Netherlands

Legal and tax aspects
of doing business in the Netherlands

In view of its proximity to the main European markets, its open economy, its infrastructure and its well developed legal and tax system the Netherlands has for many years been an ideal location for foreign investors to establish themselves with the purpose of developing or expanding their presence in Europe

Naamloze vennootschap (“N.V.”)/Besloten Vennootschap (“B.V.”)/Societas Europaea (“SE”). Most foreign investors will opt to set up a BV (a private limited liability company — registered shares only) as opposed to a NV (public liability company). Alternatively a foreign entity may operate through a branch in the Netherlands. A Netherlands legal entity is incorporated by notarial deed of incorporation before a civil law notary. The incorporators may be represented at the incorporation by way of a power of attorney. Prior to the incorporation the approval of the Ministry of Justice is required (Statement of no objections). Such statement is normally obtained within two weeks. In addition a statement is required from a bank or auditor to the effect that the nominal capital to be issued (minimum €18.000,-) has been paid up in cash, or in kind. Since January 1, 2006 the contribution of capital to a Netherlands company is not subject to capital tax.

Tax aspects

The Dutch tax system is generally considered advantageous to foreign investors primarily because of the following features:

• The Netherlands has a very well developed treaty network which is considered to be one of the best available.
• The Netherlands does not levy withholding taxes on interest and royalties paid to recipients in other jurisdictions.
• The operation of the participation exemption, which provides for an exemption of all income, including capital gains, from qualifying subsidiaries.
• The Netherlands unilateral decree for the avoidance of double taxation and the tax treaties concluded by the Netherlands provide for an exemption system for foreign branch income (as apposed to a credit system).
• The possibility to obtain advance clearance from the competent tax authorities on the tax situation applicable to a foreign or domestic tax payer.

Furthermore, the Netherlands has concluded numerous Bilateral Investment Treaties with developing countries, which provide for a certain protection in respect of investments made in these countries. With respect to the tax situation in the Netherlands the following should be noted. It is expected that later this year important and positive amendments will be introduced in Netherlands tax law (“2007 tax reform”) which will provide for a reduced general corporate income tax rate (27-25%?) and perhaps even lower rates (10%) for certain income from finance activities and license activities. (See for further developments www.loyensloeff.com).

Presently the corporate income tax (“CIT”) rate is 29.6% (25.5% for taxable profits up to €22.689). The CIT is levied over the taxable profit reduced by deductible losses. Losses may be carried back for three years while there is presently an unlimited carry forward. (Under the 2007 tax reform the loss carry forward and lost carry back rules may be changed.) The (allocation of) profit in a certain tax year is based on the principle of sound business practice and may differ (normally in a positive sense) from the profit resulting from the commercial account.

Deductible costs include interest on loans (with certain important exceptions), and depreciation on assets (which include intangible assets). Assets are normally depreciated on a straight line basis computed over the economic life of the asset. Upon request the taxable profit may be computed on basis of the functional currency used in the companies commercial accounts.

Income tax/wage tax

The income tax is levied together with the social security contributions of the tax payer. Resident tax payers are subject to tax on their world wide income. There are three types of income each levied in a different way and at different tax rates.

Box1 Income from work and home (rates up to 52%).

Box2 Income from a substantial interest in a company (rate 25%).

Box3 Income from investments (rate 30%). This rate of 30% is levied over a fixed percentage (4%) of the average net amount of the tax payers assets.

30% facility for expatriates

Employees seconded to the Netherlands or hired from outside the Netherlands may under certain conditions benefit from a tax deduction equal to 30% of the gross salary earned. The 30% facility may be applied for a total of 10 years.

Work permits

Residents of the European Union and the European Economic Area and their direct family do not need to apply for a residence or working permit in the Netherlands. Other foreign nationals must obtain a work permit in order to take up work in the Netherlands. In addition a foreign employee (and his family) who wants to reside in the Netherlands for more than three months must obtain a residence permit from Immigration Service which is granted if a work permit has been issued. US citizens may obtain a residence permit at the police station of the municipality where they want to take up residence. For so-called knowledge workers who are employed in the Netherlands a separate work permit and a residence permit is not required anymore. These permits are replaced by a single residence permit issued by the Immigration Service for a five year period or shorter, depending on the term of their employment contract.

For further information you are invited to request through our website www.loyensloeff.com the following two publications issued in the Loyens & Loeff Series:

1. Legal aspects of doing business in the Netherlands.
2. Employment in the Netherlands.

Contact details:
Loyens & Loeff N.V., PO Box 71170, 1008 BD
Amsterdam Contact: Tom van der Meer - Direct Dial: +31 20 578 55 55 - Tel: +31 20 578 57 85 - Fax: +31 20 578 58 00 - E-mail: tom.van.der.meer@loyensloeff.com - aadjan.roos@loyensloeff.com - Website: www.loyensloeff.com
Brussels Contact: Christian Chéruy - Tel: +32 2 743 43 43 - Fax: +32 2 743 43 10 - Website: www.loyens.com
Luxembourg, Contact: Teun Akkerman - Tel: +352 46 62 30 - Fax: +352 46 62 34 - Website: www.loyens.com/winandy

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