TAX ENVIRONMENTCorporationtax rateThe corporation tax rate in the Netherlands depends on the taxable amount.The taxable amount is the taxable profit less deductible losses.The tax rate is 20% if the taxable amount is less than €200,000.The tax rate is 25% if the taxable amount is equal to €200,000 or higher. (government.
nl, 2018)Fiscal unityA parent company can form a tax group, a so-called fiscal unity, with oneor more of its subsidiaries, which allows the group to deduct a loss incurredby one company from the profits generated by another.The establishment of a tax group is only possible under certain conditions, themain on being that the parent company holds at least 95% of the shares in thesubsidiary.Aside from this, all potential group members must have the same financialyear, apply the same accounting policies and be established in the Netherlands.
(idem) Asset Investment TaxReliefInvestments in certain types of assets can qualify fora special deduction in calculating taxable profits. This relief is in additionto the usual depreciation and is computed as a percentage of the qualifyingexpenditure. The available deductions fall into the threecategories below: Small-scale investment deductionThis deduction applies to investments in businessassets of 2,300€ up to11,242€ percalendar year.
The deduction amounts to 28% for investments from 2,300€ up to 56,024€. The maximum possible deduction is 15,687€ for investments of 56,024€ up to 103,748€. The relief gradually decreases to zero whenthe investment reaches 311,242€ Energy investment allowance (EIA)This deduction applies to investments in qualifyingnew energy-saving assets. The maximum investment qualifying for relief is 120million Euros.
The relief amounts to 58% of the investment if it exceeds 2,500€ per calendar year. Environmental investment allowance (MIA)This deduction applies to investments in qualifyingnew assets contributing to environment protection. The relief provided is 36%,27%, or 13.5%, depending on the type of asset and whether the investmentexceeds 2,500€ percalendar year.
(Investinholland.com, 2018) Research and DevelopmentAct (WBSO)Certain R&D activities (development of technically new physical products,production processes, or software) qualifyfor a payroll tax reduction (WBSO).The reduction amounts to 32% (40 percent forstart-ups) of the relevant payroll costs relating to R&D (R&D payrollcosts, but also other R&D costs and R&D investment expenditures), up toa maximum of 350,000€, and 16% for any excess.
(English.rvo.nl, 2018) The Innovation BoxSo as to stimulate R&D activity in theNetherlands, a special elective regime, the so-called “Innovation Box” can be chosento be applied to income from self-produced qualifying intangible assets.
Qualifying income falling in this innovation box will besubject to an effective tax rate of 5%.Generally, intangible assets qualify for the innovationbox in case they are patented or generated from R&D activities that fall underthe WBSO. Under certain conditions, this favourable tax rate alsoapplies to certain software, production methods, product development orimprovement. It can, on the other hand, not be applied to marketing intangiblessuch as trademarks and logos. The 5% tax rate covers all income derived from thequalifying assets, including capital gains. In the case of patents, the regime does not only applyto the actual licensing income generated, but also to the income generated fromthe sale of goods and services that arose from the innovations. All income derivedfrom the elected assets are pooled. The income that can be covered by the innovation box isessentially without a cap, but it usually only covers income exceeding the associateddevelopment costs in the pool.
Losses incurred by assets falling in the innovationbox are also deductible against corporate income at the standard tax rate. (Investinholland.com, 2018) Deductible andNon-Deductible ExpensesIn general, all expenses incurred for the purposes ofcarrying on a business are deductible when calculating taxable profits.Non-deductible expenses include:• Dutch corporate income tax and, in case a doubletaxation relief or an exemption from Dutch tax applies, foreign taxes on incomeor profits• boats used for business entertainment, such ascustomer receptions• certain penalties and fines imposed under Dutch orEuropean law (including traffic fines and tax penalties).
Also non-deductible is 0.4 percent of the total wagebill, with a minimum amount of 4,500€. Alternatively, 26.5% of certain expensesare non-deductible:• food and drink• business entertainment• conferences, staff excursions, and similaractivities.Corporate income tax deductions for equity-settledawards such as shares, stock options, warrants, restricted shares, andrestricted share units are generally not applicable in the Netherlands. The costs related to cash settled awards can bededucted upon payment unless the employee is obligated to convert the cashpayment into company shares.
Stock appreciation rights are only deductible if givento employees with an annual salary below 556,000€. The development costs for in-house developedintangible assets may be deductible provided it is done so in the year costsare incurred. A number of other provisions specifically restrict thededuction of certain expenses, including interest. (Investinholland.com, 2018) Tax Treatment uponCessation of Business LiquidationShould a business go into liquidation, there is nolonger a corporate income tax liability. The company is obligated to prepare afinal balance sheet for tax purposes at the time of liquidation, in which assetsand liabilities are presented at their fair market value. This ensures that all benefits not yet reported fortax purposes are included in the profit for the final financial year. Any distribution above and beyond average paid-incapital is regarded as a dividend distribution subject to 15% withholding tax.
Exemptions or applicable double tax treaties mayreduce this withholding tax. BankruptcyIt is unlikely that bankruptcy leads to a corporateincome tax charge. However, one has to consider specific case lawregarding liabilities the company’s directors have to adhere to specialreporting requirements to circumvent personal liability, particularly concerningVAT and wage tax. Emigration and cross-border asset transfersShould the company relocate abroad, an exit tax mightbe due unless assets of the company are kept with a Dutch permanentestablishment. In the same vein, an exit tax will arise in case of atransfer of assets to a foreign head office or closure of a permanentestablishment.In both cases, the exit tax is computed by taking thegain of the assets transferred, including any untaxed gains and reserves andprovisions. However, exit tax is not usually payable when assetsare transferred from a Dutch head office to a foreign permanent establishment.
Businesses established in and resident of an EU MemberState or a European Economic Area Member State might not be obligated to paythe entire exit tax burden in one go. The exit tax rules allow taxpayers to choose betweenimmediate taxation, a deferral until subsequent realization and payment in tenannual instalments. Should the taxpayer choose for a deferral, it willentail interest payments on the deferred tax plus a collateral, which willusually be a bank guarantee of solvency. (Investinholland.com, 2018)