The Netherlands
Setting up your Business Company
Corporate taxation in the Netherlands

Corporate taxation in the Netherlands is structured to attract international businesses while ensuring robust revenue generation. The Dutch tax regime includes several key components, including corporate income tax rates, tax incentives, and anti-avoidance measures. Here’s a comprehensive overview of the corporate tax system in the Netherlands:

Corporate Income Tax (CIT) Rates

The Dutch government has implemented a tiered system for corporate income tax, which encourages smaller businesses by offering a lower rate for the first bracket of taxable income. The 2024 CIT rates are as follows:

• 15% on taxable profits up to €200,000.
• 25.8% on taxable profits exceeding €200,000.

This progressive rate structure is designed to be competitive compared to other EU countries. The threshold for the lower rate was reduced from €395,000 in 2023 to €200,000 in 2024, as part of ongoing fiscal adjustments.

Taxable Entities

All companies resident in the Netherlands are subject to CIT on their worldwide income. A company is considered tax-resident if it is incorporated under Dutch law or if its place of management and control is located in the Netherlands. This includes:

• Public Limited Companies (NVs).
• Private Limited Companies (BVs).
• Foundations and associations engaged in business activities.

Foreign entities with a permanent establishment or income-generating assets in the Netherlands are taxed on Dutch-source income only.

Determination of Taxable Income

Dutch corporate tax is levied on the company’s worldwide income, including:

• Profits from business operations.
• Capital gains (with certain exceptions like the participation exemption, which is explained below).
• Passive income such as interest, royalties, and rental income.

Key factors influencing the calculation of taxable income include:

• Deductions: Companies can deduct business expenses, interest on loans, depreciation, and other costs directly related to generating income.
• Depreciation: Fixed assets can be depreciated according to their useful life. Special rules apply for real estate depreciation, which can only be written off until the book value reaches 100% of the property’s market value.

Participation Exemption

The Participation Exemption is one of the most attractive features of the Dutch tax system. It provides an exemption from CIT on dividends and capital gains from qualifying shareholdings of at least 5% in a subsidiary. This is designed to prevent double taxation of corporate profits.

To qualify, the subsidiary must be engaged in active business operations and meet either of the following tests:

• Asset test: Less than 50% of the subsidiary’s assets are passive.
• Tax test: The subsidiary is subject to a reasonable tax regime in its home country (i.e., at least 10% effective tax rate).

Innovation Box Regime

The Netherlands offers the Innovation Box, a preferential tax regime for income generated from qualifying intellectual property (IP). Under this regime, qualifying profits from IP can be taxed at a reduced effective tax rate of 9% instead of the regular rates.

Eligible IP includes:
• Patents.
• Software.
• Plant variety rights.
• IP resulting from approved R&D projects.

The Innovation Box aims to promote research and development (R&D) and incentivize companies to locate their IP and innovation activities in the Netherlands.

Loss Carryforward and Carryback

Dutch tax law allows companies to carry back losses to offset profits from the previous year (1 year carryback), and they can be carried forward indefinitely to offset future profits. However, losses can only offset up to 50% of taxable profits exceeding €1 million per year. This provision allows businesses to smooth their tax burdens over time, especially if they have fluctuating profits.

Withholding Taxes

The Netherlands imposes withholding taxes on certain cross-border payments:

• Dividends: A 15% withholding tax on dividend distributions to foreign shareholders. This can be reduced under double tax treaties or the EU Parent-Subsidiary Directive. Dividends paid to shareholders in EU member states or countries with which the Netherlands has a tax treaty may be exempt from withholding taxes.
• Interest and Royalties: No withholding tax on interest and royalty payments (unless the anti-avoidance rules apply). However, from 2021, the Netherlands introduced a conditional withholding tax on interest and royalties paid to low-tax jurisdictions (with a tax rate below 9%) or in abusive structures. This rate is 25.8% in 2024.

Controlled Foreign Company (CFC) Rules

To combat tax avoidance, the Netherlands introduced CFC rules in line with the EU’s Anti-Tax Avoidance Directive (ATAD). Under these rules, income earned by low-taxed foreign subsidiaries may be taxed in the Netherlands if the subsidiary does not carry out substantive economic activities.

A foreign subsidiary qualifies as a CFC if:
• The Dutch taxpayer holds more than 50% of the voting rights, capital, or profit rights.
• The subsidiary is located in a jurisdiction with a tax rate below 9%.

Transfer Pricing

The Netherlands follows the OECD Transfer Pricing Guidelines, requiring related companies to transact at arm’s length prices. Dutch companies must maintain adequate documentation to justify their transfer pricing policies.

If a company fails to comply, the Dutch Tax Authorities may make adjustments to taxable income based on estimated arm’s length prices. Advance Pricing Agreements (APAs) can be obtained to secure certainty on the arm’s length nature of transactions in advance.

Anti-Avoidance Measures

The Netherlands has robust anti-avoidance rules to prevent tax base erosion and profit shifting (BEPS), including:

• Interest deduction limitations: Excessive interest expenses are limited under the earnings-stripping rule, which limits net interest deductibility to 30% of the taxpayer’s earnings before interest, taxes, depreciation, and amortization (EBITDA). There is a threshold of €1 million below which the limitation does not apply.
• Exit tax: If a company relocates its assets or tax residency outside the Netherlands, an exit tax may apply on capital gains that have accrued within the Dutch jurisdiction.

Tax Incentives

In addition to the Innovation Box, the Netherlands offers other incentives to stimulate investment:

• WBSO (Research and Development Tax Credit): Companies engaging in R&D activities can receive wage tax reductions for employees involved in R&D, as well as cost-based benefits.
• Energy Investment Allowance (EIA): A tax deduction of 45.5% for investments in energy-efficient technologies and renewable energy.

Value Added Tax (VAT)

While not directly part of corporate tax, Dutch businesses must also deal with VAT. The standard VAT rate is 21%, with reduced rates of 9% for certain goods and services (such as food and medicines).

Double Tax Treaties

The Netherlands has a broad network of double tax treaties (DTTs) with over 100 countries, which helps mitigate the impact of double taxation for businesses engaged in cross-border activities. These treaties generally provide reduced withholding tax rates on dividends, interest, and royalties.

Compliance and Filing Obligations

• Annual Tax Return: Dutch companies must file their CIT returns electronically, typically by May 31 of the following year, though extensions are commonly granted.
• Advance Tax Payments: Corporate tax is paid in advance based on estimated profits, with final settlement after the annual return.
• Documentation: Transfer pricing, APA/ATR requests, and other tax-related documentation must be kept up-to-date and provided upon request.

The Netherlands offers a competitive and attractive corporate tax regime, with low tax rates for SMEs, robust R&D incentives, and the well-regarded Participation Exemption. These are balanced by strong anti-avoidance measures, such as CFC rules, transfer pricing requirements, and the earnings-stripping rule.

This mix of tax-friendly policies, transparency, and strict enforcement makes the Netherlands a favorable location for multinational companies, especially for holding companies, R&D hubs, and financial service entities.