Considering Dutch Substance Requirements
In General, Dutch corporate law does not require board members of Dutch legal entities to be Dutch resident and from this perspective, Dutch legal entities generally do not have to hold their board meetings in the Netherlands, maintain an office address or their administration in the Netherlands. Neither do they, normally, need to meet any other so-called Substance requirements.
However, Dutch companies that claim the benefits of a tax treaty or EU directive (treaty benefits) should now declare in their annual Dutch corporate income tax return whether or not the taxpayer meets a defined set of substance requirements.
Considerations of whether companies seeking to take advantage of a double tax treaty, are actually doing business in the Netherlands have become relevant. If the company does not run actual risks and/or does not have substance, it is not possible to obtain certainty in advance and source country tax withheld on the interest and royalties cannot be credited against Dutch tax.
Moreover, the Dutch tax authorities may spontaneously inform the authorities in the source country (the country where the related company that pays interest or royalties to the Dutch service company is located), about the relevant transactions. Companies registered in other jurisdictions when entering into transactions could also be subject to the procedure of confirming their real substance.
What can we do for you?
We are happy to further inform you on this matter, and/or even draft a tax memorandum on your specific case. A memo as such will avoid any fines in a later stage, in case the tax authorities have another point of view in the matter.
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