Netherlands (Dutch) Holding Companies

What is a holding company?

A business operating internationally will often do so through subsidiaries incorporated in the various countries in which it has activities. It will, often, also wish to set up a further company for the sole or main purpose of holding the shares in those subsidiaries. Such a company is known as a holding company and it will receive the dividends representing the profits earned by the various subsidiaries. The question therefore arises of in which country to incorporate the holding company.

Most high tax countries require tax to be withheld on dividends paid to non residents. The logical place in which to base the holding company is therefore in a country which has a tax treaty with the country in which the subsidiary is located and which reduces or eliminates the withholding tax.

The Netherlands holding company

There are many countries which operate special tax regimes for holding companies and which also have a wide network of tax treaties which reduce or eliminate the withholding tax suffered in the country in which the subsidiary is established. The United Kingdom and Denmark offer attractive holding company structures and both have wide treaty networks, but the country with the most attractive package of tax reliefs and treaty benefits is the Netherlands.

Attractions of the Netherlands for holding company activities

For a country to be an attractive location for a holding company there are four main tests which must be satisfied,

• Dividends received from subsidiaries

Dividends received from the subsidiary must be either exempted from or subject to a low rate of withholding tax in the country from which they are paid. Under the terms of the EU parent/subsidiary directive, if a Netherlands, or Dutch, company owns more than 25% of the shares of another EU company, no withholding tax is levied on dividends paid by the subsidiary.

A number of EU countries have enacted anti-abuse legislation aimed at European holding companies controlled by non-EU investors. Where such legislation applies or in other cases where the Directive does not apply, the terms of one of the Netherlands' extensive range of tax treaties may operate to reduce the rate of withholding tax.

• Corporate tax in the country where the holding company is established

The general rule is that dividends received by Netherlands holding companies are subject to corporate tax. Where the Dutch company comes within the "participation exemption" rules all income it receives from the subsidiary is tax free. For the participation exemption to be available a number of criteria must be satisfied,

• The Dutch company must hold at least 5% of the subsidiary's shares
• It must have held the shares since the beginning of the fiscal year in which the participation is claimed
• The subsidiary must pay tax on its profits in the country in which it is established
• The parent company must be actively involved in the management of the subsidiary
• The subsidiary must not be a tax free portfolio investment company

• Capital gains tax

Any capital gain on the future sale of the shares in the subsidiary should be tax free.

Where the participation exemption applies all capital gains made by a Dutch company on the sale of shares in a subsidiary are tax free in Holland

• Dividends paid to the ultimate parent company

Under the EU parent/subsidiary directive, dividends paid by Dutch companies to EU parent companies are exempt from Dutch withholding taxes providing the parent has held the shares in the Netherlands subsidiary for at least 12 months. Where the directive does not apply, or where the anti-abuse legislation referred to above applies, the rate of withholding tax may be substantially reduced under one of the Netherlands many double taxation treaties.

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