Netherlands Types of Company:

Although the Netherlands has a sophisticated tax system with high tax rates some aspects of its fiscal system are extremely attractive and make it the ideal location in which to base international trading operations. Attractive fiscal incentives are further enhanced by a complex network of double taxation treaties (few of which contain any anti avoidance provisions) and by the existence of a procedure of advance tax rulings whereby the tax authorities who are autonomous and approachable can at short notice specify the fiscal consequences of certain business structures provided that material financial interests are involved and the propositions are reasonable.

The Dutch government announced in 2004 that it would cut the country's corporate tax rate to 31.5% in 2006 from 34.5%, with a further cut to 30% slated to take place by 2007. This reduction will bring the country's corporate tax rate below the average rate in the old EU15, which currently stands at 31.4%. The move has likely been made in the knowledge that the average corporate tax rate in the new member states, located mainly in the former Eastern bloc, is 21.5%.

In 2005, the government put forward further reductions in corporation tax: as from 1st January, 2007, the starting rate of corporation tax will be lowered to 20% on the first €41,000 of profit, compared with the current 27%, and the headline rate of corporation tax will be reduced from 31.5% to 26.9%. Owners of small and medium-sized enterprises will benefit from an exemption of at least 5% of their profits.

The proposals also include a proposal to reduce the tax rate for profits derived from intercompany financing and treasury activities to 10%, and confirm the already announced abolition of the capital duty of 0.55% on the issue of share capital.

In anticipation of confirmation of the Marks & Spencer ruling on cross-border loss relief by the European Court of Justice, the government proposes to allow relief for losses incurred in other EU Member States. In addition, participation rules will be relaxed by eliminating the nonportfolio and "subject to tax" requirements. For "passive" participations, a "sufficient" tax rate test (possibly 10%) would be introduced.

The total package is however designed to be revenue-neutral, and the give-aways will be financed inter alia by reducing the carryback of losses from three years to one year, by limiting carryforwards, by abolishing the temporary deduction for losses on newly acquired participations, and by capping the depreciation of real estate to the extent the book value of a property is below the fair market value.

Version date: 07.05.06