Netherlands

Setting up in the Netherlands

A guide to the legal and tax aspects of doing business in a country at the heart of Europe

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. There are several reasons favouring the Netherlands, including:

• its proximity to the main European markets;
• its open economy;
• its infrastructure;
• its well-developed legal and tax system.

Legal entities

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 an 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, approval by the Ministry of Justice is required (a statement of no objections). Such statements are normally obtained within a few days. 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. The contribution of capital to a Netherlands company is not subject to capital tax or stamp duties.

Tax aspects

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

• 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 interests and royalties paid to recipients in other jurisdictions.
• The application of the participation exemption, which provides for an exemption of all income, including capital gains, from qualifying subsidiaries. Generally, the participation exemption applies if a Dutch company owns at least 5% of the nominal share capital of the subsidiary.
• 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 opposed 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. Presently, the corporate income tax (“CIT”) rate is 25.5% for profits above €60,000. Reduced rates apply for profits up to €25,000 (20%) and profits between €25,000 and €60,000 (23.5%). The CIT is levied over the taxable profit reduced by deductible losses. Losses may be carried back for one year and carried forward for nine years (losses stemming from prior to 2003 need to be compensated ultimately in 2011). The (allocation of) profit in a certain tax year is based on the principle of sound business practice and may differ (usually positively) from the profit arising from the commercial account.

Depending on EU approval, a reduced CIT rate of effectively 5% may apply to interest income received by a Dutch company from its group companies. As from 1 January 2007, an effective CIT rate of 10% can be obtained for royalty income received by a Dutch company on the exploitation of certain IP rights. Deductible costs include interest on loans (with certain important exceptions) and depreciation of assets (which include intangible assets). Assets normally depreciate on a linear basis calculated over the asset’s economic life. Depreciation of assets should be spread over five years. Depreciation of real estate, however, is limited depending on the use of the real estate and on its market and book value. Upon request the taxable profit may be calculated on the basis of the functional currency used in the companies’ commercial accounts.

Dutch dividend tax

Dutch dividend tax is due at a rate of 15% upon distribution of dividends. Reduced rates apply up to generally 0% or 5% under tax treaties concluded by the Netherlands and depending on the status of the recipient. For dividends to Dutch and EU resident corporate recipients, a 0% Dutch dividend tax rate generally applies. I n come ta x /wag e ta x The income tax is levied together with the social security contributions of the taxpayer. Resident taxpayers are subject to tax on their worldwide income. There are three types of income, each levied in a different way and at different tax rates. Box 1 Income from work and home (rates up to 52%). Box 2 Income from a substantial interest in a company (rate 25%).

Box 3 Income from investments (rate 30%). This rate of 30% is levied over a fixed percentage (4%) of the average net amount of the taxpayers’ assets.

30% facility for expatriates

Employees seconded to the Netherlands or hired from outside the Netherlands may benefit from a tax deduction equal to 30% of the gross salary earned under certain conditions. The 30% facility may be applied for a total of 10 years. Effectively, this reduces the top marginal rate in Box 1 from 52% to 36.4%. In addition, the 30% facility shelters the employee from taxation in Box 3, should they elect to choose such shelter.

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 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 the 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 residence permit are not required anymore. These permits have been replaced by a single residence permit issued by the Immigration Service for a five-year period or shorter, depending on the terms of their employment contract.

Employment agreements

The conclusion of an employment agreement is basically a matter between the employer and the employee. Parties are generally free to agree upon terms. Upon termination of an employment agreement, this termination must comply with certain statutory rules. These provide for rather extensive job protection. An employment agreement for a fixed period terminates automatically, by operation of law, on expiration of the agreed period. An agreement for an indefinite period is terminated by given notice of termination. Such notice requires prior permission from the Organisation for Work and Income (in Dutch, the “CWI”). If the effects of the termination on the redundant employee are “obviously unreasonable”, the employee may seek redress in court. A severance payment may be claimed or reinstatement of employment may be requested.

An alternative is court termination for serious cause. If the court grants termination because of a change in circumstances, it may award the employee compensation. Compensation will be awarded if the court deems this fair under the given circumstances.

Intellectual property rights

Under Dutch law a wide variety of intellectual property rights can be protected. Below, copyrights, trademark and patent rights are briefly discussed. Also several other intellectual property rights protected under Dutch law are mentioned.

Copyright (“auteursrecht”)

A copyright is the exclusive right of the author of a literary, scientific or artistic work (or his successors in title) to publish and reproduce the work, subject to the limitations laid down by law. No registration is required to obtain a copyright. The creation of a work suffices. However, in order for a work to qualify for copyright it must meet the requirement of originality. A copyright has a duration of seventy (70) years after the death of the author. Please note that under Dutch law software qualifies for protection under copyright.

Trademark right (“merkenrecht”)

In order to obtain a trademark right in the Netherlands one must register the trademark with the Benelux Office for Intellectual Property. A trademark must be used to distinguish the goods and/or services of a company. A registration of a trademark has a duration of ten (10) years. Upon the end of such duration the registration may (repeatedly) be renewed for another period of ten (10) years. Please note that if a registration is acquired, this does not automatically mean that the trademark cannot be declared void during the term of ten (10) years. Also if a trademark is not used, it may be declared invalid.

Patent law (“octrooirecht”)

In order to obtain a patent right one must register the invention with the Bureau for Industrial Property. Such invention must — basically — meet four (4) requirements in order to be able to qualify as a patent. First, there has to be an invention, secondly a novelty requirement must be met, thirdly the invention must be the result of an inventive activity and finally the invention must be industrially applicable. Depending on the type of registration either a patent right with a duration of six (6) years or with a duration of twenty (20) years is acquired. An extension of five (5) years may be required for patents regarding medicines subject to certain conditions. Please note that if a registration is acquired, this does not automatically mean that the patent can not be declared void during the term of six (6) or twenty (20) years. The Bureau for Industrial Property that registers patent applications only performs a limited check regarding the requirements. It may therefore well be that a patent is registered that does not actually meet all requirements and may, in proceedings, be declared void by a Court.

Other intellectual property rights

Other intellectual property rights for which a separate law provides protection in the Netherlands include rights to a trade name (“handelsnaamrecht”), plant breeders’ rights (“kwekersrecht”), topographies of semiconductor products (“topografie van halfgeleiders”), database rights (“databankenrecht”), neighbouring rights (“naburige rechten”), rights to designs and models (“tekeningen en modellenrecht”). Most of such rights are obtained by means of a registration and subject to certain conditions that must be met in order to acquire a valid right.

 

For more information, visit our website www.loyensloeff.com to request 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:
H. Tom van der Meer
Loyens & Loeff N.V,
P .O. Box 71170,
1008 BD AMSTERDAM
Tel: +31 20 578 5555
Email: tom.van.der.meer@loyensloeff.com

 

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