Dutch company considered

tax resident

in Netherlands

How to determine when your Dutch company considered ‘tax resident’ in Netherlands?

It is important to know whether your company is a tax resident in The Netherlands or not. Tax residents of The Netherlands are subject to Dutch tax law and have access to the Dutch tax treaty network for the avoidance of double taxation.

 

This corporate residency is determined by each company’s facts and circumstances. Management and control are important factors for determining this. Companies which are incorporated under Dutch law are (almost) always Dutch residents.

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Criteria for entities to be considered a tax resident in The Netherlands

A company is a tax resident in The Netherlands if its place of effective management is in The Netherlands. The main facts and circumstances that determine whether he place of effective management is in The Netherlands are:

  • The place where important business decisions are made; and

  • The place where directors work and meet; and

  • The place where business records are kept and the financial statements are prepared;

 

The following circumstances can also be indications:

  • The place where shareholders live and meet;

  • The place where the entity is registered;

  • The place of incorporation or organization.

It is possible that a company qualifies to be a tax resident in two or more countries. This happens when the countries apply different criteria to establish residency. The tax treaty between The Netherlands and the other country should then determine where the company ultimately is a tax resident. This is the so-called ‘’ tie breaker’’ rule.
For example, companies incorporated under the laws of the Netherlands are deemed resident for corporation tax and dividend withholding tax purposes. In addition however, companies may be treated as residents of the Netherlands for tax purposes if they are actually situated here (determined by facts and circumstances). In general, a key factor for residence is the place where the effective management of the company is located. Other relevant factors include the place of residence of the (supervisory) directors, the place where the general meetings of shareholders are held, location of the assets, residency of the main shareholder, location of the bookkeeping and the nature and location of the business activities.​

Due to fact that the BV’s are incorporated in the Netherlands, they are deemed resident in the Netherlands and therefore liable for corporation tax and dividend withholding tax here.

However, the place of effective management is not always in the Netherlands but (possibly)  in the country of residence of the board member(s).  A Tax Treaty might state:

‘For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.’

The term ‘person’ includes an individual, a company and any other body of persons (article 3).

Although, based on Dutch law, the Dutch structure companies are resident of the Netherlands, based on the tax treaty it can be concluded that the BV is resident in another country based on the place of effective management. So both countries can claim tax residency!

Resident taxpayers

All businesses incorporated under Dutch law or businesses located in The Netherlands pay tax on their worldwide income in The Netherlands.

Non-resident taxpayers

 

Non-resident companies pay corporate income tax in The Netherlands on:

  • Their taxable profit from a Dutch business;

  • Their taxable income from a substantial holding in a business located in The Netherlands;

  • Their taxable profit from a business located on Aruba, Curaçao or St. Maarten.

Controllable

Please note that the criteria are controllable. All circumstances can be controlled. Please contact INCO for more information and help about this subject.

Please read our white paper on substance & residence.

Substance requirements to apply a Tax treaty in The Netherlands

Only if there is enough substance, it could be argued (in a Tax Treaty-situation) that the BV is resident of the Netherlands. 

Substance is defined for specific dividend withholding tax situations and ruling applications. The following criteria apply of which the key elements are highlighted:

  • At least half of the total of number of statutory and decision-making board members is actually established in the Netherlands; 

  • The board members residing or established in the Netherlands, have the necessary professional knowledge to perform their duties properly, which tasks include at least decision- making within the framework of normal group involvement, about transactions to be concluded, as well as ensuring the proper completion of the concluded transactions; 

  •  The beneficiary has qualified personnel for the adequate execution and registration of the transactions;

  • The management decisions are taken in the Netherlands; 

  • The most important bank accounts of the beneficiary are held in the Netherlands; 

  • The accounting is conducted in the Netherlands; 

  • The company has an amount in wage costs that constitutes a remuneration for the activities for the purpose of establishing the relationship between affiliated entities, which is at least equal to €100.000.

  • The company has a (part of a) real estate property at its disposal for at least 24 months in the Netherlands. This property must contain an office with the usual facilities for the exercise of the activities referred to in sub 7 which are actually exercised in that office

Please note that these criteria are only mandatory in case of a ruling application or when a exemption for dividend withholding tax is applied for. If both specific tax regulations are not (yet) needed, the criteria above are indicative. If all criteria are met one can be sure that there is enough substance. If a few criteria are not met, such as the wage of 100K, it doesn’t automatically mean that there is no substance. Especially in the start-up phase of companies, it is justifiable that some criteria such as the wage threshold cannot be met. 

t should be noted that the lack of substance will only have any ‘tax’ effect, if any taxable transaction would indeed take place.
It is however strongly recommended to meet as much of the criteria as possible!

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