Taxation

Corporate tax

The corporate income tax rate:
(For both Dutch resident corporations as well as Dutch permanent establishments)
2006:
25.5% on taxable profits up to EUR 22,689
29.6% above that proposed for 2007: rates will be further reduced to
20% on taxable profits up to EUR 25,000
23.5% on taxable profits between EUR 25,000 and EUR 60,000
25.5% above that advance tax rulings

More important than the statutory corporate income tax rate are the effective tax benefits, i.e. what tax payments effectively will amount to as a percentage of commercial profits. In this regard, there are various tax planning techniques available when operating in or through the Netherlands to mitigate the effective tax burden on the warehousing, distribution, sales, and manufacturing activities of a company in the Netherlands. In order to know with certainty in advance what the corporate income tax profile of a Dutch office will be, an advance tax ruling from the tax inspector may be obtained.

Avoidance of double taxation

The Netherlands has a superior treaty network for the avoidance of double taxation. The treaty is created as part of an overall policy of removing obstacles to international flows of goods and capital as far as possible. It is believed that withholding taxes on dividends, interest, and royalties need to be as low as possible, preferably zero. In line with this policy, there are no withholding taxes on ordinary interest and royalties. Furthermore, most tax treaties lower the withholding tax on outgoing dividends.

Besides with the UK, the Netherlands has signed treaties with more than 60 other countries for the avoidance of double taxation on income and capital. In addition, dividends received by resident corporations that qualify for the "participation exemption" or "affiliation privileges" are exempt from corporate income tax.

30% Ruling for expatriates

The Netherlands has a special tax regime for expatriates, the so-called 30% ruling, which provides a substantial income-tax exemption (up to 30%) for a period of up to 120 months. This is viewed as a reimbursement of the extra costs involved in living abroad.

According to 30% rule, the employer may grant the employee a tax-free allowance up to a maximum of 30% of his remuneration. The remuneration includes incidental and flexible forms of income such as bonus payments and stock options. Termination and pension payments are excluded. The exemption is available for a period of 10 years (120 months). The law stipulates that after a period of five years the tax authorities can request the employer to demonstrate that the employee still meets the conditions. The period will then, at the joint request of employer and employee, be continued up to the full 10 years.