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Subject to the levy of Dutch personal income tax are any individuals who are: (1) resident in the Netherlands (resident taxpayers); and (2) non-resident enjoying domestic income (non-resident taxpayers).
For Dutch tax purposes, a person is resident in the state where the centre of his or her personal and economic interests is situated. This position is determined based on all relevant facts and circumstances. For the sake of clarity, we note that the Netherlands does not count days in this respect.
Both resident taxpayers and non-resident taxpayers are taxable in personal income tax, which is divided into three boxes.
Box 1 taxes income from work and home ownership (among others, business activities, employment and other activities). The tax rate is as follows:
Box 2 taxes income, such as dividends and capital gains (at market value – cost price), from a substantial shareholding in a company in the Netherlands and abroad (at a flat rate of 26.9 per cent (2022)). A taxpayer, in short, has a substantial shareholding in accordance with Dutch tax laws if he or she holds, directly or indirectly, either alone or together with a partner at least 5 per cent of the nominal issued share capital of a company (Dutch or foreign), or option rights on 5 per cent of the issued share capital.
Gifts and inheritances of Box 2 shares are taxable disposals in the income tax (even though there is no consideration). If it concerns an active business, business succession facilities may apply by means of which the transfer should not trigger immediate capital gains tax. The recipient then takes over the cost price of the former shareholder.
If an individual moves to the Netherlands with a substantial shareholding, a step-up of the cost price to the market value is granted. On the other hand, an emigration (if the individual has lived in the Netherlands for more than eight years) is considered a deemed disposal of the shares at market value. The capital gain tax does not have to be paid immediately, but a protective assessment is issued that does not expire. This protective assessment will be collected in certain events, such as sale of the company or a dividend.
Note that for non-resident taxpayers, Box 2 only taxes substantial shareholdings in Dutch companies.
Box 3 taxes income from savings and investments. Under this system, a fixed annual fictitious yield of the wealth is taxed, whereby a (fictitious) distinction is made between wealth held as savings and as investment. Whether wealth is savings wealth or investment wealth depends on the total value of the taxpayers’ wealth. Thus, Box 3 does not tax the actual income on savings and investments.
The wealth, which serves as a base for calculating the fictitious yield, is calculated to the fair market value of all capital and assets minus liabilities (e.g., consumer loans), all measured on 1 January of the taxable year.
The current (2022) fictitious yields are:
The taxable base multiplied by joint fictitious yield will be taxable at a rate of 31 per cent. The effective tax rate on the value of the assets in Box 3 for 2022 is then calculated between zero per cent and 1.7143 per cent.
Non-resident taxpayers becoming resident taxpayers may opt for a specific tax regime called the 30 per cent facility. The facility could apply for five years. To be eligible for the 30 per cent facility, one must:
We note that an application must be filed to apply the 30 per cent facility and that specific rules may apply when changing employer. The advantages of the 30 per cent facility are twofold: first, in short, 30 per cent of the salary is exempt in Box 1; and second, the taxpayer may opt to be taxed in Box 2 and Box 3 as a non-resident taxpayer. This means, in short, that passive non-Dutch sourced income and assets are exempt.
One of the key trends is that Box 3 is being discussed heavily. In fact, the Dutch Supreme Court has previously stated (2019) that the Box 3 system may constitute an excessive burden where the fictitious yield of Box 3 is (too) hard to realise. The Supreme Court did not enforce any measures but they left it for the legislator to appropriately amend the law. However, on 24 December 2021, the Supreme Court ruled that the Box 3 regime is incompatible with EU law as from 2017 and the Supreme Court offers legal redress by, in short, only allowing tax on the actual return. The Ministry of Finance and Tax Authorities will need to compensate certain taxpayers as from 2017. The State Secretary of Finance is working on a new Box 3 regime that taxes the actual returns. It is announced that this tax will be introduced in 2025. The further details of the Box 3 system as per 2025 are not yet known.
Due to the Box 3 system, many taxpayers have chosen to contribute their portfolios in a legal entity they control, thereby placing their assets in Box 2 rather than Box 3. The advantages of Box 2 are numerous and, in relation to that, a considerable part of parliament seems displeased by the advantageous rules Box 2 offers and the increase of taxpayers in Box 2. Thus, a rebalancing act of Box 2 and Box 3 is on the political agenda. One of the first measures that is potentially introduced is that a substantial shareholder is subject to tax in Box 2 for the debts to the company over a certain amount based on a deemed dividend. On that note, there are various other legislative proposals to amend various aspects of Box 2. These proposals are, however, uncertain, complex, subject to political scrutiny, as well as too numerous to address in this chapter.
In the Netherlands, gift and inheritance tax is levied from the recipient. However, the connecting factor to determine whether a gift or inheritance tax is taxable is the place of residence of the donor or deceased.
Gift and inheritance tax is due on anything of value acquired on the account of a person’s death or donation as a (deemed) resident of the Netherlands. For both the gift and inheritance tax deeming provisions apply whereby a person can be deemed to live in the Netherlands for gift and inheritance tax purposes if they are:
As from 2010, we no longer tax the transfer by means of a gift or inheritance of Dutch situs assets, such as real property, with Dutch gift or inheritance tax.
The tax rates for gift and inheritance taxes for partners and children are (all amounts in euros):
For (great)grandchildren, percentages of the above-mentioned table should be multiplied by 1.8.
The tax rates for gift and inheritance taxes for other beneficiaries are:
The Netherlands has concluded several treaties for the avoidance of double taxation with regard to gift and inheritance tax:
The Netherlands does, under certain conditions, provide unilateral relief to prevent international double taxation on gift and inheritance tax. As gift and inheritance tax law and the connecting factors differ greatly across jurisdictions, double or multiple taxation remains a risk.
The applicable exemptions for inheritance tax are (2022 rates):
The inheritance of pension rights is exempt from inheritance tax.
The most important exemptions that apply to gift taxes are as follows (2022 rates):
Gifts made by or to two partners are aggregated for gift tax purposes. For the purpose of the tax rates, the closest relation between two parties (one donor and one donee) is taken into account.
In the case of a transfer of business assets by means of a gift or inheritance, substantial exemptions could apply.
The exemption entails that, upon request and if the conditions are met, the effective rate (above the exempt business assets of €1,134,403 (2022)) is lowered to 3.4 per cent instead of 20 per cent (parents/children), and that for the remaining taxes, conditional extension of payment can be obtained. The most important condition is that the business must be continued for a period of five years after the transfer by the donor or deceased. For gifts, the transferor must have carried on the business for his or her own account for at least five years preceding the gift. In case of an inheritance, this term is only one year instead of five. If the business is discontinued within five years, the facilities are rejected and taxes will be collected. If the business is discontinued partially, the rejection of the facilities relates only to that part. The conditional exemptions become unconditional after five years if the business was not discontinued.
The Dutch rules on succession of business assets have been a source of political debate for a long time. Opponents of the substantial exemptions state that there is no meritocratic basis for lenient rules on business succession and often propose to merely allow for a payment extension. Proponents state that the continuity of (family)businesses is at stake when they are confronted with a high tax bill when transferring the business within the family. Owners of businesses tend to use the current facilities as much as possible (because the facilities will presumably not get any better when they are altered).
Academically, the lack of international coordination regarding international double taxation of gifts and inheritances has often been addressed. The recent OECD report ‘Inheritance taxation in OECD countries’ proposes harmonisation of unilateral relief as a possible solution to this.2 This report could also be a reason that the overall tax burden on gifts and donations will be raised.
Corporate income tax is due on profits made by, among others, the following type of entities:
The corporate income tax rates are progressive. As of 2022, a 15 per cent corporate income tax is levied on the first €395,000 profit. The profits exceeding €395,000 are taxed at 25.8 per cent.
The open economy is encouraged in the Dutch corporate income tax system. It contains a 100 per cent participation exemption for active or ordinarily taxed subsidiaries in which at least a 5 per cent participation is held, a corporate consolidation scheme as well as a patent regime for innovative activities. The Netherlands currently has no source taxes on interest and royalties, except when it concerns an abusive, low-taxed, structure.
We note that, in recent years, the corporate income tax is updated with the necessary provisions to make it compliant with European directives such as the Anti-Tax Avoidance Directive.
Dividend withholding tax rate amounts to 15 per cent. Previously withheld dividend withholding tax is deductible in the personal income tax return.
Generally, intercompany dividends paid by a Dutch company are exempt from Dutch dividend withholding tax if certain conditions are met. For example, such is the case if the shareholder is located in an EU member state (or a country with an applicable tax treaty) and the Dutch participation exemption would apply if the foreign entity would be located in the Netherlands.
However, if certain anti-abuse measures apply, Dutch dividend withholding tax is levied nonetheless over the proceeds at a current tax rate of 15 per cent. One of the anti-abuse measures applies when the following criteria are met:
This anti-abuse rule has a particularly significant impact on family-owned businesses when the shareholders live abroad and hold the Dutch participation via a non-Dutch holding company. At this moment it can be hard to prove the structure is not abusive in the meaning of the above-mentioned tests. ‘Relevant substance’ could help in that respect as it shifts the burden of proof to the Dutch tax authorities.
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