Dutch Tax Guide for Entrepreneurs

With the help of GETAI LTD experience, you may establish a Dutch company remotely, giving you direct access to the European Single Market. From tiny, niche businesses to prominent multinational corporations with headquarters or subsidiaries in the Netherlands, numerous entrepreneurs from around the globe have previously founded a Dutch company. Most of the time, these businesses succeed and give the entrepreneur or entrepreneurs a reliable source of income. We strongly encourage you to look at the Netherlands as a possible site if you consider growing your company abroad. In addition to its fair tax rates and intriguing tax benefits, the nation is renowned for its stable political and economic environment. If you have any queries on the topic, please contact us.

All business owners pay taxes

We cannot avoid the formality of paying taxes, which are required in every nation. Every nation has costs that must be covered, which is how taxes started. A nation also requires revenue to offer its residents the services they need. Taxes are a nation’s revenue, much like you want to get money from your business. However, tax rates differ significantly between countries, which can (and should) affect your business choice. Consider moving your business to a different country if you are currently in one with high tax rates. If you haven’t established a business yet, it would be prudent to determine the most lucrative site.

The Netherlands has one of the lowest corporate income tax rates in the European Union (EU). The current rate is 25.8% for amounts over €200,000 and 19% for all amounts up to that amount. This is relatively low compared to other percentages, such as 35% in Malta and 29.9% in Germany. However, this is not the only advantage the Dutch provide. The Dutch tax system offers several benefits and incentives, particularly for new business owners.

Additionally, there are unique rules like the participation exemption that, in certain circumstances, let you send dividends to yourself tax-free. In any event, it’s beneficial to conduct some research on taxes and a few other aspects, like a nation’s level of corruption, professionalism, perspective it provides to foreign business owners, international connections, and the number of tax treaties it has with other countries, to mention a few. This will give you a better idea of what opportunities a nation can present to you. To save you time when researching this information, we have listed all of the significant tax categories in the Netherlands below.

1. The primary tax classifications

We intend to address the most fundamental and pertinent taxes affecting companies doing business in the Netherlands to produce an introduction essay on the Dutch corporate tax system for international business owners. The procedure and salient characteristics of the Dutch tax system should also be explained. Recognize that this is a straightforward but informative article. We will outline the most typical taxes you must pay while stationed in the Netherlands and the most effective method of adhering to Dutch tax laws.

Tax on Corporate Income (CIT)

Known in Dutch as “vennootschapsbelasting,” this is the main tax businesses in the Netherlands must pay on their earnings, assuming they are legitimate businesses. This indicates that a notary has incorporated the firm, making it an independent legal entity distinct from the business owner. The reduced liability that comes with being a natural person is one of the primary advantages of legal entities. This implies that, as long as your business practices are morally and legally sound, you are not held personally liable for any debts you incur with the firm. Let’s talk about corporate income tax anyway.

Governments levy corporate income taxes on the earnings made by firms or businesses. A company’s profit is determined by subtracting its revenue from permissible expenses, including payroll, production, and other operating costs. One of the primary ways governments raise money to pay for public services like healthcare, education, and infrastructure is through this tax. Contrary to popular belief, income taxes are not the only source of economic activity. Businesses, not merely the additional taxes the government can impose, enable a nation to prosper. Since business owners frequently don’t rely on social services, businesses give the country more job chances, creative ideas, and overall independence.

In any case, the country and the size or type of firm can significantly impact the corporate income tax rate. For instance, some governments provide exemptions or reduced rates to industries or small enterprises they wish to support, such as renewable energy. Companies must submit an annual tax return in most nations, including their earnings, outlays, and other financial data, to determine the amount of tax due. As previously mentioned, compared to other significant EU member states, the Netherlands offers a competitive corporate income tax rate. In light of the infrastructure and resources businesses require to function, this kind of tax guarantees they make an equitable contribution to the economy.

Corporate income tax critics contend that excessively high rates may deter investment or economic expansion. On the other hand, supporters see it as necessary to finance public services and preserve economic justice. Both viewpoints are reasonable. Excessively high rates impede prospective entrepreneurs from taking the first step toward self-sufficiency, which stifles economic chances in any given nation. However, in terms of funding, a corporation that generates sufficient income and is successful could make a difference for a country. Suppose you start a successful Dutch company that employs many people nationwide and makes a respectable profit. Since the taxes you pay support new business owners, they also act as a catalyst for smaller startups and entrepreneurs to launch their ventures. In that sense, it’s somewhat circular. Governments use corporate income tax to ensure companies contribute to the economy from which they profit.

Particulars of the business income tax in the Netherlands

The CIT rate in the Netherlands is increasing. Beginning in 2024, profits beyond €200,000 are subject to a higher tax rate of 25.8%, while the first €200,000 of taxable profit is taxed at a lower rate of 19%. Regarding exemptions and deductions, companies can write off costs associated with operating their enterprises, such as salaries, office supply purchases, and R&D expenditures. Additionally, the Netherlands has several international tax treaties that provide favourable tax rates on overseas revenue and prevent double taxation, which is advantageous for foreign business owners establishing operations there.

2. Tax on Value Added (VAT)

Value-Added Tax (VAT), also referred to as “blasting toegevoegde waarde (BTW)” in Dutch, is a consumption tax that is levied on the majority of Dutch products and services. It is usually assessed as a percentage of the consumer’s purchase price. It is applied to the value added at every stage of the manufacturing and distribution of numerous goods and services. VAT is an indirect tax since it is imposed on purchasing goods and services instead of (corporate) income taxes, which are based on earnings. VAT is collected at every stage of the supply chain, from the manufacturing of raw materials to the sale of the finished product. Companies typically subtract the VAT they paid on their purchases from the amount they owe because they collect VAT on behalf of the government. This guarantees that the final customer, who spends the entire VAT contained in the sale price, will bear the tax burden.

Compared to traditional sales taxes, the VAT system reduces the possibility of tax evasion. It guarantees governments a consistent flow of income, which is why it is so popular worldwide. However, detractors contend that because low-income households spend a more significant proportion of their income on goods and services that are subject to VAT, they may be disproportionately affected by the tax. Some countries have addressed this by lowering the VAT rates on some categories or exempting necessities like food and medical care. This is also true in the Netherlands, where there is a 0% and lower VAT rates. This will be explained below.

Particulars regarding Dutch VAT

In the Netherlands, the standard VAT rate is 21%. Additionally, there is a 9% lower rate and a 0% charge for specific goods and services, like food and medications. Furthermore, there are a few VAT exemptions. Certain services, such as insurance, education, and financial services, are excluded from VAT. Please be aware that it may be necessary to register for VAT in the Netherlands. Foreign companies that sell goods or services to Dutch consumers might have to register for VAT, particularly if their sales reach the distant sales threshold. Please get in touch with us for a consultation if you need to register for VAT.

3. Income tax in the Netherlands

The Dutch income tax, or “inkomstenbelasting,” is a levy imposed on the income of people living or working in the Netherlands. This tax is prevalent all across the world. For instance, there is always a percentage that you must pay to the government when you have a job. Greater income levels are subject to higher taxation rates under the progressive structure of the Dutch tax system. Depending on the business structure and the entrepreneur’s tax status, a foreign business owner who owns a Dutch firm may be required to pay Dutch income tax. We’ll go over how this usually operates below.

Partnership or sole proprietorship

According to Dutch income tax regulations, business income is taxed as personal income if you are a lone proprietor or a partner in the country. Notably, non-residents in the Netherlands are often only subject to taxes on income derived from Dutch sources, including business profits. However, tax residence regulations may differ depending on the entrepreneur’s home country and any applicable double taxation treaties. The subject of tax residency will be discussed later.

Limited company directors and shareholders (BV and NV)

You must pay yourself a so-called typical salary, or “gebruikelijk loon”, in Dutch if you are a private or public limited liability firm (BV or NV) director. Dutch income tax applies to this pay. Furthermore, as we previously mentioned, the corporation itself pays corporate income tax on its profits, and any dividends paid to you are liable to dividend withholding tax, which may be waived or lowered by tax treaties.

Treaties on double taxation

Double taxation is avoided in the Netherlands because of a vast network of treaties. Income tax and other pertinent taxes may be paid in the Netherlands, your home country, or a combination of the two, depending on the terms of the treaty between the two countries. Generally, taxes paid in one nation can be deducted from taxes due in another.

Residence for tax purposes

You pay taxes on your international income if you are regarded as a tax resident of the Netherlands. As previously mentioned, non-residents are subject to taxes on income from the Netherlands. The length of stay, familial relationships, and business interests in the Netherlands are some variables that affect tax residency. You are not necessarily considered a tax resident if you run a Dutch business remotely and are never in the country. Let’s dissect this, then. Under some conditions, anyone running a Dutch business from a distance may be considered a tax resident of the Netherlands. Formal business agreements are not the only factors used to determine tax residency; factual conditions also play a role. The following summarises the essential variables the Dutch tax authorities consider when determining residency for tax reasons.

Residence location

A person may be considered a tax resident if they spend most of their time in the Netherlands, even for a short period of time. The primary criteria is that a person is considered a tax resident if they reside in the Netherlands for 183 days or more in a 12-month period. This provision is frequently used to apply to those who spend a significant amount of time in the Netherlands and do not have obvious ties to another nation.

Long-term residence

In the Netherlands, having or renting a property might be interpreted as proof of residency, mainly if used as a principal residence. Although there is no time limit on how long a person must stay in their home, it must be a place they intend to live in that they can use whenever they choose. For instance, in the Netherlands, if a property is usable, even if not used frequently, it may be considered a permanent residence. The availability and intention to use the house are more important here than the precise number of days spent there. For tax residency purposes, a person’s home in the Netherlands may still be regarded as a permanent residence even if they rent it out while keeping it as an available property. It doesn’t matter if the property is occupied; what matters is whether they can use it when needed. Suppose someone maintains that property and has additional connections, such as familial or financial links. In that case, it may be claimed that they have a permanent home in the Netherlands even if they spend a lot of time abroad.

Social and familial links

Residency status may be influenced by strong personal or familial ties to the Netherlands, such as family members residing there. This significantly impacts tax residency in the Netherlands, mainly where there are questions over whether a person should be considered a resident or a non-resident. These interpersonal relationships have a significant impact on residency status. When determining whether a person’s centre of life is in the Netherlands, the tax authorities consider these connections.

Financial connections

The case for tax residence is strengthened by conducting business in the Netherlands, having a sizable income from there, or making social security and other financial payments. For instance, it is a clear sign that a person’s economic activities are concentrated in the Netherlands if they run a business, own a firm, or have a sizable investment there. This includes money from Dutch sources, such as jobs, real estate rentals, or earnings from Dutch companies. The tax authorities might consider you a hub of the Dutch economy if a sizable amount of your income comes from the country. Another reliable indicator of residency is the payment of Dutch social security contributions. Social security benefits are frequently linked to an individual’s tax status and represent a continuous interaction with the nation’s welfare system.

Duration of stay

According to some international tax treaties, a person may be classified as a resident of the Netherlands if they spend more than 183 days there in a single tax year. Regardless of whether they have a permanent residence available, a person is likely to be deemed a tax resident if they spend 183 days or more in the Netherlands in 12 months. This is a general rule of thumb for people without any other significant tax connections to another nation.

Working from a Distance

A person who does not fit the above requirements and runs the firm entirely remotely from a nation other than the Netherlands is less likely to be considered a tax resident. However, under non-resident taxation regulations, they can still be subject to Dutch taxation on business revenue, particularly if the company or its owner has a permanent location or makes money from Dutch sources.

International tax treaties may make this challenging subject more straightforward to navigate. Double taxation agreements (DTAs) between the Netherlands and the person’s home country may supersede Dutch residency regulations. By more accurately identifying residency and distributing taxable rights, DTAs usually avoid double taxation. Ultimately, a person’s particular connections to the Netherlands determine whether or not they are regarded as a Dutch tax resident when they run a Dutch firm remotely. For tax reasons, a person may be considered a resident if they continue to have a significant physical, social, or economic presence in the Netherlands. They are regarded as non-resident taxpayers if they conduct business remotely from a foreign nation without connections to the Netherlands. To guarantee compliance and minimize tax responsibilities, particularly in cross-border situations, it is advised to speak with a tax advisor knowledgeable in Dutch and foreign tax regulations. Intercompany Solutions can help you with these kinds of problems.

Particulars on Dutch income tax

The income tax system in the Netherlands is comparatively simple. Taxable income is separated into three “boxes,” each with its own set of regulations, by taxable income categories. They are as follows:

• Box 1: Earnings from work, home ownership, and other sources that are subject to taxes
• Box 2: Revenue from significant ownership stakes, typically in private businesses
• Box 3: Investment and savings income subject to taxation using a presumed rate of return

Tax rates for Box 1 (employment and homeownership) are progressive, varying based on income from roughly 37% to 49.5%. There are two brackets for the progressive taxable income rate from housing and employment. As your income rises, your tax liability will grow proportionately. Your taxable income from employment and housing up to and including €38,098 will also be subject to national insurance contributions in 2024. You will pay using an adjusted rate in the year that you become an AOW.

Your 2024 income level determines the rate you pay on your taxable income from substantial interest for Box 2. There was only one percentage, or 26.9%, up until and including 2023. Since 2024, you have paid 24.5% of your income up to €67,000. You pay 33 per cent of your income beyond €67,000.

You pay 36% for Box 3 on your taxable income from investments and savings. Additionally, people can obtain credits for work-related or child-related allowances and claim a variety of deductions, including mortgage interest relief for homeowners. Filing an annual tax return is usually required to comply with Dutch income tax legislation. Professional guidance is advised for complicated cases involving foreign income or tax residency.

4. Social Security contributions and payroll taxes

Payroll taxes and social security contributions must be paid if your Dutch company has employees in the Netherlands. Employers and workers in the Netherlands are required to pay payroll taxes and social security contributions to the government to finance social security and public services. Employers add to these contributions subtracted from workers’ gross pay. Payroll taxes in the Netherlands have numerous underlying components. These will be covered below.

Tax on income

Although we have already covered income tax for business owners, your company’s employees will also be required to pay income tax on top of their earnings. You, their employer, withhold this as an advance on the income tax they owe at the end of the tax year. It comprises national insurance contributions and general income tax elements and is deducted straight from salaries.

Contributions from employers

Additionally, employers contribute to employee insurance programs, including sickness benefits and unemployment insurance. For instance, the Dutch government offers unemployment benefits to workers who are sacked when it isn’t their fault.

Contributions to Social Security

National insurance contributions, which finance national benefits, including old-age pensions (AOW), child benefits, and associated benefits, are the first of two categories of social security contributions in the Netherlands. Both self-employed people and employees contribute to these. The second is employee insurance contributions, which finance benefits unique to each employee, like sick leave (ZW) and unemployment insurance (WW). The employers bear these expenses.

Contribution to health insurance

Basic health insurance is required for employees and independent contractors, and employers must pay a set percentage of medical expenses.

Particulars regarding social security contributions and payroll taxes

Because payroll taxes and contributions are progressive, employees must pay more the more they make. The same rates apply in this situation as they do for income tax. Most administrative duties will fall on you as the employer, including taking money out of employees’ paychecks and sending it to the Dutch tax authorities.

The Netherlands’ robust social welfare system is reflected in the payroll tax and social security contributions category, which guarantees full coverage for unemployment, pensions, and healthcare. Employers and employees must thoroughly understand Dutch payroll taxes and social security, especially in cross-border or international settings. Disregarding these laws and regulations could have serious repercussions. Additionally, the Netherlands offers tax-free sums for foreigners in some social security programs or tax-free allowances for specific social security programs, such as child benefits.

5. Tax on dividends

A withholding tax known as the Dutch dividend tax is levied on profits that Dutch businesses give to their shareholders. This tax guarantees that the Dutch government gets a share of the money made from dividend payments and is governed by the Dutch Dividend Tax Act. The distributing business takes this tax out before paying dividends to shareholders. Dutch and foreign shareholders receiving dividends from Dutch corporations are subject to the tax. Individuals and organizations that own stock in Dutch corporations or limited liability firms, like the BV and NV, are considered shareholders.

The dividend tax guarantees that income from investments is taxable in the Netherlands. It helps stop tax evasion and is consistent with international tax principles. Understanding these regulations is essential for businesses and investors to maintain compliance and minimize tax liabilities. A 15% withholding tax is often applied to dividend payments from Dutch companies. However, a few circumstances can lessen or even remove this, which we shall outline below.

Relief from double taxation

In the Netherlands, many shareholders can deduct the withheld dividend tax from their company or income tax obligations. The Netherlands has tax accords with numerous nations to prevent double taxation for foreign shareholders. These agreements could lower the rate of withholding taxes or offer ways to recover overpayments.

Exclusions

Intercompany dividend distributions within the EU or under certain circumstances, including participation exemptions for extensive holdings, are frequently subject to exclusions or reductions. For businesses with qualifying shareholdings, the Dutch participation exemption is a corporate tax law that offers substantial advantages. Benefits like dividends and capital gains are free from Dutch corporate income tax if a Dutch firm owns at least 5% of the nominal capital in another company, known as a qualifying participation. This exemption aims to prevent double taxes on profits that are already subject to subsidiary-level taxation.

There are specific requirements for eligibility. The Dutch corporation must own at least 5% of the other company’s share capital. Unless it passes a substance or motivation test verifying that the investment serves an operational or strategic goal, the participation shouldn’t be held primarily as a portfolio investment. Abuse is prevented by additional regulations, especially for low-tax states or passive investment holdings. Both dividends and capital gains from the sale of eligible participations are exempt. Remember that expenses like transaction or legal fees from buying or selling these participations are typically not deductible. Additionally, depending on their timing and direct relationship to the participation, foreign exchange gains or losses may or may not qualify for the participation exemption.

Specific decisions, such as those rendered by the Dutch Supreme Court, provide guidance on how dividend timing and currency fluctuations are handled under this provision. Under some circumstances, losses from liquidating a qualifying participation may be deductible, contingent on timing and entity affiliation regulations. By lowering the tax burden on foreign operations, the participation exemption contributes to the Netherlands’ continued appeal as a basis for holding companies. It is advised to get thorough compliance from a specialized third party, like Intercompany Solutions, as its application entails complex requirements.

Payment and filing

The company that pays the dividend must withhold and send the tax to the Dutch tax authorities. Therefore, you should complete this task accurately and within the allotted time. Additionally, unless they request a refund or credit for overpaid taxes, shareholders usually do not need to take any action.

6. Additional pertinent taxes

Environmental taxes are among the other significant levies that need to be examined. The Environmental Tax, which addresses issues like waste and pollution, is one of the unique Dutch levies for environmental protection. It’s a significant topic since everyone is focused on combating climate change. There may also be local taxes. These can include waste disposal taxes, property taxes, and other municipal levies that firms would have to pay; these vary by area. The capital gains tax is an additional factor. This pertains to the sale of certain assets, but entrepreneurs are typically less concerned about it because capital gains on company shares may be free from participation requirements.

Rewards for international businesspeople and R&D

Numerous tax incentives are available in the Netherlands to support foreign companies and research and development (R&D). The Innovation Box Regime is one example of this. For businesses that prioritize research and development, this enables a lower tax rate of 9% on profits from eligible intellectual property. Additionally, as we have already covered, the Netherlands has a network of tax treaties that shield foreign business owners from double taxation and frequently enable companies to take advantage of lower withholding tax rates on dividends, interest, and royalties.

Tax filing and payment

Foreign business owners should know the Netherlands’ tax filing deadlines and processes. Annual corporate income tax returns must be filed, often within five months of the fiscal year’s conclusion. The Dutch tax system requires big businesses to pay taxes yearly in advance based on their expected profits. In addition, Dutch tax authorities regularly examine companies, so business owners should ensure they have the proper paperwork and are compliant. Intercompany Solutions offers the knowledge and experience to assist you with your periodic tax returns. The Dutch tax system is typically business-friendly, with a clear structure for taxes, including VAT, payroll taxes, corporate income tax, and dividend tax, as well as several advantages for foreign business owners. Understanding these tax responsibilities is essential for anyone wishing to launch or grow a business in the Netherlands to maintain compliance and maximize their tax situation.

Why should your new company be based in the Netherlands?

 The Netherlands offers highly competitive tax rates and a relatively stable political and economic environment, as we have already covered. Your business will also benefit from the Netherlands’ creative and professional reputation abroad if you choose to conduct business there. We are capable of helping you establish a Dutch business in a short period.

Would you launch a new company in the Netherlands or grow your existing one within the EU? Or are you a foreigner who already owns a business in the Netherlands but requires help with administration or tax returns? We are here to support you as you proceed and see your Dutch business succeed while abiding by all relevant laws and rules. Please contact us immediately at GERAI LTD with any questions.