The Netherlands from a fiscal perspective

There’s a lot for you to deal with when you’re doing international business: Import tariffs, value added taxes and other legal and fiscal issues. Oost NV can help you find the right information and contacts in the Netherlands to be successful in European markets.

The Netherlands has a strong reputation as “The Gateway to Europe”. This is not an empty slogan; we make it real by having the most efficient and advanced customs service in Europe. Compared with other EU countries, the customs process in the Netherlands is flexible and efficient, which makes it very attractive especially for non-European exporters. By exporting to Europe through the Netherlands, you can prepare your shipments for further distribution throughout Europe without having to pay VAT or import duties during storage. In addition, the Netherlands has an attractive tax climate that is beneficial for establishing your logistic activities, marketing and sales or European headquarters.

Do you want to profit from the advantages that Netherlands offers in doing successful business in Europe? More than 10,000 companies from outside the Netherlands have gone before you and are happy to tell you why they chose for the Netherlands. They usually go through this process in three phases:

1. Export
2. Marketing & sales logistic activities
3. Establishing a European headquarters.

The step-wise plan shown below demonstrates relevant information regarding these steps. If you have additional questions, we’d like to hear from you. Don’t hesitate to contact us.

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Step 1: Export

Import duties

For import and export of products from the Netherlands to other countries within the European Union there are no import duties due. If you transport products from outside the EU into the Netherlands you must pay import duties. These are:

• Customs duties
• Comparable charges (such as anti-dumping levies)
• Taxes levied in conjunction with EU agricultural policy

Various fees and levies vary per country and product.

In the Netherlands it is possible to claim that you are making use of a “customs depot”. This is storage space that is under the supervision of the customs state. There are various kinds of customs depots in the Netherlands.

A significant advantage of a customs depot is that no import duties or other taxes, such as VAT, are required to be paid. They are, however, once your shipment is sent on its way. Effectively this is a postponement of paying duties and VAT until delivery is actually made. This provides a significant cash flow advantage to exporting companies.

Should you import goods through the Netherlands to another non-EU country, then you pay no import duties nor other taxes (such as VAT) as your products have never entered into the EU transport system.

For products that have the Netherlands as a final destination, or other EU country, then you must pay import duties. If the goods are sent through to another EU country, and won’t be remaining in the Netherlands, then you only pay import duties in the Netherlands.

VAT

For exporters from outside the EU the rule of thumb is that VAT is owed at the moment the shipment enters the EU transport system.

Relying on the so-called “reverse-charges Article 23” it is possible to avoid the actual payment of the owed VAT. If you have a permit for Article 23, you owe no VAT to customs authorities at the moment of declaration. Instead, you declare the VAT in your VAT return and you pay no net tax. This arrangement is only possible for Dutch companies or foreign companies that have a permanent location in the Netherlands or a tax representative for VAT.

Cash flow advantage

This Article 23 arrangement is unique in Europe and makes the Netherlands a very attractive location for non-EU exporters. The rule results in an interest and cash flow advantage, which for capital goods can become quite costly.

Step 2: Establishing Marketing & Sales and Logistic functions

The fiscal regulations in the Netherlands make it quite attractive for foreign businesses to locate their expanding activities here. There are a number of legal forms of business that you can choose, the most popular being a branch or an LLC (BV) each with their own fiscal consequences.

Corporate taxes

The corporate tax rate for in the Netherlands is lower than the corporate tax rates in Germany, France or Belgium. For more information see: taxes in Europe.

The corporate tax rates are:

• 20% tax rate for up to € 200,000 taxable profit (2012)
• 25% tax rate for above € 200,000 taxable profit (2012)
• 5% (effective) tax rate for taxes on innovation (“Innovation Box”)
• 0% (effective) tax rate for dividends received from a Dutch LLC (under conditional exemption)

Withholding taxes

Unlike many other European countries Netherlands imposes no (or low) withholding tax on dividends to shareholders, either foreign or domestic (including cooperative structure or use tax), interest payments and royalty payments.

Income and payroll taxes

In the Netherlands, income is taxed at a rate of 33% to a maximum of 52% (depending on income level). This includes social security contributions (for the employee).
For expatriate personnel and R&D personnel there are tax arrangements in which the effective salary costs for the employer decline:

• 30% facility for expatriates
• tax on wages up to 40% for R&D personnel (WBSO rule)

Rulings: be sure about your taxable base

In addition to the relatively low tax rates and the lack of withholding taxes, there is also the opportunity to take advantage of an Advance Tax Ruling or Advance Price Agreement from the tax authorities. This is very unique and can be a very attractive feature of the Dutch tax system.

The Dutch tax authorities examines how much of the business activities actually take place in the Netherlands and uses this as a guide for taxation. If, for example, there are only logistic activities taking place in the Netherlands, whereas the entire sales process takes place at the foreign headquarters, then the taxable profit (tax base) in the Netherlands is ruled as small and the tax liability is lowered. The more “physical” activities that take place in the Netherlands, the higher the tax base, and the more tax is levied in the Netherlands. At the same time, a high tax base can be lowered by the use of various mechanisms and facilities.

Step 3: Financial functions to the Netherlands: European headquarters

Certainly, as foreign companies relocate more of their business activities in the Netherlands (sales, logistics, financial services, R&D and production), and the more income is generated within the Netherlands, it is in the interest of the company to look for favorable fiscal arrangements so that more of the profit can be reaped for the company and, eventually, the shareholders.

The Dutch tax system offers plenty of possibilities to do so. Some of the most important are:

• Participation exemption: No sales profit tax or on payable dividends in the Netherlands
• Of all EU countries, the Netherlands has the widest network of bilateral treaties, with more than 80 countries. These treaties avoid “double taxation” and avoid virtually all withholding taxes on dividends paid and received.
• Taxable income (tax base) is based on a cost-plus calculation for supporting activities (or on the basis of a percentage of the revenue generated in the Netherlands). In practice this means that tax is only paid on activities that actually take place in the Netherlands.
• The tax authorities don’t keep you guessing: the rulings are in place for a number of years and any changes are announced well in advance of implementation.

Through a well-constructed holding structure and/or a Dutch cooperation (COOP) you can reap significant benefits from the pro-business tax structure of the Netherlands.

For more information we refer you to the NFIA publication “Why Invest in Holland?”.

Disclaimer: Oost NV assumes no direct or implied liability for the information contained above.