The Netherlands covers an area of about 41,526 square kilometers with a population of about 16,829,000. The official language is Dutch and the official currency is the Euro. The Netherlands is divided into 12 regions.
The Netherlands is a parliamentary Monarchy:
- the Government runs the executive power;
- the Parliament has two chambers.
There are about 140 incorporated banks, resident banks and branches of foreign banks. Most banks enrolled with the NBV (Dutch Banking Association), which protects and represents them.
In the Netherlands the principle of worldwide taxation rules, i.e. resident individuals are taxed on income earned anywhere. Non-resident individuals are taxed only on income earned in the Netherlands, such as income from qualified shareholdings in companies resident in the Netherlands.
The Dutch tax system comprises of direct and indirect taxes. Direct taxes include the income tax (inkomstenbelasting), which includes: wages tax (loonbelasting) and income of legal persons tax (vennootschapsbelasting). Indirect taxes are: inheritance tax and donations tax (successie en schenkingsrecht), excise duties on alcohol (accijns op alcoholhoudende dranken), import of certain goods taxes, VAT (omzetbelastingbelasting over de toegevoegde waarde), stamp duty (overdrachtsbelasting), and some other taxes such as on manufactured tobacco, on energy products and electricity.
Taxation of legal entities
Corporate tax is applied to the profits of companies, such as public limited companies (NV) and limited liability companies (BV). Foundations and associations can also be taxable, if they run any business. The corporate tax rates in the Netherlands are 20% and 25%:
– tax rate is 20% on up to € 200,000 of taxable income;
– tax rate is 25% from € 200,001 euro or more of taxable income.
Tax rates are applied to income brackets. A company with a taxable income of 250,000 Euro is taxed at 20% on the first € 200,000 and at 25% on the remaining 50,000 Euro.
Taxation of individuals
The taxation system of personal incomes in the Netherlands is called “Box System”. Incomes are divided into three categories called “box”, each with a specific taxation.
Box 1 – Work and home ownershiptaxable income. This category includes employment income (i.e. salaries and corporate profits) and rental income taxed at progressive rates. Tax rates are broken as follows:
|Income Brackets||Individual Tax||Social Security||Total|
|Up to € 19,645||8.35%||28.15%||36.25%|
|From € 19,646 to € 33,363||13.85%||28.15%||42.00%;|
|From € 33,864 to € 56,531||42.00%||0.00%||42.00%;|
|Beyond € 56,532||52.00%||0.00%||52.00%|
Box 2 – Capital taxable income. It includes taxpayers holding at least 5% of company’s shares, options or profit sharing certificates. Income from this capitalgain is taxed at 25%.
Box 3 – Savings and investments taxable income. Savings and investments have an alleged yield of 4%, which is taxed at a flat rate of 30%.
Entities with economic activities and self employed are subject to VAT. VAT is applied on goods and services price tax base, at the following rates:
– standard rate is 21%;
– reduced rate is 6% (for some products, such as food, pharmaceuticals, books and newspapers);
– zero rate for exports and intra-UE trading.
Dividends exemption attracts many foreign companies in the Netherlands.
Dividends from a company resident or non-resident in the Netherlands are subject to tax payment. Since January 2010, dividends exemption applies in case both the following conditions occur:
- A Dutch company holds at least 5% of the share capital of a subsidiary, or 5% of the voting rights. In this case, the subsidiary must be established in a EU member state with tax agreements,includingdividends tax reduction on the basis of the share holders rights to vote in the company resolutions;
- Participation is maintained for business or commercial reasons, and not as an investment portfolio.
Dividends exemption is still applicable, even thoughthe second prerequisite is missing, provided one of the following conditions occurs:
1) less than 50% of the subsidiary investments arepassive investment portfolio.
2) more than 50% of the subsidiary investments are passive investment portfolio, but it is taxed by its jurisdiction with a company tax rate not lower than 10%.
Dutch legislation offers significant reliefs when companies decide to develop investments and sustainable enterpriseoperations, such as the sale of goods related to the environment, or energy. Enterprises sustainable initiatives are:
- small-scale investments;
- environmental investments;
- energy–related investments.
Labour and social security system
Labour cost in the Netherlands varies according to employees’ categories: a worker earns from € 1,650 to € 2,100; an employee earns from € 2,300 to € 2,500; an executive earnsfrom € 5,000 to € 9,000.
Employees working in the Netherlands are subject to the Dutch social security system. There are two social security schemes in the Netherlands: one applies to employees, the other applies to all other workers.
Social security basically protects all people living and working in the Netherlands. Social security contributions paid by employees include:
- The State Pension (AOW) – 17.9%;
- The National Survivor Benefits(ANW) – 0.60%;
- The Health Care (WLZ) – 9.65%;
- The Children Benefits (AKW) – 0.00%.
Total is 28.15%
Contributions paid by employers include:
- Work and income law based on earning capacity (WIA) – 5.25%
- Unemployment insurance (WW) – 2.07%
Every employer pays a contribution related to health care at 6.95% of the income, and it is due up to an income of € 51,976.
The Dutch legislation helps entrepreneurs with friendly laws and easy bureaucracy, cutting times thanks to new infrastructures and innovative logistical choices. The most common enterprise typesin the Netherlands are:
Sole enterprise (Eenmanszaak): it is a very simple way to run a business, requiring a simple registration at the Dutch companies registry, with no notary deed. The Sole enterprise can hire employees. The owner is liable for enterprise debts with her/his personal capital. This form of enterprise gives its owner the minimum pension, it is however possible to integrate it with a further pension scheme.
General partnership (Vennootschap Onder): this company associates two or more people. It can be with or without a notary deed, and the shareholders confer money or assets within the company. There is no minimum capital. In case of company default the owners are liable for its debts with their personal capital and assets.
Limited Partnership (De Commanditaire Vennootschap): this company is owned by one shareholder or more.They are divided in two categories: shareholders running the business as directors and shareholders who are only involved with money or assets. There is no need for written Company Bylaws, but usually the company articles of agreement are put into writing. The shareholder directing the company is liable for company debts with personal capital and assets. The other shareholders (in Dutch they are called “silent shareholders”) are only liable with their deposited capital.
Limited Liability Company (Besloten Vennootschap): It can be set up by one or more persons. This kind of company can hire an external manager. The set up of a Limited Liability Company requires a written notary deed. The minimum share capital is 0.01 Euro (as per Law October 1st, 2012 “Institute of Flex – BV”). The Limited Liability Company is a legal entity, and as such shareholders are liable for social obligations only with the conferred capital. The Limited Liability Company is required to keep accounting records. It is not required that its director be Dutch or a Dutch resident. There is a statutory restriction on share trading, due to the right of first refusal.
Limited Company (Naamloze Venootschap): as it applies to the BV, the share capital is represented by shares, but unlike the BV the minimum share capital is 45,000 Euros; shares can be transferred with no right of first refusal. These companies are usually operated by large holdings, using their shares as a financial instrument, complementary to debts. The shareholders data are not kept in any register.
SE (European Company): these companies run business internationally and can be based in any European location. The minimum share capital required is € 120,000, divided into shares. This company can be set up by: merging, creating of a holding company, or a restructuring of a preceding company. The SE is pursuant to European regulations, requiring that this kind of company cannot be set up by persons, or partnerships made by persons; in case the European SE rules are not specifically applicable, the Limited Liability Company law becomes applicable. The SE structure may have a centralized organization, having directors run operations on a daily basis, while supervisors manage long-term activities; or there may be a separated management of directors and supervisors, each with its specific duties.
The directors’system of liability
The purpose of the Dutch law is to protect enterprise creditors interests. Directors of companies with limited liability regimes found guilty of improper administration become liable of companies debts. The same liability is also applicable in case of directors of associations who are empowered with decisional tasks and are liable for the tax policy applied to their company.
According to the Dutch law, appointed directors with no financial management are in any case liable for company debts; in some cases, the directors’ liability is applicable also without a written appointment in case they are identified as de facto directors on behalf of the company.
In particular, the director is also liable if the company cannot pay government taxes, such as:
- income tax
- insurance premiums and pension funds
- excise taxes
- fees related to alcohol and gambling