital.
Deductible at the level of the Undertaking unless seen as capital.
Deductible at the level of the Undertaking unless seen as capital.
1.3.1 Is there a different tax treatment between distributions of earnings
and capital gains realised by the sale of the business or the shares in
the undertaking?
The tax treatment of distributions of earnings can be described as follows.
Distributed earnings (dividend) from a substantial shareholding (at least 5%)
in a company (belastbaar inkomen uit aanmerkelijk belang) are taxed57 at
a flat rate of 25%58. Apart from that, dividends from a substantial
shareholding in a company are also subject to the dividend withholding tax
(dividendbelasting)59 on distribution to the shareholder at a rate of 15%60
57 Article 4.12 Income Tax Act 2001 58 Article 2.12 Income Tax Act 2001 59 Article 3 paragraph 1 Dividend Tax Act 1965
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even though the profit of the corporation is taxed with corporate income
tax. Residents can get a credit for this withholding tax. The withholding tax
can be credited against the income tax due on Box 2 or Box 3 income,
whichever is relevant61.
The profit is therefore taxed twice, first at the level of the corporation and
then when distributed at the level of the individual shareholder (the so-
called classical system).
A capital gain realized by a corporation as a result of the sale of the
business will be taxed at a rate of 25,5% corporate income tax. This is the
general rate of corporate income tax62.
Capital gains realised by individuals are in general not taxed unless the
individual is a sole trader.
The most important exception being capital gains realized by individual
shareholders owning a substantial shareholding in a company. These gains
are taxed in Box 2 at a special rate of 25% income tax. If the business
owner does not hold a substantial interest in the company, the capital gain
will not be taxed immediately. However, at the end of the year, the
individual will have to declare the amount of all his belongings. If the
amount of the realised capital gain will be held at a bank-account at that
moment, these funds will be taxed at an effective rate of 1,2% in Box 363.
So, distributed earnings and capital gains are taxed at the same tax rate
(25%) in Box 2 for individual shareholders.
1.3.2 Are there different tax treatments for long-term capital gains and short-
term capital gains?
60 Article 5 Dividend Tax Act 1965 (since 2007 (25% before 2007)) 61 Article 9.2 Income Tax Act 2001 62 Article 22 Corporate Income Tax Act 1969, rate applicable since 2007 for profits above EUR 60.000 63 Article 2.13 Income Tax Act 2001
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There are no different tax treatments for long-term capital gains and short-
term capital gains: they are treated equally.
1.3.3 Are there different tax treatments for capital gain from SME business
stock and capital gain from larger companies’ business stock?
There are no different tax treatments for capital gains from SME business
stock and capital gains from larger companies´ business stock.
2 What are the main types of business entities and the main differences in
(corporate) income taxation for sole traders, general partnerships, limited
partnerships and corporation and other business entities if relevant?
The main types of business entities in The Netherlands are the corporation, the
limited partnership, the general partnership and the sole trader. In general, most
business owners choose for a corporation to run their business. Corporations can
be subdivided into companies limited by shares and private companies with limited
liability. Most businesses are run by private companies with limited liability (B.V.).
2.1 Are partnerships treated transparent for tax purposes?
Partnerships are generally treated transparent for tax purposes. As a result,
the partnership will not be liable for Income tax, the business owner is
liable for the results of the partnership. In some cases a partnership is not
treated transparent for tax purposes however. A partnership will not be
treated to be transparent in case it is an open limited partnership. A
definition of “open commanditaire vennootschap” (= open limited
partnership) is given in the Algemene Wet inzake rijksbelastingen64.
2.2 Can partnerships opt for corporate income tax?
Partnerships are transparent in case they are not open. There is no
possibility to opt for liability for corporate income tax. There is no
possibility for open partnerships to opt for transparency.
64 Article 2 paragraph 3 under c AWR
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The only way to switch between transparent or not is to change the
partnership-agreement, which may lead to tax-liability however.
2.3 Once they have opted for a regime is it easy to switch back?
As there is no possibility to opt for liability for corporate income tax, there
is no possibility to switch back to transparency. However, there is a
possibility to switch between transparent or not, by changing the
partnership-agreement, which may lead to tax-liability.
2.4 Is there a difference in this respect between general and limited
partnerships?
General partnerships are always transparent for tax purposes. Limited
partnerships are liable for corporate income tax when the partnership can
be deemed to be open65. Otherwise the limited partnership is transparent
for purposes of (corporate) income tax.
2.5 Can corporations opt to be treated tax transparent?
Corporations can not opt to be treated tax transparent. Therefore,
corporations will always be liable for corporate income tax purposes.
2.6 Once they have opted for a regime is it easy to switch back?
As there is no possibility to opt for transparency, there is no possibility to
switch back to liability for corporate income tax.
65 Article 2, paragraph 1 Corporate Income Tax Act 1969
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2.7 Are their differences in this respect between the different types of
corporations?
As there is no possibility to switch back to liability for corporate income
tax, no distinction could be made between the various types of
corporations regarding the possibility to switch back.
The Netherlands
RELEVANT TAX PROVISIONS IN 2002 AND SUBSEQUENT CHANGES UP TO 2007
Table 3 General Partnership
Limited Partnership
Corporation Sole Trader
Corporate tax
N.A. (transparant)
N.A., unless the partnership is an open partnership, article 2 paragraph 1 under a Vpb
Yes, article 2 paragraph 1 Vpb.
N.A.
Income tax Yes, article 3.2 IB and further for individuals as partner.
Yes, article 3.2 IB and further if the partnership is not an open partnership.
N.A. Yes, article 3.2 IB and further.
Capital gains tax
No special tax on capital gains. They are taxed with (corporate) income tax.
No special tax on capital gains. They are taxed with (corporate) income tax.
No special tax on capital gains. They are taxed with (corporate) income tax.
No special tax on capital gains. They are taxed with (corporate) income tax.
Option for Transparent treatment
N.A. N.A. N.A. NA.
3. Are there any special tax regimes for SMEs for (corporate) income tax
purposes?
There are no special tax regimes for SMEs for (corporate) income tax purposes.
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3.1 What are the conditions to be fulfilled in order to benefit from these
special tax regimes?
As there are no special tax regimes, this question does not have to be
answered.
3.2 Are there limits on the length of time during which these special tax
regimes are available, or other limits?
As there are no special tax regimes, this question does not have to be
answered.
4. Are there any special tax incentives, such as (re-)investment reserves or
provisions, special depreciations/capital allowances deductible for (corporate)
income tax purposes?
Dutch law gives several specific tax incentives for (corporate) income tax
purposes.
An example is the reinvestment reserve (herinvesteringsreserve), which may be
created for the replacement or repair of business assets. The reserve is available
upon the alienation, loss or damage of both tangible and intangible assets66. If the
proceeds of alienation or the amount of indemnification exceed the book value of
the asset, the excess may be placed into a reinvestment reserve if, and as long as,
the company intends to reinvest this amount. The amount placed in the reserve
must be reinvested during the year of disposal or the 3 following years, unless
special circumstances justify a longer period. If the reinvestment does not take
place within that period, the reserve must be added to the taxable income.
Other examples are the applicability of the participation exemption67 and the
possibility to request for a fiscal unity68. As a result of the participation
66 Article 3.54 Income Tax Act 2001 and Decree of 6 March 2003, CPP2002/1330 67 Article 13 Corporate Income Tax Act 1969 68 Article 15 Corporate Income Tax Act 1969
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exemption, capital gains, dividends and other profit distributions received from a
qualifying participation are exempt. If a mother company and its subsidiary
request for a fiscal unity, the results of both companies will be set off against
each other directly.
Another example is the fiscal possibility of “random depreciation”.69 Depreciation
of business assets which are in the interest of the environment, can take place in
random order. This possibility is for example also applicable in case of business
assets which are in the interest of the film-industry in The Netherlands.
A last incentive is the choice which (resident or non-resident with a permanent
establishment in The Netherlands) maritime shipping companies have. These
companies can apply for the so-called tonnage tax regime. To qualify for this
regime, it is necessary for the company that it owns a ship or ships or charter a
ship under a bareboat agreement. The exploitation must take place from The
Netherlands, but it is not required to fly The Netherlands flag, however, ships
which the taxpayer owns wholly or in part and charters on bareboat charter terms
must fly the flag of an EU or EEA Member State.
Under the tonnage tax regime, the computation of taxable income for corporate
income tax purposes is based on the net tonnage per qualifying sea ship multiplied
by a fixed amount. A more specific outline is laid down in the following table of
article 3.23 Income Tax Act 2001.
Net tonnage EUR per day per each 1,000 tonnes ________________________________________ up to 1,000 9.08 1,000 - 10,000 6.81 10,000 - 25,000 4.54 over 25,000 2.27
69 Article 3.31 Income Tax Act 2001
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4.1 Do these elements of internal financing represent an important
alternative to the financing by retained earnings?
An incentive such as reinvestment reserve or the special depreciation-
possibilities does postpone a tax burden for a few years and are therefore
frequently used incentives. Retained earnings financing do not lead to a
postponement of the tax burden. Therefore, the Undertaking might prefer
internal financing to retained earnings financing.
4.2 Are there any compulsory measures in relation to the retention of
earnings (e.g. legal constraints for the distribution of profits and
dividend policy)?
An example of a compulsory measure is that a company may only pay out
dividend when it has enough free reserves70. Another compulsory measure
is that the company can only pay out dividend after the company´s
commercial balance sheet has been adopted (except interim dividends).
5 Are there any differences in the tax treatment of stock and cash dividends71?
Cash dividends will be taxed with 15% Dividend tax and 25% individual Income tax.
When the dividends will be taxed with Dutch individual Income tax, a credit will
be given for the paid Dividend tax. Stock dividends will not be taxed with
individual Income tax.
6 Have there been any changes in the tax regulation in recent years - since 2002
– that have had an important effect on the retention of earnings, the
distribution of earnings or the reinvestment of profits for a particular purpose?
There have not been any changes in the tax regulation since 2001 which had an
effect on the retention of earnings, the distribution of earnings or the
reinvestment of profits for a particular purpose. As of 2007 the Box 2 rate is
70 Article 2:216 Civil Code 71 For the Undertaking stock dividend will lead to an increased amount of share capital and a decreased amount of profit reserves. For the shareholder it means additional shares in the Undertaking which may be taxed with Dividend tax (with full tax credit).
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decreased to 22% for one year. This will probably have some impact. This year,
more payments of dividend can be expected.
7 Are there any current plans for tax reforms that have as their object to have
an impact on the retention of earnings?
Currently, there are no plans for tax reforms that have as their object to have an
impact on the retention of earnings (besides the Box 2 rate decrease to 22% in
2007 and back to 25% in 2008).
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PART 2 TAX ASPECTS OF RETAINED EARNINGS VERSUS DISTRUBITED PROFITS AND
WAGES.
8 What is the tax treatment of retained earnings compared to distribution of
earnings on the level of the Undertaking and at a combined level of
Undertaking (corporate) and business owner (individual)?
Retained earnings at the level of the business only, are treated as follows. The
earnings will be taxed with corporate income tax at a rate of 25,5% in the year
they are realised. It does not matter for how long the company will retain these
funds, they will not be taxed as long as they are not distributed.
Distributed earnings at the level of the business only, are treated as follows. The
earnings will be taxed with corporate income tax at a rate of 25,5% at the
company´s level in the year they are realised. When the company distributes these
earnings to shareholders, the company will have to withhold 15% tax (i.e.
Dividendbelasting). The tax should be withheld by the distributing company at the
moment the dividends are put at the disposal of the recipient. The distributing
company must file a tax return and pay the tax withheld to the tax authorities
within 1 month after the distribution. There is no withholding obligation if the
participation exemption regime applies. In case an individual holds the shares, the
participation exemption will of course not be applicable.
Retained earnings at the combined level of the business and the business owner
are treated as follows. The year the earnings are realised, they will be taxed with
corporate income tax. It does not matter for how long the company will retain
these funds, they will not be taxed as long as they are not distributed. In general
this will not have any consequences for the business owner.
If the business owner has a substantial interest in the company, it does not matter
that the company will retain the earnings. If the business owner does not hold at
5% or more of the shares of the company, the retaining of the earnings will have
indirect consequences for the business owner. When the company will retain the
earnings, the value of the shares (held by the business owner) will probably
increase. The business owner will have to file his tax return income tax in the
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subsequent year. In his tax return he will also have to declare the value of certain
of his possessions (including shares in companies) and liabilities. The average of
the value at the begin and the end of the year will be taxed at an effective rate of
1,2%.
Distributed earnings at the combined level of the business and the business owner
are treated as follows. The year the earnings are realised, they will be taxed with
corporate income tax at a rate of 25,5% at the level of the business. When the
company will distribute the earnings, the company will have to withhold 15%
Dividend tax. The tax should be withheld by the distributing company at the
moment the dividends are put at the disposal of the recipient. The distributing
company must file a tax return and pay the tax withheld to the tax authorities
within 1 month of the distribution. The business owner will be liable for income
tax at a rate of 25% for the dividend received, if he holds a substantial interest in
the corporation. For residents the withholding tax is creditable against the income
tax due on box 2 or box 3 income whichever is relevant.
When the business owner does not have a substantial interest in the business, the
only difference is that the dividend will not be taxed at a rate of 25%, but the net
value of his shares will be taxed effectively at a rate of 1,2%.
8.1 Is there an economic double taxation of distribution of earnings
(taxation of Undertaking income and then taxation on the distribution
of earnings at the Undertaking level or at the business owner level)?
When the company realises a profit, the company will have to pay
corporate income tax. After the distribution of the earning/profit, the
business owner will have to pay individual income tax as well. Therefore,
the distributed earnings are taxed double (the so-called “classical
system”).
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The Netherlands
Table 4 Undertaking Individual Business owner
Corporate tax
Yes, article 8 Vpb (25,5%)
No
Income tax No Yes, article 4.12 IB
Dividend tax Yes, article 2 DB (15% as of 2007)
No
Dividend credit
No, full credit for the business owner
Yes, article 9.2 IB (full credit)
Capital gains tax
N.A. N.A.
If option for Transparent treatment chosen
N.A. N.A.
Case study (rough figures): I. Profit earned by “corporation”
Profit 100 Corporate income tax (25,5%) 25,5 Result after CIT 74,5 Dividend 74,5 Income tax (25%), normal rate 18,625 Result after taxes 55.875
II. Profit earned by “sole trader”
Profit 100 Exemption 10 Taxable result 90 Income tax (52%) 46,8 Result after Income Tax 43,2
From this case study above follows that the result in case the corporation
will have a result of 100, the result after dividend and taxes which the sole
shareholder is entitled to is 55,875. In case the business owner is a sole
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trader, the taxes are of an amount of 46,8 (after an exemption of 1072).
Therefore the net-result will be 53,2, which is lower than when the
business was run by a corporation.
9 Please describe the differences in the tax treatment of distribution of earnings
realised as a capital gain in the context of a sale of the shares or of the
business compared to that (i) of retained earnings, (ii) of wages paid to the
business owner and (iii) of a loan granted by the Undertaking to the business
owner?
A capital gain as a result of a sale of shares by the business owner, will be taxed at
a rate of 25%, assumed that the business owner has a substantial interest in the
business. Otherwise the capital gain will be taxed via Box 3.
A capital gain when selling the business by the company itself, will be taxed at a
rate of 25,5%, the current rate for the corporate income tax.
A salary paid by the company to the business owner will be taxed at a maximum
rate of 52%. At the level of the business owner, all income which he receives from
the company in relation to his employment, will be taxed with income tax. This
includes income in kind. All wages may be deducted by the company from its
profits.
When the company (the Undertaking) grants a loan to the business owner, the
business owner will have to pay interest on this loan. The interest will be taxed at
the level of the Undertaking. The business owner can not deduct this interest from
his income.
The Netherlands
Table 5 Distributed profits
Retained Profit Wages/Salaries to business owner
Loan to business owner
Sale of shares
Article 2 DB, article 4.12 IB
Article 2 DB Article 1/9 LB
N.A.
Sale of business
Article 2 DB, article 4.12 IB
Article 2 DB Article 1/9 LB
N.A.
72 This exemption of 10% is applicable since 2007
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10 Is the combination of wages (paid to the business owner by the Undertaking),
profit distributions and retained earnings a tax planning issue that is
anticipated and addressed by business owners in view of minimising the overall
tax burden of the business owner and the Undertaking?
Yes, this is a planning issue. The moment salary is taxed with 52% personal income
tax, it is better to pay out dividends.
11 In respect to the previous question, is the business owner more interested in
minimising his/her tax burden and then the Undertaking’s or both equally?
Business owners of SMEs usually do not find it more important to minimize their
tax burden and then the Undertaking´s or vica versa. We assume it is equal.
12 Are there instances in which minimising the tax burden of the business owner
would mean dramatically increasing the tax burden of the Undertaking?
There are no instances in which minimising the tax burden of the business owner
would mean dramatically increasing the tax burden of the Undertaking.
13 For corporate income tax or capital gains tax purposes, are there any
incentives/disincentives to retain earnings rather than distribute them or pay
wages?
There are no general incentives/disincentives to retain earnings rather than
distribute them or pay wages, although wages paid are deductible (distributed
earnings are not) and will reduce the corporate income tax burden.
13.1 Are there any limitations or ceilings for these incentives?
As there are no general incentives/disincentives, there are no limitations or
ceilings for them. As regards the deductible wages: there is a certain
ceiling; the moment the business owner starts paying 52%, paying salary is
less attractive.
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13.2 Is there a risk that these incentives can be used more than one time by
the business owners by splitting up the business activities into
different legal entities?
Not applicable.
14 What is the tax treatment of declared loans granted by the Undertaking to the
business owner?
See the answers on questions 14.1 until 14.4.
14.1 Is there a minimum interest rate to be charged for tax purposes?
Loans granted by the business to the business owner should be granted at
arm´s length. Therefore, the loans should also contain an element of
interest. There is no minimum interest rate, but, in case the interest rate is
loo low, the difference can be seen as hidden dividend.
14.2 How is the interest rate treated for tax purposes for the Undertaking?
If the business grants a loan to the business owner and the business owner
pays interest on the loan, the interest will be taxed at the normal level of
the corporation at a rate of 25,5%.
14.3 How is the interest rate treated for tax purposes for the business
owner?
If the business grants a loan to the business owner and the business owner
pays interest on the loan, the interest will not be deductible at the level of
the business owner (unless he (re-) invested the money in his own house).
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14.4 What are the combined tax effects of such a loan compared to a
distribution of earnings equivalent in amount?
In case the company will receive interest, this interest will be taxable at a
rate of 25,5%. In case the company will pay out dividend, the business
owner will have to pay 25% income tax. Therefore if the company would
receive EUR 100 interest, they would have to pay EUR 25,5 tax. After that,
the rest of the amount would be paid out as dividend, therefore EUR 74,5.
The amount paid out would be taxed at a rate of 25%, therefore another
EUR 18.625 would be paid as individual income tax. The total effective rate
would in that case be 44,125%.
Results of a company will be taxed with corporate income tax, at the level
of the business at a rate of 25,5%. A distribution of earnings leads to 25%
income tax at the level of the business owner.
15 Are there any other taxes (e.g. net worth tax) which are imposed or based on
the net equity of the Undertaking?
There are no other taxes which are imposed or based on the net equity of the
Undertaking.
16 Are there any other tax incentives for either the retention of earnings or their
distribution of profits?
There are no other tax incentives for either the retention of earnings or
distribution of profits.
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PART 3 TAX ASPECTS OF RETAINED EARNINGS FINANCING VERSUS DEBT FINANCING.
17 In debt financing, what is the tax treatment of interest expenses paid or
accrued by the Undertaking?
There is no difference between the payment of interest and accrued interest.
If the Undertaking will pay interest to a bank, the Undertaking can deduct the paid
interest from its income. If the Undertaking will pay interest to an affiliated
(group-) company, the interest paid is deductible unless a certain provision in
Dutch law is applicable, which provision limits the deductibility of the interest
paid.
17.1 Is there a different tax treatment to deductions on interest paid when
the lender is a resident or a non-resident for tax purposes?
There is no different tax treatment to deductions on interest paid when the
lender is a resident or a non-resident for tax purposes. In both situations
the interest is deductible, unless the restrictions in Dutch law are
applicable.
17.2 Is there a different tax treatment on interest on long-term debt and
interest on short-term debt?
There is no difference tax treatment on interest on long-term debts and
interest on short-term debts. In both situations the interest is deductible,
unless a restriction in Dutch law is applicable.
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18 Are there any tax benefits that are actionable based on specific amounts of
equity (e.g. notional interest expense based on the increase of own equity or
the total amount of equity)?
There are no tax benefits that are actionable based on specific amounts of equity.
However, according to a certain provision in Dutch law (thin-capitalization)73, a
company should at least have a certain amount of own equity in order not to be
limited in deducting the full amount of interest paid.
18.1 What is the exact calculation method used to implement this incentive
and to evaluate the benefits once this incentive is implemented?
As there are no (specific) tax benefits, there is no calculation method to
implement this incentive.
18.2 Are there any other tax provisions favouring increases in own equity?
There are no other (specific) tax provisions favouring increases in own
equity, except a restriction on the deductibility of the interest as a result
of an excess of loan capital, the so-called thin capitalization74.
19 Is debt financing of an enterprise by the business owner himself of his/her
family recognised for tax purposes (ie. If the business owner or his/her family
lends money to the Undertaking are they treated differently than other lenders
for tax purposes)?
Debt financing of an enterprise by the business owner himself or his/her family is
recognised by Dutch law. The business owner who grants a loan to the
Undertaking/the enterprise, shall receive (deemed) interest on this loan. The
interest will be taxed with income tax at a progressive rate of maximum 52%. If a
person who does not have a substantial interest in the Undertaking/the enterprise,
will finance the Undertaking, the loan which that person has, will be taxed in Box
3.
73 Article 10D Corporate Income Tax Law 1969
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19.1 If so, are there any incentives for the business owners to debt-finance
their enterprise instead of retained earnings financing or equity
financing?
There are no incentives for business owners to debt-finance their
enterprise instead of retained earnings financing or equity financing. The
interest is taxed at a rate of 52% which is rather a disincentive.
20 Is there a general discrimination between retained earnings financing and debt
financing from a tax point of view?
From a tax point of view, there is no difference between debt financing and
retained earnings financing. However, the risk of the applicability of the provision
which restricts the deduction of interest (thin capitalization) might be applicable
in case of over-financing by way of debt financing.
20.1 Is there a general discrimination between retained earnings financing
and equity financing from a tax point of view?
There is no difference between retained earnings financing and equity
financing from a tax point of view. Therefore there is no general
discrimination between them.
20.2 Is there a general discrimination between equity financing and debt
financing from a tax point of view?
Retained earnings financing and debt financing are not generally treated
differently from a tax point of view. However, in case of debt financing,
the company would have to pay interest, which the company can deduct
from its results. In case the company will be financed by way of debt
financing, the company might run a risk of a restriction of the deduction of
interest (thin capitalization).
74 Article 10d Vpb
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In case of equity financing there is no (fictitious) deductible amount:
dividends are not deductible and will not lead to a refund or decrease of
Corporate Income Tax. The question is whether this is discrimination.
21 Are there any debt to equity ratios limiting the deductibility of interest
expenses for tax purposes?
In Dutch law, there is a debt to equity ratio which limits the deductibility of
interest expenses for tax purposes. This particular thin-capitalization provision
became effective on 1 January 2004. Prior to this date, there were no provisions
for interest on debts (based on ratios).
Under the thin-capitalization provisions, interest paid in respect to an amount of
excessive debt is generally not deductible75. However, the thin-capitalization
provisions only apply to and only limit interest paid to related companies
belonging to the same group. In that respect, companies are considered to be
related and to belong to the same group if they are organizationally related76.
The maximum amount of interest which would not be deductible under these
provisions is limited to the amount of interest paid to related companies less the
amount of interest received from related companies77.
Excessive debt is the part of the annual average debt which exceeds three times
the annual average fiscal equity of the company. This excess should exceed EUR
500,000. Debt is taken into account insofar it exceeds outstanding loans and the
equity does not include reserves and provisions (Art. 10D paragraph 4 Corporate
Income Tax Act 1969).
The equity to be taken into account is deemed to be at least EUR 1 (Art. 10D
paragraph 8 Corporate Income Tax Act 1969).
Upon request, the resident company may compare its own debt/equity with the
debt/equity ratio of the group of companies to which is belongs. Excessive debt
would then be the part of the annual average debt of the company which exceeds
75 Article 10d paragraph 1 Corporate Income Tax Act 1969 76 Article 10d paragraph 2 and article 2:24 (Civil Code) 77 Article 10d paragraph 3 Corporate Income Tax Act 1969
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its annual average equity multiplied by the debt/equity ratio of the group. If there
is no excessive debt, then the thin capitalization provisions do not apply. The
request for comparing the ratios must be made in the annual tax return (Art. 10D
paragraph 5 Corporate Income Tax Act 1969). If a company belongs to more than
one group, the group with the largest balance total is used as reference (Art. 10D,
paragraph 6 Corporate Income Tax Act 1969).
The limitation of the deduction of interest under the thin capitalization provisions
precedes other limitations of deductible interest. Further, only interest-baring
debts are taken into account, which interest generally would be available for
deduction (Art. 10D paragraph 7 Corporate Income Tax Act 1969). Debts bearing no
interest are only taken into account if the fact that they bear no interest would
not be at arm's length.
21.1 If so, does the limitation apply to loans granted by the business owner
and affiliated persons or does it include loans granted by third parties?
Under the thin-capitalization provisions, interest paid in respect to
excessive debt is generally not deductible, however, the thin capitalization
provisions are only applicable to interest paid to related companies
belonging to the same group. In that respect, companies are considered to
be related and to form a group if they are organizationally related (article
10D paragraph 2 Corporate Income Tax Act 1969; article 2:24B Civil Code).
The thin-capitalization provisions are not applicable to interest paid to the
individual business owner. Interest on loans, granted by the business
owner, will not be restricted from deduction. The thin-capitalization
provisions are not applicable to interest paid to third parties either.
However, both loans do influence the 3:1 (debt-equity) ratio (see question
36).
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21.2 What are the consequences if the debt to equity ratio is not respected?
The interest paid in respect to excessive debt is generally not deductible
(article 10D paragraph 1 Corporate Income Tax Act 1969). The interest on
the non-excessive debt is deductible.
22 Are there any tax provisions likely to impact the conversion of retained
earnings into share paid in capital (ie. share buy-back)?
The conversion of retained earnings into share capital is tax free for the individual
shareholder, although 15% withholding tax must be paid (but will be repaid by
crediting this tax against Income tax).
For purposes of individual income tax, the share buy back by the company can be
regarded as a transfer of shares by the shareholding business owner. The
shareholder should pay 25% income tax on the realized capital gain arising as a
result of the share transfer.
There are no consequences for corporate income tax purposes.
23 Are there any other taxes that have as their object to affect or impact on
either Undertaking debt financing or retained earnings financing?
There are no other taxes that have as their object to affect or impact on either
Undertaking debt financing or retained earnings financing.
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PART 4 – TAX ASPECTS OF BUSINESS INCOME VERSUS PRIVATE INCOME
24 In respect to individual business owners, what is the general tax treatment for
private (i.e.: interest on passive investment) income compared to business
income (i.e.: income generated from your business activity)?
With regard to business owners, the following can be noticed. Income generated
by the business of the Undertaking, will first be taxed at the level of the
Undertaking with corporate income tax. The current rate of the corporate income
tax is 25,5%. After that, the income will be taxed at the level of the business
owner, at a flat rate of 25% in Box 2.
Income generated from business activities in private are taxed – taking into
account the 10% profit exemption – in Box 1 against a maximum rate of 52%.
Private income (i.e. interest on passive investment) will not be taxed in the same
way as business income. Passive investment income, will not be taxed immediately
with individual income tax at the level of the business owner. At the end of the
year, the business owner will have to state the amount of certain of his assets
minus debts. The average net wealth will be taxed with effectively 1,2% income
tax in Box 3.
In a table form:
The Netherlands
Table 6 Private Investment Income
Business Income
Box 3, income tax, i.e. article 5.1 Income Tax Act 2001 and further.
Box 1 income tax, i.e. article 3.1 Income Tax Act 2001 and further.
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24.1 Are there different allowances or special treatments for private
investment income and business income?
The taxation of business income and the taxation of private investment
income are taxed differently. Business income is taxed at a rate of
maximum 52% in Box 1 (or at a rate of 25% in Box 2 if the business owner
has a substantial interest in the Undertaking). Passive investment income is
not taxed directly, but the net wealth will be taxed with 1,2% in Box 3.
In Box 3, an equity of EUR 20.014 (2007 figures) per person is not taxable.
Equity exceeding this amount is taxable at an effective rate of 1,2%.
In general, sole traders can deduct a certain amount from their results in
Box 1, as a “self-employed persons´ allowance”. Furthermore, under
certain circumstances, the sole traders can deduct an amount of EUR
11.436 as costs for research and development. Apart from that, 10% of the
results of sole traders is exempt78.
25 Is there a different tax treatment for interest income received in a private
investor’s capacity (i.e.: business owner investment return in another
Undertaking) and interest income earned through business activity (i.e.:
business owner investment return from the Undertaking)?
Interest income derived from the own corporation is taxable in Box 1 at a
maximum rate of 52%. Interest income received in a private investors capacity
(from a corporation in which the business owner does not own 5% or more of
received from third parties) will be taxed via Box 3 (effective rate of 1,2% over the
net wealth).
26 Does the tax system encourage business owners to invest in private assets,
which are subsequently rented or leased to their enterprises?
The Dutch tax system does not encourage business owners to invest in private
assets, which are subsequently rented or leased to their enterprises. If a business
78 Article 3.79A Income Tax Act 2001
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owner will invest in this way, the income derived from the assets, will be taxed at
the level of the business owner at a maximum rate of 52%. Rented/leased assets to
third parties are taxed much lower.
27 By opposition to Question 26, does the tax system encourage that assets be
acquired by the Undertaking and rented or leased to the business owner?
The Dutch tax system does not encourage businesses to invest in assets that will be
rented or leased to the business owner. There are no specific regulations in Dutch
tax system which encourage this.
28 Are capital gains from private assets taxed in the same way as capital gains
realised within the context of a business activity?
Capital gains regarding private assets are indirectly taxed in Box 3 at an effective
rate of 1,2% over the average net-wealth. Capital gains within the context of a
business activity are taxed with corporate income tax (at a rate of 25,5%) at the
level of the corporation or, if sold by the individual business owner, at the level of
the business owner at a maximum rate of 52% in Box 1.
28.1 If capital gains from private assets are taxed lower, does this
represent an important incentive for the business not to invest in their
own Undertaking?
The lower taxation of capital gains regarding private assets does indeed
represent an important incentive for the business owners to invest in their
own Undertaking.
29 Are interest expenses incurred on private debts deductible for tax purposes?
Interest expenses on private debts are not deductible for income tax purposes,
unless it is used for financing the business (as sole trader) or investing in an own
house.
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30 Is there a tax advantage for the Undertaking in transferring debts from the
business owner to the Undertaking?
If the business owner has debts, he normally cannot deduct his interest expenses.
By transferring his debts to the corporation, the corporation can deduct the
interest paid to the third party, but will claim interest on her turn from the
business owner. No tax advantage will exist.
31 Is there a tax advantage for the business owner in transferring debts from the
business owner to the Undertaking?
No, see the answer on question 30.
32 Are there other taxes such as inheritance tax which have an important impact
on own equity and retention of earnings decisions?
For SMEs and the business owners of SMEs, there aren´t any other taxes which
might have an important impact on own equity and on the retention of earnings
decisions.