Tax benefits of starting a business in the Netherlands
Oct 1, 2022
The Netherlands can be an attractive place to do business. We have the legal and socio-economic infrastructure to provide a fertile ground for big businesses with big ambitions. Big ports, a big airport and a well educated population. But the Netherlands also has an attractive tax climate, if you know how to make use of those benefits. In this article we will explore the options available for foreign business owners, and a separate section on benefits on an individual level.
First we will discuss the tax benefits you can expect when registering a new company here in the Netherlands. With company, we mean a BV which is the Dutch equivalent of the British / American limited liability company. Check out this article if you want to know more about the Eenmanszaak (ZZP) business type and its differences with the BV. We can also explain what you can expect in the first year of accounting in your BV.
Profits, dividends and salary taxation
A BV can disburse its profits in two ways: as salary to its directors or as dividends to its shareholders. Salary is an operational expense and thus paid out of the revenues of the BV. Salary is taxed normally under income tax law, with a slightly lower amount in employer’s taxes applying to shareholding directors as compared to regular employees. Income tax is set at a progressive rate of up to 49.50 % (2023). This is higher than the rate that applies to dividend payments. That’s why the Dutch Tax Authorities want shareholding directors to pay themselves a minimum Directors salary of € 51.000 per year (2023), before they can pay out any dividends. Dividends not subject to the Participation Exemption (see below) are taxed under box 2 rate of 26,9%, which is much more favorable than salary payments.
Year-end profits of a Dutch BV are taxed under profit tax rules (VPB in Dutch), which is set at 15% for profits up to € 200,000 and 19% for profits above that (2023). Losses and profits of a Dutch BV can be carried forward/backward and settled with each other, so as to spread out and optimize the profit tax level for the BV. Dividends can only be paid out over the post-tax profits of the BV.
The Participation Exemption for holding structures
If you are using a Dutch holding BV structure, any dividends or capital gains from shares in the subsidiary company are exempt from taxes in the holding company (the so-called “participation exemption”). Be mindful that the participation exemption rule requires that the holding company holds an interest of at least 5% and meets at least one of the rules below:
(i) The consolidated assets of the subsidiary consist of less than 50% of low-taxed free passive investments.
(ii) The objective for investing in the subsidiary is to obtain a return that is higher than what may be expected from regular asset management.
The participation exemption may also work in a holding structure with a Dutch subsidiary and a non-Dutch parent company, or a Dutch holding company and a non-Dutch subsidiary. Beware that the tax-relationship between these two companies will be governed by the applicable tax-treaty between the Netherlands and the country of origin of the parent company. This treaty may prescribe a normal application of the Dutch participation exemption rule, but it may also prescribe an exception to this rule. The Netherlands has double-taxation treaties like this with no less than 96 jurisdictions worldwide, which gives a Dutch holding BV a lot of flexibility in an international holding structure.
The Fiscal Unity
If you are using a holding structure, with multiple subsidiaries, you can form a so-called “Dutch fiscal unity”. This means the entire group can be considered one single tax subject, where you can offset the profits from one subsidiary with losses in the other, lowering your taxable profits.
Interest free current account loans inter-company
Normal intercompany loans are required to contain a market-rate interest on the principal amount. In a Dutch BV-holding structure, there is the exception of the current-accounts agreement. Under this agreement, it is possible to loan up to € 17,500 interest free to or from a parent or subsidiary. This can also apply to a natural person shareholder. A correct current accounts agreement must be in place to make use of this facility.
Labor Cost Scheme
The labor costs scheme (“werkkostenregeling”) means that you can spend a maximum of 1.7% of your total wage bill up to € 400,000 on tax-free payments to your staff. Over the amount above € 400,000 you can spend 1,18% on such tax-free payments. These are usually used for giving perks to loyal employees like gym subscriptions or Christmas gifts. This arrangement can also be used to make tax free payments to directors because they are also employees, after all.
For entrepreneurs: mortgage from your personal holding
Entrepreneurs in the Netherlands can use their holding as a mortgage provider. It can be a very attractive option. Not only is the mortgage interest deductible from your gross director’s salary, you can perform a number of additional tricks too. Here goes: draw a high amount of mortgage from your personal holding. This leads to a high mortgage interest. By making the loan subordinated to other creditors and by not establishing a right of mortgage (which technically just makes this a regular loan, not a mortgage), a higher interest rate is justified. This leads to a high deduction from your taxable income, starting with the income that falls in the highest income bracket (52%). This reduces your Income Tax bill significantly. Of course you need to pay the interest to your holding, but you can later pay this out as dividend to yourself. This is taxed normally, but this tax loss is offset by the gains from mortgage interest deduction.
For employees: the 30% ruling
The 30 % ruling tax exemption is intended as compensation for the expensive life and lifestyle of expat employees in the Netherlands, so called “extraterritorial expenses”. This compensation can amount to 30% of the pre-tax salary of the employee (hence the name). These are the main rules:
You have been recruited from abroad by a Dutch company to come and work in the Netherlands. This means that, prior to being recruited, you must have lived for at least 16 months at a distance of at least 150 kilometers from the Dutch border.
Your annual salary before taxes must be more than € 41,953 (2022). If you hold a master degree and are younger than 30 years, your annual salary before taxes must be more than € 31,891 (2020).
Your employer must be on board with the ruling, which is evidenced by the fact that 30% ruling applicability clauses are part of the employment contract.
Make your request to the Dutch tax authorities within 4 months after the start of employment in the Netherlands.
Additional benefits of the 30% ruling include :
free exchange of your foreign driver’s license for a Dutch driver’s license
application for the Partial non-Resident Status (see below)
option for employer to give tax free reimbursement of international schooling costs for employees children
option for employer to give tax free reimbursement of relocation costs to the Netherlands
For employees: the Partial non-resident status
As part of the 30% ruling, you can apply for the partial non-resident tax exemption. This means you will be considered a tax-resident for Box 1 income (income from regular employment) but non-resident for Box 2 and 3 income (major shareholdings and assets). For expat employees with assets and shareholdings already taxed in their country of origin, this exemption can be beneficial. Cardon & Company is specialized in helping foreigners setting up their business in the Netherlands. If you have any questions, please don’t hesitate to reach out.
