Doing Business in the Netherlands 2009 v02_2011

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    PrefaceNexia International is one of the longest-established global networks of independent accounting and consultingfirms.As the network's Dutch firm, Horlings has produced this guide to provide those considering doing business in theNetherlands, and those already established here, with an overview of the general business and legal framework,taxation regime and welfare environment.As leading providers of audit, accountancy, tax advice and financial advice to mid-size corporates, professionalpractices and private clients, we have a great deal of expertise and experience to offer new and growing Dutchenterprises.Where international advice is required, our partners are able to draw on Nexia International's impressiveknowledge and experience. Nexia has around 23.000 people in 97 countries and offices in all of the world's majorbusiness centres.In giving expert guidance on matters as diverse as sources of finance, accounting and reporting and the taxplanning opportunities for both companies and individuals, we have sought to be representative rather thanexhaustive. While there are numerous advantages to doing business in the Netherlands, many of the issues arecomplex and professional advice should be sought before committing any undertaking.We hope you find all the information you need within this guide. If you would like more information, we haveprovided contact details on the appendix.Welcome to the Netherlands.

    Rene van Zelst, International Tax [email protected]

    January 2009

    Doing Business in the Netherlands3

    mailto:[email protected]:[email protected]
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    1 Introduction to the Netherlands 7-92 Business entities 102.1 Types of business enterprise 102 . 1 . 1 Business types 102 . 1 . 2 Limited companies 102 . 1 . 3 Branch of a foreign company 102 . 1 . 4 Partnership 102 . 1 . 5 Co-operative 102.2 Formation of a business enterprise 112 . 2 . 1 Limited Company 112 . 2 . 2 Branch 112 . 2 . 3 Partnership 11-122.3 Company administration 122 . 3 . 1 Directors or managers of limited companies 122.3.2 Supervisory board 12 - 1 32.3.3 Works council 132.3.4 Shareholders meetings 13

    3 Accounting and reporting requirements 143.1 Preparation of annual 143.2 Accounting Principles 143.3 Publication of accounts 153.4 Consolidation principles 153.5 Basis of consolidation 163.6 Audit requirements 164 Taxation 174.1 Corporate income tax 174 . 1 . 1 General 174 . 1 . 2 Taxpayers 174 . 1 . 3 Tax base and tax rates 174.1.3.1 Tax rates 174.1.3.2 Determination of profits on the principle of sound

    Business practice 174.1.3.3 Depreciation of fixed assets 17-184.1.3.4 Stock valuation 184.1.3.5 When are costs deductible? 184.1.3.6 Reserves 184.1.3.7 Set off of losses 194 . 1 . 4 Participation exemption 194.1.4.1 General 194.1.4.2 When does the participation exemption apply? 194 . 1 . 5 Group taxation (tax treatment of fiscal unity) 19-204 . 1 . 6 Tax treatment of mergers 204 . 1 . 7 Corporate income tax return 20

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    4.2 Wage withholding tax 204.2.1 General 204.2.2 Taxpayers 214.2.3 Tax base and tax rates 214.2.4 Save as you earn scheme 224.2.5 Career break savings scheme 234.2.6 The 30% facility for expatriates and Dutch employees 234.2.7 Payroll tax returns 244.3 Personal income tax 244.3.1 General 244.3.2 Taxpayers 244.3.3 Tax base and tax rates 24-264.3.4 Taxable income from work and dwellings (box 1) 264.3.5 Taxable income from substantial interest (box 2) 264.3.6 Taxable income from savings and investments (box 3) 274.3.7 Income tax return 284.4 International aspects 284.4.1 General 284.4.2 Avoiding double taxation for resident taxpayers 28-314.4.3 Taxation of non-resident taxpayers 314.4.3.1 Individuals 31-324.4.3.2 Companies 324.4.4 Advance Pricing Agreement and Advance Tax Ruling

    Practice and International Investors' Desk 324.5 Value Added Tax 334.5.1 General 334.5.2 Taxpayers 334.5.3 Tax base and tax rates 334.5.3.1 Taxable event 334.5.3.2 The supply of goods and services 334.5.3.3 Place of supply of goods and services 344.5.3.4 Rates 344.5.3.5 Exemptions 34-354.5.4 The VAT system in the single European market 354.5.4.1 Imports 364.5.4.2 Invoicing 364.5.5 VAT returns 36

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    4. 6 Customs 3 64 . 6 . 1 General 3 64 . 6 . 2 Taxpayers 3 74 . 6 . 3 Tax base and tax rates 3 74 . 6 . 4 Customs approved treatment or use in the Netherlands 3 74 . 6 . 5 Customs procedures 3 7 - 3 8

    5 Labour law, social security and pensions 3 95. 1 Labour law 3 95 . 1 . 1 Labor market overview 3 95 . 1 . 2 Labor legislation 3 95 . 1 . 3 Collective labor agreements 3 95 . 1 . 4 Employment contracts 3 95 . 1 . 4 . 1 Probationary period 405 . 1 . 4 . 2 Dismissal 405 . 1 . 5 Recruitment 405 . 1 . 5 . 1 Recruitment and labor contracts 405 . 1 . 5 . 2 Flexible labor contracts 405. 2 Social security 415 . 2 . 1 Working conditions 415 . 2 . 2 Working time 415 . 2 . 3 Works council 415 . 2 . 4 Trade Unions 415 . 2 . 5 Other 4 1 - 4 25 . 2 . 6 The most important social security benefits 425. 3 Pensions 436 Ending business in the Netherlands 446. 1 Sale of a company 44

    6 . 2 . 1 . 1 Tax 446 . 2 . 1 . 2 Legal 44

    6. 2 Liquidation of a company 446. 3 Emigration of a company 446. 4 Individual leaving the Netherlands 447 Appendix 4 5 - 4 7

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    1. Introduction to the NetherlandsGeneral Information

    GeographyThe Netherlands covers an area of approximately 34.000 km2 (14.000 square miles) and is located innorthwestern Europe and bordered by Belgium, Germany and the North Sea.PopulationThe Netherlands has a population of approximately 16 million people. It is one of the most densely populatedcountries in Europe and about 50% of the population lives in the Randstad, which is the area in the western partof the country including Amsterdam, Rotterdam, the Hague and Utrecht.GovernmentThe Netherlands have a constitutional Monarchy. The Government, which consists of the Prime Minister andother ministers, is appointed by the Parliament.The Legislature (Staten Generaal) consists of two Chambers, the First Chamber or Senate, with 75 memberselected through the Provincial Councils and the Second Chamber, which has 150 members elected directly. TheParliament is elected for a period of 4 years. The seat of Government is located in The Hague.Port and airportRotterdam is the principal port; the main international airport is Schiphol Airport at Amsterdam.LanguageThe official language of the Netherlands is Dutch, but English is widely spoken, particularly within the businesscommunity. Many people also speak German and French.CurrencyThe unit of currency is the Euro, which is usually abbreviated to and is divided into 100 cents. The Euro is theofficial currency of the European Monetary Union (EMU) and replaces the national currency of the followingparticipating countries Belgium, Germany, Finland, France, Ireland, Italy, Luxembourg, Spain, Slovenia, Cyprus,Malta, Austria, Portugal, Greece and the Netherlands.The economyThe Dutch economy is internationally oriented. The major industries of the Netherlands consist of natural gas(extracted both on the mainland and in the North Sea), electronics, chemicals, and various service industries.Furthermore, there is a considerable transit trade through the Netherlands to other European countries.The Netherlands is a founding member of the European Union and have always been in favour of open bordersand free trade.

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    The Netherlands has an advanced economy, which combines high income per head with a fairly even incomedistribution. With exports and import of goods and services together totalling more than 100% of nominal GDP,the life-blood of Dutch prosperity is foreign trade. The country's geographical position at a crucial hub ofEurope's transport system and the small size of its domestic market have made the Dutch economy one of themost open and outward-looking in the world, while the scarcity of natural resources and raw materials haveturned it into a processing economy. Trade is instrumental to the manufacturing sector, which is dependent onimported materials. The international orientation of manufacturing companies is highlighted by the presence ofwell-known multinationals such as Royal Dutch/Shell (oil), Unilever (food), Philips (electronics) and Heineken(brewing).The Netherlands proves to be one of the best places in the world to conduct business for several years. TheNetherlands scores particularly high for its political environment, its policy towards foreign investment, its liberalforeign trade and exchange regime, and the availability of finance.Imports and exportsThe import and export of goods and services is free of government controls with the exception of certainstrategic goods and works of art. The Netherlands is the gateway to Europe.Exchange controlNo license is required for payments in euros between residents and non-residents. However some informationmust be reported to the Central Bank (De Nederlandsche Bank) for statistical purposes.Stock exchange and the money market

    NYSE Euronext is the result of a merger between the Paris, Brussels, New York and Amsterdam stock exchanges.Although Euronext has a unified operational structure in technical terms and from the regulatory point of view,the company manages regulatory licenses for four stock exchange market companies, in Paris, Brussels, New Yorkand Amsterdam, which run their respective markets.Banks

    The Netherlands has the following types of banks:Central Bank (De Nederlandsche Bank);Trading banks;Saving banks;Mortgage banks.

    The Central Bank has the following tasks:Dealing with the issue of money and financial transactions within the Netherlands and with foreign countries;Supervising the credit system.

    The Central Bank does not itself engage in commercial business.

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    Trading banks

    Trading banks offer current accounts and all forms of deposits. They provide all forms of finance, from loans toleasing, and many will also make equity investments in certain cases. Many trading banks have networks ofbranches throughout the country and have well-established foreign connections through their own branches inother countries. Nearly 40 foreign banks have also established offices in the Netherlands.Savings banks

    Many of the restrictions which formerly applied to savings banks have been removed so that they now offer mostof the facilities of the trading banks.Mortgage banks

    These banks generally raise funds by the issue of bonds. They have in the past given loans secured on mortgagesbut the types of loans given are becoming more extensive.Other Financial institutions

    Insurance companies attract savings and often provide loans for individuals and businesses. They also invest inthe capital market. Investment companies obtain their funds from the capital market and invest them on thecapital market.Venture capital companies provide risk capital to Dutch businesses.

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    2.2 Formation of a business enterprise2.2.1 Limited Company

    A BV or NV must be incorporated by one or more incorporators by means of a notarial deed of incorporationcontaining the company's articles of incorporation. A BV or NV may have a single shareholder. The shareholdersmay be either individuals or legal entities; their nationality is irrelevant.A BV or NV must have an authorized capital, divided into a number of shares, each of which has a par valueexpressed in euros. Dutch law also requires a minimum issued and paid -in capital of 18.000 for BV companiesand 45.000 for NV companies.A declaration of no objection of the Dutch Ministry of Finance is required before the BV can be incorporated.A BV in the process of formation is allowed to function during this time on a provisional basis, but must add to itsname the abbreviation "i.o." or the words "in oprichting" (which means "in the process of being incorporated").Persons acting on behalf of the "BV i.o." are personally liable until the formalities have been completed and theBV has ratified the actions performed.The incorporation process will take a minimum of two weeks. As an alternative it is possible to purchase acompany from the shelf.Formation costs

    The public notary's fee charged for drawing up and executing the articles of incorporation.Chamber of commerce fee for filing the company's documents in the commercial register

    2.2.2 Branch

    A branch can be established by registration at the Trade Register of the Chamber of commerce; the foreigncompany must provide its details, its directors name and address and evidence that the company is registered inits home country and copies of accounts and other information filed in the home country.Branch or subsidiary?

    In many cases it is useful to carry out activities in the Netherlands through a branch, particularly in start-upsituations. Reasons for using a branch rather than a subsidiary include flexibility, avoidance of dividend tax andthe ability to take losses made by the branch in the country of the head office. In general, setting up a branch iseasier than setting up a subsidiary company.Disadvantages include the fact that the parent company is liable to the full extent of its branch's losses, while aparent's liability for subsidiary's losses cannot exceed its investment. For a subsidiary there are also lessrestrictions on the payment of interest and royalties to a parent company. The sale of a branch is often lessadvantageous for tax purposes than the sale of a subsidiary.2.2.3 Partnership

    Partnerships can be set up by means of a simple agreement between the partners, either individuals or legalentities, and there is little formality involved. Where a business is carried on, registration at the Chamber ofCommerce is necessary. There are no capital requirements for partnerships. There are also no audit requirementsor requirements to file accounts, although a filing requirement may be introduced for some partnerships in thefuture.

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    Modernization

    Simplification private liability company law

    On May 31,2007 the Dutch government announced a bill to simplify the limited liability company legislation. Thenew legislation allows the BV among others to: have an issued capital of EUR0.01 (one EURO cent); reflect the capital in another currency than EURO; create shares which bear no voting rights; purchase all its own shares minus 1The proposed rules are currently being debated in the second chamber of parliament. It is expected these newcompany rules may be in force not before 1 January 2009.Modernisation partnership rules

    On December 24,2002 the government announced a bill to modernize partnership rules. The new partnershiprules create the possibility for partnerships to obtain legal personality if they opt for. As a result of obtaining legalpersonality it is possible for partnerships to own property on its own right. The legal personality of a partnershipdoes not affect the liability of the partners. The modernized rules are expected to take effect somewhere in 2008.2.3 Company administration

    2.3.1 Directors or managers of limited companies

    In general, the limited company is managed by its managing board, which must consist of at least one member. Incertain cases specified in the law or the articles the shareholders may have to give their approval to transactions.Board resolutions are not used to the extent that they are in some other countries. One or two directors(depending on the articles) can usually bind the company.In principle anyone elected by the shareholders (or, in certain cases, by the supervisory directors) may become adirector, subject to the provisions of the articles. It is not necessary to be a Dutch national or resident or to be ashareholder in the company.The names of directors must be registered at the Trade Register at the Chamber of Commerce.2.3.2 Supervisory board

    The supervisory board (Raad van Commissarissen) carries out a supervisory function over the managing board onbehalf of the shareholders. A supervisory board is required only in so called "structure" companies(structuurvennootschappen) which are N.V.'s or B.V.'s with capital plus reserves exceeding EUR 13 million, atleast one hundred employees in the Netherlands and a works council. A structure company supervisory boardalso acts on behalf of the employees. The supervisory board of a structure company must consist of at least threemembers and members are appointed by co-option. The managing board, the works council and theshareholders may all recommend candidates.

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    The duties of the structure company supervisory board include appointment and dismissal of members of themanaging board, adoption of the annual accounts and confirmation of certain managing board resolutions.

    Where companies have an optional supervisory board, the members, who may not be corporate entities, areappointed by the shareholders. The supervisory board then generally has fewer powers and generally isrestricted to approving certain activities of the managing directors.

    2.3.3 Works council

    Any Dutch business with 50 employees or more is required to have a works council. The works council is electedby employees and has an advisory role on major changes in the business. Changes in conditions of employmentrequire the approval of the works council.

    The employer is required to hold a meeting with the works council at least six times a year to discuss the state ofaffairs of the business. The works council is entitled to receive the annual accounts of the business, generalinformation on the size and composition of the work force and full information on matters on which its advice orapproval is sought.

    2.3.4 Shareholders meetings

    A general meeting of shareholders must be held at least once a year. Unless the articles of association provide fora shorter period this meeting must take place within six months after the end of the financial year. Eachresolution is taken by a majority of votes. The general meeting will in any event deal with the adoption of theannual report and how the profits for the year are to be applied (e.g. dividends).

    The shareholders can call an extraordinary meeting at any time and for any purpose.

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    3. Accounting and reporting requirements

    3.1 Preparation of annual accounts

    The Dutch Civil Code requires that the management of a company prepares and subsequently presents to theshareholders/board of directors:

    balance sheet and profit and loss account with explanatory notes thereon;cash flow statement (for medium-sized and large companies);annual (Directors') report (unless the group exemption applies or in case the company is classified as small);other information such as the audit report and a statement of post-balance sheet events which have materialfinancial consequences for the company and the companies included in its consolidated annual accounts,together with a guesstimate of the amount in euro.

    3.2 Accounting principles

    The annual financial statements and the notes required, together with the information required to be included inthe annual report of the directors as well as the supplementary information should be prepared in accordancewith Dutch general accepted accounting principles.These principles include:

    part 9, Book 2 of the Dutch Civil Code;case law;the authoritative statements included in the Guidelines for Annual Reporting in the Netherlands issuedunder the responsibility of the Council for Annual Reporting;if applicable, the special requirements from regulatory and supervisory bodies relating to financialstatements.

    Companies may apply other principles, like:International Financial Reporting Standards;the framework of principles and guidelines as accepted by the European Commission or comparable

    standards.Listed companies are obliged to prepare the annual accounts in accordance with International Financial ReportingStandards.The legislation in respect of annual accounts and annual reports applies to cooperatives, mutual insurancesocieties and public and private companies with limited liability as well as partnerships, in which foreign, publicand private companies are all fully liable partners.Annual financial statements (annual accounts) are defined as the balance sheet and the profit and loss accountwith explanatory notes.The figures in the annual accounts should normally be expressed in Euros but, if the activities justify it, a foreigncurrency may be used.Unless the general meeting has resolved to use another language the accounts must be in Dutch.

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    3.3 Publication of accounts

    The company must publish its annual accounts within eight days after adoption. Publication is carried out bydepositing a copy at the office of the Chamber of Commerce of the district in which the company has itsregistered office. The date(s) of adoption and approval must be shown on the copy filed. Information that has tobe included in the annual accounts depends on the size and type of the company. A distinction is made between:

    small, medium-sized and large companies;group companies;insurance companies;credit institutions.

    Companies are categorized as small or medium-sized if during two consecutive financial years they have notexceeded at least two of the following three figures:

    Small Medium-sizedTotal assets < 4,400,000 < 17,500,000Net turnover < 8,800,000 < 35,000,000Average number of employees < 50 < 250

    These figures include the figures of subsidiaries on a consolidated basis. They do not apply to insurancecompanies and credit institutions.Documents to be filed are:

    large companies: full balance sheet, full profit and loss account, cash flow statement and notes thereon,annual report and other information;medium-sized companies: limited balance sheet, limited profit and loss account, cash flow statementand notes thereon, annual report and other information;small companies: summary of balance sheet and notes thereon.

    If the company has subsidiaries, consolidated group accounts should be included.The language used for publication at the Trade Register must be Dutch, English, French or German.3.4 Consolidation principles

    The financial statements of group companies are required to be consolidated in group accounts and included inthe notes to the annual report, unless the proper view is better served by the inclusion of the subsidiary financialstatements separately under the notes (for instance where a subsidiary operates in a totally different industry).A company which, solely or jointly with another group company, heads its group, must include consolidatedaccounts for the group.

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    3.5 Basis of consolidation

    In general group companies are consolidated on a full consolidation basis. However, the financial informationmay be included pro rata to the interest held therein. In the consolidated accounts the shareholders' net equitydoes not need to be separately categorized. Under restricted circumstances other valuation methods and basesfor the calculation of the results may be applied than those applied by the company's corporate accounts. Thereasons, which must be justified, must be shown in the accounts.Any difference between the shareholders' equity shown in the statutory balance sheet and the consolidatedbalance sheet and between the results after tax must be explained. The consolidated accounts may never beprepared on the basis of information prepared more than three months prior to or after the balance sheet dateof the parent. The results of subsidiaries acquired during the year have to be processed in the group results as faras the results have been realized after acquisition.3.6 Audit requirements

    In principle all companies other than those classified as small are required to be audited. The auditor ascertainswhether the financial statements, annual accounts and the annual report, are drawn up in accordance with thelaw and give the required insight into the capital, the results and in so far the nature of the annual accountspermits the solvency and liquidity of the company. Under certain conditions, group companies are exempt fromthis obligation.The auditor must examine whether the financial statements provide the required legal disclosures and whetherthe financial statements, the directors' report and other information comply with the statutory requirements. Itshould also be verified that the directors' report does not conflict with the financial statements. In principle theauditor is appointed each year by the shareholders and reports to them and the management on the reliability ofthe annual financial statements.

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    4. Taxation4.1 Corporate income tax

    4.1.1 General

    A profit-generating company pays corporate income tax. The amount of tax to be paid and the country in which acompany is subject to taxation depends on a number of factors. Below is an outline of how corporate income taxis regulated in the Netherlands.4.1.2 Taxpayers

    Companies and organisations that are subject to corporate income tax are referred to as 'entities' to distinguishthem from 'natural persons' who are subject to income tax. Examples of companies that are subject to corporateincome tax are corporations of which the capital is divided into shares and cooperatives. The main types ofcompanies referred to in the Corporate Income Tax Act are the public limited (NV) and the private limited (BV)company.Companies established in the Netherlands are resident taxpayers. Certain companies that are not established inthe Netherlands but which do derive Dutch income are non-resident taxpayers.Whether a company is deemed for tax purposes to be established in the Netherlands is assessed on the basis ofthe factual circumstances. Relevant factors specifically include the place of actual management, the head officelocation, and the place where the general meeting of shareholders is held. Under the Corporate Income Tax Actall companies incorporated under Dutch law are regarded as being established in the Netherlands.4.1.3 Taxbase and tax rates

    4.1.3.1 Tax ratesCorporate income tax is levied on the taxable profits made by a company in a given year less deductible losses.Corporate income tax is levied at a rate of 20% up to 200,000 and 25.5% for profits which exceeds 200,000.4.1.3.2 Determination of profits on the principle of sound business practiceProfits must be determined on the principles of sound business practice and in a consistent manner. According tosound business practice, for example, allowances may be made for unrealised losses, while profits not yetrealised may be disregarded. The consistency requirement means that there must be a certain degree ofcontinuity in the method used to determine the results. The method may only be changed if this is in line withsound business practice.4.1.3.3 Depreciation of fixed assetsFixed assets used for running a company are depreciated on an annual basis. In principle, taxpayers are free tochoose any depreciation method, but the method chosen must be in line with sound business practice. Ingeneral, the straight-line method is used. This method entails a fixed percentage being charged each year for theentire period of depreciation.Business premises may only be written off up to 50% of the value for the purposes of the Valuation of ImmovableProperty Act (WaZ). Investment property may only be written off up to 100% of the waz value.

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    Goodwill depreciation is subject to a maximum of 10% of the purchase price on an annual basis. A maximum of20% applies to the other operating assets.Because of the 'credit crunch' and to stimulate the economy, companies can depreciate their investments 2009 intwo years (max. 50% in 2009 and 50% in 2010). Important exceptions are: real estate, animals, immaterial assets(such as software), cars (except for very environmental friendly ones) and motorcycles.4.1.3.4 Stock valuationThe way in which stock is valued affects how profits are determined. The following stock valuation methods arepermitted: valuation based on cost; lower market value; the base stock method.Valuation at cost price complies with the principle of sound business practice, unless the market value issignificantly lower than the cost price. In that case the lower value may be entered. In this system an unrealisedprofit is ignored, while unrealised losses may be taken into account immediately. The value of the stock can bedetermined either by the 'first in, first out' (FIFO) or 'last in, first out' (LIFO) method. When calculating the profit,the FIFO method considers that the stock purchased first, is sold first. The LIFO method assumes that the stockpurchased last is sold first. Under certain conditions, on the basis of case law, the base stock method ispermitted. The base stock is the stock a company needs to continue its production and sales processes. Undercertain conditions, on the basis of case law, the base stock method is permitted. The base stock is the stock acompany needs to continue its production and sales processes.Valuation of work in progress and orders in progressIn case of work in progress the profit-taking may no longer be postponed until the delivery of the work, but profitmust be taken on an ongoing basis. The same applies to orders in progress.4.1.3.5 When are costs deductible?In principle, when determining profits all the business expenses may be deducted. However, the deductibility ofcertain business expenses is subject to restrictions. The interest paid on loans may sometimes only be partlydeducted from profits. This may be the case when a company has too many debts in relation to its equity capital(thin capitalization) or the loan (1) is not businesslike, (2) is used in a fraus legis situation, (3) qualifies as capital, (4)is due by a finance company which does not occur real risks.

    4.1.3.6 ReservesA company may build up certain reserves (thus enter lower profits) by making a deduction from its profits.Examples of permitted reserves are the cost equalisation reserve and the reinvestment reserve.The cost equalisation reserve enables recurrent costs to be spread evenly over a period of time. The deduction isthen made in a year in which expenditure is not yet incurred while the costs of using the asset are in fact incurredin that year. Examples include large-scale maintenance or environmental damage.A reinvestment reserve may be created if fixed assets have been lost, damaged, or sold to the extent that thepayment received exceeds the book value of the assets. The amount received is thus not considered to be profitor taxed as such in the year in which the amount was received. To be eligible for this reserve the company musthave the intention of re-investing. Generally speaking, the reserve must be terminated in the third year followingthe year in which it was formed.

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    4.1.3.7 Set off of lossesA company may set off its losses against its taxable profits for one preceding year (carry back) and against itstaxable profits for nine years to come (carry forward).The losses incurred by an investment institution or a company ceasing operations entirely may only be set offagainst future profits if at least 70% of its shares continue to be held by the same natural persons. If a companyreduces its business activities by more than 70% and less than 70% of its shares remain in the hands of theoriginal shareholders, losses that have not been set off may only be set off against future profits. However, theseprofits must be generated by the company's original activities.Losses of a holding company or group financing company may only be set off against later profits of years inwhich the company activities still consist of at least 90% group financing or of holding participations.4.1.4 Participation exemption4.1.4.1 GeneralThe Corporate Income Tax Act provides for a participation exemption, which is applicable to both domestic andforeign shareholdings. This exemption is one of the main pillars of the Dutch corporate income tax, and ismotivated by the desire to avoid double taxation when the profits of a subsidiary are distributed to its parentcompany. The main features of this provision are as follows.All benefits gained from shareholdings are exempt. In principle, the term 'benefits' covers profits and losses.Profits comprise dividends and hidden profit distributions. Exempt returns also cover the profit realised on thesale of a participation. However, losses realised are not deductible. If the value of a participation decreases as aresult of losses suffered, its write-down by the parent company is in principle not deductible either.The costs associated with a shareholding are deductible. Losses arising from liquidation of a shareholding may beset off under certain conditions.4.1.4.2 When does the participation exemption apply? The participation exemption is applicable to shareholdings in both domestic and foreign bodies. In principle,

    a participation is regarded to exist if the taxpayer holds at least 5% of the nominal paid-up capital of acompany of which the capital is partially or wholly divided into shares or;an interest of 5% or more in a passive subsidiary (largely investing or passively financing) is only considered aparticipation if the subsidiary complies with the subordination requirement (effective tax burden of atleast 10%);the participation exemption does not apply if the taxpayer or the subsidiary is considered to be aninvestment institution;it is not possible to apply the participation exemption to an interest of less than 5%. However, if theparticipation is maintained for more than one year, the participation will continue to apply for another threeyears should the interest becomes less than 5% unless it relates to a membership in a Dutch co-operative.

    4.1.5 Tax treatment of fiscal unityUnder certain conditions a parent company may be taxed as a group together with one or more of itssubsidiaries. For corporate income tax purposes this means that the subsidiaries are deemed to have beenabsorbed by the parent company. The main advantages of group taxation are that the losses of one company canbe set off against profits from another group company, and that fixed assets may in principle be transferredtax-free from one company to another.

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    Group taxation is only allowed if all the companies involved are based in the Netherlands for tax purposes andthe parent company holds at least 95% of the shares in the subsidiary.Other conditions are that the financial year of the parent company and the subsidiaries must be the same, andthey must be subject to the same tax regulations. A request for group taxation must be submitted to the TaxInspector on behalf of all the companies involved. The relevant conditions are stipulated in the Corporate IncomeTax Act. These conditions cover a large number of technical aspects involved in consolidation. Group taxationmay be terminated on request, or will be terminated automatically if any of the conditions are no longer met.4.1.6 Tax treatment of mergers

    There are three types of merger: the stock merger, the legal merger, and the enterprise merger. In a stockmerger a company's shareholders transfer their shares to another company. In general, no corporate income taxwill be due since the participation exemption applies. In the case of a legal merger the assets and liabilities of oneor more companies are transferred to an acquiring company. The acquired companies cease to exist. In the caseof an enterprise merger one company takes over the assets and liabilities of another (or an independent partthereof). The transfer takes place in exchange for shares issued by the other company. Under certain conditions,taxes will not be levied on the takeover profits resulting from a legal or an enterprise merger.4.1.7 Corporate income tax return

    A public (NV) or private (BV) limited company is required to file an annual corporate income tax return with theTax Administration within six months of the end of its financial year. This can only be done electronically. Thereturn must be accompanied by all the information needed to establish the company's taxable profits. Thisincludes the balance sheet, profit and loss account and any other information requested by the Inspector.If a full return is not filed, the Inspector may issue an estimated assessment. The final assessment must be issuedno later than three years after the end of the relevant tax year. If a deferment has been granted for filing thereturn, the period will be extended by the period of the deferment. The accounting records must be retained forat least 7 years. Entrepreneurs can solely file annual corporate income tax returns and income tax returnselectronically.4.2 Wage withholding tax4.2.1 GeneralEveryone in the Netherlands who is in paid employment is subject to wage tax. The employer or entity that paysthe wages withholds the wage withholding tax and pays it periodically to the Tax Administration. The wagewithholding tax consists of one amount made up of wage tax and social security contributions. Social securitycontributions must be paid for the Old-Age Pension (AOW), General Survivors' Pension Act (Anw) and GeneralExceptional Medical Expenses Act (AWBZ). Individuals working in the Netherlands generally have social securitycoverage and must therefore pay social security contributions. An exception to this may, for example, apply inthe event of (temporary) secondment.The party withholding deductions is known as the 'withholding agent'; this is the party that files the tax return.The party whose wages or allowances deductions are withheld is known as the (deemed) employee.The wage withholding tax is an advance tax payment for the income tax. In this way it is prevented that taxpayershave to pay a single large payment for income tax and social security contributions once a year. The withholdingagent withholds the wage withholding tax at the time the employee receives his wage payment.

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    4.2.2 Taxpayers

    Employees must pay wage withholding tax and social security contributions on their income or benefits. Theemployer or benefits agency must deduct and pay the wage tax. Professional entertainers and professionalsportsmen are also required to pay wage tax irrespective of whether they are employed or not. Employers andemployees may elect voluntarily to designate their relationship for wage tax purposes as employment. They mustboth give notify this to the Tax Administration.4.2.3 Tax base and tax rates

    The wage withholding tax has to be calculated on all remunerations an employee receives on the basis of hiscurrent or former employment. An example of income from former employment is payment of a pension. Tax isalso payable on other benefit payments, e.g. Old-Age Pension (AOW). The principal forms of wages are 'wages incash': salary, holiday allowance, overtime payment, commissions, annual bonus, and anything else an employerpays in cash to an employee which is deemed to be remuneration for his work. But there are other forms ofwages as well, such as remuneration 'in kind', claims and (free) reimbursements and facilities. Remuneration inkind is income that is not paid in money, but in some other way, for instance a holiday or a camera. A claim is anentitlement to receive a benefit or facilities after a set period of time, or subject to conditions. An example of thisis entitlement to pension. Examples of facilities are tools, meals or tickets for public transport. Freereimbursements are amounts an employer pays an employee to cover costs the employee incurs in order to beable to perform his work properly. No wage withholding tax needs to paid on payments made by the employer tothe employee which according to the generally held view, are not seen as remuneration for services provided orto be provided. If allowances in kind may be issued tax-free, they may usually be reimbursed tax-free as well.Examples include professional literature or work clothing. A free reimbursement or facility of this kind is notdeemed to be part of the income. Reimbursements or provisions may also be partly exempt from tax. Forinstance, payment of specific travel expenses up to a given limit may be considered tax-exempt. The part of theprovision or reimbursement that is not tax-free remains subject to tax.Rates 2009The rate of wage tax, a part of the taxable income from work (box 1, see paragraph 3.3),comprises the following: Bracket 1: 33.50% tax and social security contributions on the first EUR 17,878

    (2.35% tax and 31.15% contributions). Bracket 2: 42% tax and social security contributions on the next EUR 14,548

    (10.85% tax and 31.15% contributions). Bracket 3: 42% tax on the next EUR 22,649. Bracket 4: 52% tax on the excess.

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    Separate rates for persons aged 65 or over apply to Box 1. The first bracket includes a rate of 15.60% and thesecond bracket a rate of 24.10%. This separate rate concerns the fact that these taxpayers are no longer requiredto pay Old-Age Pension (AOW) contributions of 17.90%. They still pay contributions under the GeneralExceptional Medical Expenses Act (AWBZ) and General Survivors' Pension Act (Anw). Standard rates of 42% and52% apply to brackets three and four respectively.Levv rebates

    When determining wage withholding tax, the employer takes levy rebates into account. Among other things,these consist of a general rebate and employment rebate. These are general credits that apply to all employees.The general rebate comprises a tax element and a social security contribution element. Entitlement to thecontribution element of the general rebate applies only if the employee has compulsory Dutch social securitycoverage. The employer may not take into account any allowances and deductions that are linked tothe employee's personal circumstances. To avail himself of personal deductions, an employee must file anincome tax return. For some employees, wage withholding tax is the final tax because they have no other sourcesof income and are not eligible for personal deductions and tax-deductible items.Reduction in tax and contributions for various groups ofemplovees

    Employers may avail themselves of a reduction in tax and contributions for various groups of employees. In sucha case they may remit a lesser amount in wage tax and social security contributions. Lower remittances exist tostimulate professional education and research.4.2.4 Save-as-you-earn scheme [Spaarloonregeling]

    Employees will only be permitted to take part in a save-as-you-earn scheme run by one employer. The maximumtax-free amount that an employee will be allowed to save in 2009 will be 613. The following conditions apply tosaving by means of save-as-you-earn: An employee must have been employed by the employer since the first of January of

    that year; The employer must have been applying the general tax credit [heffingskorting] to the

    employee since the first of January of that year; The employee does not contribute to a career-break savings scheme.Therefore if an employee commences employment after the first day of a calendar year, he will not qualify forthe save-as-you-earn scheme run by that particular employer. The final levy payable by the employer on save-as-you-earn savings is 25%. For income tax relating to the year 2009, there will be a maximum exemption in box 3 of 17,025 for frozen savings deposits from save-as-you-earn schemes.

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    4.2.5 Career-break savings scheme [Levensloopregelingl

    Employees are legally entitled to participate in a career-break savings scheme of their employer or employers. Bycontributing to this scheme, employees can set aside an amount to finance a period of unpaid leave. Annually amaximum of 12% of the salary may be saved under this scheme but in total no more than 210% of the salary. Thisannual maximum of 12% of the salary does not apply to employees having reached the age of 51 on December31,2005 but not yet the age of 56. However, the 210% total maximum still applies to this category of employees.During the period of building up the career-break savings scheme, the contribution is not subject to wage tax andsocial security contributions and the income-related Health Care Act premium. These become payable at the timeof payment of the built up savings. Employees' social insurance [werknemersverzekeringenl contributions arewithheld from the career-break savings scheme contributions.The employer is allowed to contribute to the career-break savings scheme provided he grants the samecontribution to non-participating employees. Amounts paid to non-participants are subject to normal taxation.Each year the employee may chose to contribute to either the save-as-you-earn scheme or the career-breaksavings scheme. Participating in both schemes simultaneously is not possible.4.2.6 The 30%facility for expatriates and Dutch employees

    ExpatriatesExpatriates employed in the Netherlands on a temporary basis may in certain situations avail themselves of the30% facility. This facility applies to employees coming from outside the Netherlands, who have been recruitedby or seconded to a Dutch employer and who satisfy certain conditions. The facility allows the employer togrant a tax-free lump-sum allowance for the extra costs of the employee's stay in the Netherlands(extraterritorial costs). This lump-sum allowance amounts to a maximum of 30% of the sum of the wagesand the allowance. In order to calculate the maximum allowance, the wage is therefore multiplied by 100/70 andthe result then multiplied by 30%. If the actual costs are higher, they may be reimbursed free of tax. The school feespaid for children to attend an international school may be reimbursed free of tax in addition to the lump-sumallowance for the extraterritorial costs. Professional costs that cannot be designated as extraterritorial costs mayalso be reimbursed tax-free in accordance with the normal rules. In order to be able to apply the facility theemployer and the employee must together submit an application to the Belastingdienst Limburg, kantoorBuitenland (PO Box 2865,6401 DJ Heerlen, The Netherlands).Once the application has been approved, the 30% facility may be applied, if necessary retroactively. It may beapplied for a maximum of 120 months (including an extension). This period will be reduced by the length of earlierstays or periods of employment in the Netherlands, unless more than 10 years have elapsed since the end of thatstay or that employment. An employee coming to the Netherlands may be deemed to be partially non-resident forincome tax purposes at his request.

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    Dutch emplovees

    Dutch employees who are seconded to designated countries overseas may also be eligible for the 30% facilityunder certain conditions. The employer must be liable to withhold wage tax in the Netherlands. An employee isdeemed a seconded employee if he spends at least 45 days in a 12-month period in one or more places to whichhe has been seconded, in the context of his job.4.2.7 Payroll tax return

    A withholding agent must file a payroll tax return with the Tax Administration. The payroll tax return is acombined tax return comprising wage withholding tax, employees' social insurance contributions and theincome-related Health Care Act premium. The monthly payroll tax return must be filed electronically.

    4.3 Personal income tax4.3.1 General

    Natural persons who have an income pay income tax. Individuals may receive incomefrom different sources. Income tax takes into account the origin of the income anddistinguishes three categories. These categories are known as 'boxes'. The income in eachof the three boxes is taxed at a different rate. The total of the tax owed in the three boxes isthe income tax payable.4.3.2 Taxpayers

    Income tax is a tax on the income of individuals. Individuals living in the Netherlands (resident taxpayers) andindividuals who do not live in the Netherlands but who receive income from the Netherlands (non-residenttaxpayers) are liable for income tax. Residents are taxed on their entire income, regardless of the place of origin(worldwide). Non-residents are only taxed on income directly connected with the territory of the Netherlands.This is different if they avail themselves of the option of choosing to be treated as a resident taxpayer. Then therules that apply to resident taxpayers also apply (see also paragraph 4.3). Income tax is in principle levied on anindividual basis. However, fiscal partners are permitted to allocate joint income components between them fortheir tax return. Fiscal partners are spouses and registered partners. In addition, unmarried couples livingtogether may under certain conditions also be deemed to be partners for tax purposes. Joint elements of incomeare the taxable income from an owner-occupied dwelling, taxable income from substantial interest and thepersonal tax deductions.

    4.3.3 Tax base and tax ratesIncome tax is levied on the taxable income of natural persons and is reduced by the amount of (general) levyrebates.Three categories of taxable income

    There are three categories of taxable income (box 1, 2 and 3) for income tax, each type of taxable income havingits own rate: Box 1 taxable income from work and dwellings; Box 2 taxable income from substantial interest; Box 3 taxable income from savings and investments.

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    The income tax payable is the aggregate amount of the tax on the taxable income in the three boxes. The incomeof resident taxpayers is reduced by the amount of the personal tax deductions.Profit from business activit ies

    Taxable income from work and dwellings is taxed in box 1. This includes profit from business activities.Businesses operated in the form of, for instance, the legal status of a one-man business, a general partnershipor partnership are taxed under the income tax scheme. The profit is calculated in principle in the same way asoutlined in Chapter 4.1 Corporate Income Tax. There are a few differences. The income tax scheme includes anumber of arrangements for entrepreneurs who satisfy the hour criterion (e.g. self-employed persons deduction,fiscal pension reserve, profit exemption for small and medium-sized companies (mkb). The hour criterion ismet if an entrepreneur spends more than 50% subject to a minimum of 1,225 hours of his time available for workduring a calendar year on running a business for his own account. Furthermore, the period forretroactively setting off losses is three years under the income tax scheme.Profit exemption for small and medium-sized companies CMKB-winstvrijstellinq' l

    This arrangement only applies to entrepreneurs satisfying the hour criterion. The taxable profit of entrepreneursis reduced by this mkb-winstvrijstelling. The exemption is 10.5% of the taxable profit less the entrepreneurs'allowance [ondernemersaftrekj.Personal tax deductions

    The personal tax deductions mainly comprise costs that affect the financial capacity of the taxpayer personallyand his family and that affect his ability to pay. For example, the costs of maintenance commitments (child orpartner maintenance), study expenses and exceptional expenses (e.g. on account of illness). Personal taxdeductions are deducted from taxable income derived from work and dwellings (box 1). If this is insufficient,deductions from taxable income from savings and investments (box 3) will follow, followed by deductions ontaxable income from substantial interest (box 2). Any remaining deductions will be carried forward to subsequentyears.Rates 2009

    Tax on taxable income for income from work and dwellings (box 1) is: The first bracket: 33.5% on the first EUR 17,878. This rate comprises 2.35% tax and 31.15%

    social security contributions. The second bracket: 42% on the next EUR 14,548. This rate comprises 10.85% tax and 31.15%

    social security contributions. The third bracket: 42% on the next EUR 22,649. This rate consists solely of tax. The fourth bracket: 52% on the excess. This rate also consists solely of tax.Taxpayers aged 65 or older are taxed at a rate of 15.60% in the first bracket and 24.10% in the second bracketbecause persons over the age of 65 are no longer required to pay old-age pension (AOW) contributions of17.90%.Individuals working in the Netherlands generally have social security coverage and must therefore pay socialsecurity contributions. An exception to this may, for example, apply in the event of (temporary) secondment.

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    Taxable income from a substantial interest (box 2) is taxed at 25%.Taxable income from savings and investments (box 3) is taxed at a flat rate of 30% taking into account a lump-sum yield of 4%.Levy rebate

    Tax due from resident taxpayers is reduced by the amount of the levy rebate. The general rebate applies to allresident taxpayers. The general rebate comprises a tax element and a social security contribution element.Entitlement to the contribution element of the levy rebate only applies if the employee has compulsory Dutchsocial security coverage. In addition to this levy rebate, there are all kinds of supplementary rebates that takeaccount of the amount of income earned and the taxpayer's personal circumstances. The rebates for those whoare engaged in work, for parents with children, for single parents and elderly people with a small income, peoplewho keep on working as of the age of 62, generally contribute towards an equitable distribution of the taxburden.4.3.4 Taxable income from work and dwellings (box 1)

    Taxable income from work and dwellings is the aggregate amount of: Taxable profits from business activities; Taxable wages; Taxable income from other activities (income from activities that can not be qualified as wage, nor as

    profits from business activities such as freelance income and income from making available assets tocompanies in which the taxpayer has a substantial interest, e.g. renting of premises to the company orincome from carried interests);

    Taxable periodical payments and grants (e.g. some periodic payments provided for under public law); Taxable income from an owner-occupied dwelling; Expenditure for income provision (e.g. the premium for retirement annuities); Negative expenditure for income provision (e.g. annuities that are surrendered and that were previously

    deducted from income); The negative personal allowance (e.g. refund for expenses that have been deducted from the income in

    a previous year as a personal deduction); Personal deductions (this deduction may partly run over into box 3 and after that possibly into box 2).4.3.5 Taxable income from substantial interest (box 2)

    A taxpayer is regarded as having a substantial interest in a company if he, either alone or together with hispartner, holds, directly or indirectly, at least 5% of the shares. Income from substantial interest is the aggregateamount of the dividends received and the proceeds from disposal (profits from the sale of shares, profit-sharingcertificates, debts and such), after deduction of the costs. If a taxpayer has a substantial interest in a company,profit-sharing certificates or other types of shares issued by that company are deemed to be part of thesubstantial interest. This is known as the 'pull along arrangement' [meesleepregeling]. If a taxpayer makes assetsavailable to a company in which he has a substantial interest, the income generated is taxed in box 1 as a resultof other activities. One example of this is the renting of premises to the company.For non-residents, income from a substantial interest is only subject to tax if the substantial interest is in acompany resident in the Netherlands. For non-resident taxpayers, a company is also deemed to be resident in theNetherlands if it was resident there for at least five of the last ten years.

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    4.3.6 Taxable income from savings and investments (box 3)

    The tax levied on income from savings and investments is based on the assumption that a taxable yield of 4% ismade on the net assets, irrespective of the actual yield (such as interest, dividend, capital gains and losses). Thenet assets (the fair market value of the assets after the deduction of the fair market value of the debts) arevalued at the average for the calendar year and are therefore noted on two reference dates:1 January and 31 December.Examples of assets and debts that fall in box 3:

    Savings; A second home or a let property; Shares and other securities; Annuity insurances for which the premium is non-deductible; An endowment insurance not linked to the taxpayer's own home; Consumer loans;Certain assets do not need to be taken into account in calculating the value of the assets.This applies, for example, to: Assets which are used to generate proceeds which are taxed in the boxes lor 2 (examples are assets

    deployed in the business of a self-employed entrepreneur, owner-occupied dwellings shares in acompany in which the taxpayer has a substantial interest, etc.);

    Articles for personal use such as household effects, a passenger car or caravan; Works of art and science not kept as an investment; Ethical investments up to a maximum of 55,145 per person.

    A taxpayer may not deduct all debts in box 3. For example, the mortgage debt for an owner-occupied dwelling(the interest on this is deductible in box 1) and tax debts are not deductible. The first 2,900 of the other debtsmay not be deducted from the assets. The income in box 3 may not be negative, not even if the amount of thedebt is greater than the amount of the assets.In box 3 taxpayers are entitled to a tax-free threshold of 20,661 (tax-exempt capital). The threshold is raised by 2,762 for each child under the age of 18 of whom the taxpayer has custody on December 31,2009. Dependingon their income and wealth, taxpayers aged 65 and older are entitled to an additional threshold up to amaximum of 27,350. If the taxpayer had a partner throughout the whole year 2008, a debt threshold of 5,800may be taken into account upon request of both partners for benefit of the taxpayer and his partner together.The taxpayer and his partner may allocate this amount between them, but they may not use a threshold higherthan the part of the debts allocated to themselves. If no request is made, the threshold will be 5,8 00 for eachpartner.Non-resident taxpayers are only taxed on income from savings and investments in the Netherlands. The profitbase in the Netherlands is the value of assets in the Netherlands less the value of debts connected with theassets, likewise in the Netherlands. Assets in the Netherlands are: Real estate (including rights to real estate) in the Netherlands; Rights to shares in the profits of a company the management of which is established in the Netherlands,

    as long as it does not arise from shareholdings or employment.

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    4.3.7 Income tax return

    Income tax returns have to be filed each year with the Tax Administration by April 1 of the year following therelevant tax year. If the Tax Administration does not receive the return on time, it sends a reminder and mayimpose a fine. It is possible to apply to the Tax administration in writing for a deferment. Everyone who files hisor her return by April 1, receives notification from the Tax Administration by July 1, of the same year. Forcompanies this means that the annual statement of employee wages must be provided to the employees longbefore 1 April so that they can file their income tax returns with the Tax Administration in a timely fashion.Entrepreneurs can only file their income tax returns electronically.

    4.4 International aspects of taxation in the Netherlands4.4.1 General

    Individuals resident in the Netherlands are subject to income tax on their worldwide income. Companiesestablished in the Netherlands are subject to corporate income tax on their worldwide profits. This is known asresident tax liability. Measures have been taken to avoid double taxation, where resident taxpayers pay tax twiceon all or part of their worldwide income or profits. In addition, natural persons who do not live in theNetherlands are subject to income tax on income from a number of sources in the Netherlands. These non-resident income tax payers subject to income tax may still opt to be treated as residence tax payers (seeparagraph 4.3). Companies resident outside the Netherlands are subject to corporate income tax on their taxableprofits from certain sources in the Netherlands. This is known as non-resident tax liability.4.4.2 Avoiding double taxation for resident taxpayers

    There are two ways in which resident taxpayers can avoid being taxed twice on their foreign-source income andforeign-source profits. In the first place, the Netherlands has concluded bilateral tax treaties with a large numberof countries. In the second place, the Netherlands has unilateral provisions that in general apply to situationswhere no treaty has been concluded with a specific country or where a tax treaty does not include a provisionpertaining to a specific case. These unilateral provisions are contained in the 2001 Unilateral Decree on theAvoidance of Double Taxation.Avoidance methodsDifferent methods are used to avoid double taxation. For example, double taxation may be avoided by means ofthe method called exemption with progression reservation, via the credit method or by deducting foreign taxesas costs. The first two methods are used in the 2001 Unilateral Decree on the Avoidance of Double Taxation andin the treaties for the avoidance of double taxation. The third method (deducting foreign taxes as costs) arisesfrom a number of Dutch tax laws.The exemption methodThe exemption with progression method usually applies to foreign elements of income for income tax andcorporate income tax. In principle, foreign elements of income are exempt per individual country. The exemptionmethod means that reductions will be granted for Dutch tax relating to foreign income. For income tax, theexemption is calculated per box.

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    If the income or profits from foreign sources exceed the total income or total profits (for example because the'domestic income' is negative), exemption may not or may not fully be granted in the year in question for theforeign income. In such cases, the total amount of the foreign-source income respectively the 'excess' of theexemption may be 'carried forward' and reduction of tax may be granted in subsequent years. This enables theDutch tax liability to be reduced in the subsequent years. Foreign losses decrease the Dutch tax liability in theyear they are suffered and when calculating the reduction in subsequent years are deducted from the positiveforeign income qualifying for exemption.The credit methodThe credit method usually applies under tax treaties for foreign withholding taxes on income from investmentssuch as dividends, interest and royalties. In accordance with the 2001 Unilateral Decree on the Avoidance ofDouble Taxation, the credit method only applies to investment dividends, interest and royalties from designateddeveloping countries. The Dutch tax is reduced by the foreign tax levied or by the Dutch tax payable on theforeign dividends, interest and royalties, whichever is lower. Since the foreign withholding taxes for which creditis allowed in the Netherlands are usually levied on a gross basis, whilst Dutch income tax is levied on a net basis(after deduction of costs), it is quite possible that the Dutch tax will not be sufficient to provide credit for the taxlevied by the foreign source country. Full credit is thus not possible. In these cases the excess of the foreign taxnot credited may be 'carried forward' and, where possible, credited in subsequent years. Under the treatiesaimed at avoiding double taxation, the credit method may be applied to the income from each separate country.On the basis of an approval decision issued by the State Secretary of Finance, it is also possible to opt undertreaties for application of the credit method to all foreign income from all countries taken together.Deduction as costsIn situations in which there are no arrangements for avoiding double taxation, foreign taxes may be deducted ascosts related to the relevant income. This option (in the income tax and corporate income tax scheme) applies tothe year in which the income is received and to the total amount of dividends, royalties and interest received inthat year. The taxpayer may elect to deduct the costs against income tax in box lor box 2 individually. Costs maynot be deducted in box 3. Also, in situations in which a credit would normally be granted for dividends, interestand royalties, the taxpayer may opt for non-recognition of the tax credit. This is particularly advantageous if, asalready stated, the (high) foreign tax in a year cannot be fully credited because this is higher than the amountthat must be paid in the Netherlands.Tax treatiesOutline of treaty policy

    The right to levy taxes on certain income or profit is in principle allocated in the tax treaties to one of thecountries, so that ultimately income tax or corporate income tax is levied by one country only and the othercountry reduces the tax to avoid double taxation. The Dutch policy on concluding treaties for the avoidance ofdouble taxation is largely in line with the principles laid down in the OECD Model Tax Convention.The Netherlands' aims in concluding tax treaties are various. Its economy is an open one with a small domesticmarket and a large foreign market. This means that a relatively large number of industrial and commercialcompanies operate on a mainly international basis. The country's policy on tax treaties reflects this openness inits relationships with EU Member States and with other countries. Dutch policy aims to remove obstacles to theinternational flow of goods and capital, in this case international double taxation. To encourage internationalinvestment it is necessary for the tax on dividends, interest and royalties flowing from a country to be as low aspossible, and preferably zero per cent. In line with this policy, Dutch legislation does not require withholding taxto be levied on outbound interest and royalties. The Netherlands also endeavours to guarantee a neutral

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    investment climate for capital import. As a result, Dutch investors are able to invest in foreign markets on thesame terms as other foreign or domestic investors. In line with this policy, all the profits received by a Dutchparent company from a foreign subsidiary or made through a permanent establishment situated abroad areexempt from taxation in the Netherlands. This ensures that these profits are taxed only in the source country, i.e.where the activities are performed.The Netherlands has signed many treaties for the avoidance of double taxation with regard to income tax. Inolder treaties, too, double taxation on wealth was often avoided. Tax treaties with the following countries are inforce and effective on 1 January 2009:Albania Estonia Lithuania SloveniaArgentina Finland Luxembourg South AfricaArmenia France Macedonia the Soviet Union 1)Australia Georgia Malawi SpainAustria Germany Malaysia Sri LankaAzerbaijan Ghana Malta SurinamBangladesh Greece Mexico SwedenBarbados Great Britain and Moldavia SwitzerlandBelarus (White Russia) Northern Ireland Mongolia TajikistanBelgium Hungary Morocco ThailandBosnia and Herzegovina Iceland New Zealand TunisiaBrazil India Nigeria TurkeyBulgaria Indonesia Norway UgandaCanada Israel Pakistan U.S. of AmericaChina Ireland the Philippines UkraineCroatia Italy Poland UzbekistanCzech Republic Japan Portugal VenezuelaDenmark Jordan Romania Vietnam,Egypt Kazakhstan Russian Federation Zambia

    Korea Singapore ZimbabweKuwait Slovak RepublicKyrgyzstanLatvia

    In addition, the arrangement between the Netherlands Trade and Investment Office in Taipei and the TaipeiRepresentative Office in the Netherlands also applies for the avoidance of double taxation. Tax relations betweenthe Netherlands, the Netherlands Antilles and Aruba are regulated in the Taxation Agreement of the Kingdom ofthe Netherlands.

    Treaties for the avoidance of double taxation on inheritance tax are in force and effective on 1 January 2009 withAustria, Finland, Israel, Sweden, Switzerland, Great Britain and the United States of America. The TaxationAgreement of the Kingdom of the Netherlands also contains provisions on inheritance tax. The treaties withAustria, the Netherlands Antilles and the United Kingdom also cover gift taxes. Relief of taxation at source under tax treatiesIn general, tax treaties give natural persons and entities the right to relief for tax at source on dividends, interestand royalties. The way in which this relief may be obtained is generally laid down in implementation regulations.Here, a distinction can be made between: foreign regulations for taxpayers resident or established in theNetherlands and Dutch regulations for taxpayers resident or established in treaty countries.These implementation regulations are published in the Netherlands Government Gazette. The Netherlands onlyimposes tax at source on dividends (dividend tax); thus there is no tax at source on interest and royalties.

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    The general rule for relief of dividend tax in the Netherlands is the exemption method: a reduced rate of dividendtax on the dividend distribution. There is also a refund procedure: the excess amount of withheld dividend tax isrefunded.

    Treaty countries also apply both methods. Whether either methods or just the tax refund is possible, depends onthe implementation regulations.

    The implementation regulations also set out whether (and which) forms should be used for relief for sourcetaxation. Both the Dutch and foreign forms are available free of charge to interested parties. In the Netherlandsthese forms can be obtained from the Belastingdienst/Centrum voor facilitaire dienstverlening, Afdeling logistiekreprografisch centrum, po Box 1314, 7301 BNApeldoorn (Tel: (+31)(0)55-5282016; mail address:[email protected]). The Dutch forms can also be downloaded from the website www.belastingdienst.nl.Foreign forms can be obtained from the appropriate Tax Administrations abroad. It is possible that these formscan be downloaded from websites of foreign national authorities.

    For Dutch dividends to which the Council Directive of 23 July 1990 on the common system of taxation applicablein the case of parent companies and subsidiaries of different Member States (90/435/eec) applies, the DividendTaxation Act [Wet op de dividendbelasting] indicates how a reduction of Dutch dividend tax may be obtained.

    4.4.3 Taxation of non-resident taxpayersNon-resident taxpayers are subject under Dutch law to income tax or corporate income tax on the sourcesreferred to below. If a foreign taxpayer lives in a country with which the Netherlands has concluded a tax treaty,he is only taxed in the Netherlands to the extent the taxation right on these sources has been allocated to theNetherlands under the treaty.

    4.4.3.1 Individuals

    Non-resident individuals are subject to income tax in the Netherlands for the following types of income derived ina calendar year:

    Taxable income from work and dwellings in the Netherlands:a) Taxable profits from an enterprise which carries on business through a permanent establishment in

    the Netherlands or a permanent representative in the Netherlands (Dutch enterprise); the term Dutchenterprise is further extended in the law;

    b) Taxable wages for work performed in the Netherlands;c) Taxable income from other activities in the Netherlands;d) Taxable periodical benefits or benefits in kind to the extent to which the contributions were deducted

    from tax in the Netherlands or if these benefits or benefits in kind arise from pension schemes, thepremiums for which were paid by a Dutch enterprise;

    e) The entitlement to periodical benefits and benefits in kind under public law from or on behalf of aDutch public legal entity;

    f) Taxable income from the taxpayer's owner-occupied dwelling in the Netherlands less the deduction onaccount of no or marginal own home-related debt (usually the standard deduction for own home).

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    Taxable income from a substantial interest in a company established in the Netherlands.

    Income from substantial participation of natural persons not living in the Netherlands is only charged in theNetherlands if those persons hold a substantial participation in a company established in the Netherlands. Thisincome includes received dividends and capital gains. For the presence of such a substantial participation applythe same criteria as for inhabitants of the Netherlands (see paragraph 3.5). Taxable income from savings and investments in the Netherlands:

    The tax base in the Netherlands is the value of the taxpayer's assets in the Netherlands after deduction of thevalue of the debts connected with these Dutch assets. Assets in the Netherlands are:a) Immovable property situated in the Netherlands;b) Rights directly or indirectly related to immovable property situated in the Netherlands;c) Rights to participate in the profit of an enterprise the management of which is established in the

    Netherlands, in as far as they do not arise from shareholdings or employment and have not been taxedon the basis of previous sources.

    Non-resident individuals may, subject to certain conditions, elect to be treated as resident taxpayers. In that casethey will be taxed as resident taxpayers and will be assessed on their worldwide income for income tax purposes;they will also be entitled to the deductions and levy rebates available to resident taxpayers.4.4.3.2 CompaniesNon-resident companies are subject to Dutch corporate income tax in a calendar year for the types of incomelisted below: Taxable profits from an enterprise which carries on business through a permanent establishment in the

    Netherlands or a permanent representative in the Netherlands (Dutch enterprise); the term Dutchenterprise is further extended in the law;

    Taxable income from a substantial interest in a company established in the Netherlands.See also Chapter 1 (pages 9 through 12).

    4.4.4 Advance Pricing Agreement and Advance Tax Ruling Practice and International Investors' Desk

    The Netherlands has an 'Advance Pricing Agreement' (APA) and an 'Advance Tax Ruling' (ATR) practice. The so-called APA/ATR-practice. An Advance Pricing Agreement entails providing advance certainty on the fiscalacceptability of the price (transfer pricing) that the Dutch group company pays to or receives from a foreigngroup company for receiving or delivering a service or goods. An Advance Tax Ruling is an agreement on the taxcharacterization of international corporate structures, such as advance certainty on the application of theparticipation exemption.The APA/ATR-team of the Rotterdam branch of the Rijnmond Tax Administration department deals with AdvancePricing Agreements and Advance Tax Rulings.Foreign investors can contact the International Investors' Desk (APBI) for information on the tax implications of afirst potential investment in the Netherlands of more than EUR4.5 million. The APBI is authorised to provideadvance certainty, within the context of the law, case law and policy, on, for example, corporate income tax,wage withholding tax, dividend tax, income tax, value added tax and capital transfer tax. The APBI acts as thepoint of contact for import duties and excise duties. The APBI is part of the Rotterdam branch of the RijnmondTax Administration department.

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    4.5 Value added tax (VAT)4.5.1 General

    Every taxable entrepreneur must pay turnover tax on turnover. Turnover tax is also known as VAT (value addedtax). The everyday term 'VAT' will be used in this brochure. In the Netherlands value added tax (VAT) is levied ateach stage in the chain of production and on the distribution of goods and services based on the 6th EuropeanVAT Directive. The tax base is the total amount charged for the transaction excluding VAT, with certainexceptions. The VAT that a taxable entrepreneur pays on expenses or investments (the input tax) may bededucted from the VAT he charges (the output tax). Because of these deductions made at previous stages of thechain, VAT is not cumulative. If the balance is positive, tax is payable to the Tax Administration; if it is negative, arefund is given by the Tax Administration. The tax paid by the end-consumer of the goods or services is notdeductible. The amount of tax is based on the price of the goods or services received and on the applicable VATrate.4.5.2 Taxpayers

    Persons carrying on a business, e.g. natural persons and legal persons are liable for VAT. Combinations oftaxpayers forming a single financial, organisational and economic entity may be deemed to be a fiscal unity forVAT purposes. In these cases the supply of goods and services within the unit is not subject to VAT. A governmentinstitution may also be a taxable person if its activities are not public sector ones.4.5.3 Tax base and tax rates

    4.5.3.1 Taxable event There are five taxable events for value added tax: The supply of goods by a company; The supply of services by a company; The acquisition of goods from other EU Member States by a company; The import of goods; The acquisition of new and almost new means of transport (motor vehicles, ships and aircraft) from

    another EU Member State by private individuals.4.5.3.2 The supply of goods and servicesThe phrase 'supply of goods' is given a broad interpretation. Goods are all physical objects, but also include itemssuch as electricity. For VAT purposes the following activities, for example, are deemed to be the supply of goods: The transfer of ownership of goods under a contract; The transfer of goods on the basis of a hire-purchase agreement; The supply of goods by a manufacturer who has manufactured the goods from

    materials provided by the customer; The private use of goods by an entrepreneur;'Providing services' is defined under value added tax legislation as all activities that do not include the supply ofgoods and which are performed for remuneration. The use of self-manufactured goods are also considered to bea service if the input tax for the goods in question would be non-deductible or only partly deductible when theyhad been purchased from another enterprise. The rendering of services free of charge for own private purposes orfor private purposes of personnel or more in general for non-businesslike purposes, are also considered to be ataxable service.

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    4.5.3.3 Place of supply of goods and servicesAlthough the difference between the supply of goods and the supply of services is usually purely theoretical,there is a valid reason for distinguishing between them, namely with regard to the place of the taxable event.Transactions are subject to the conditions and rates applicable to the location concerned. The place where thegoods are supplied is defined as the place where the goods are located at the time of supply. An exception ismade for goods transported in connection with their supply; in these cases the place of supply is the place wheretransport begins. Another exception is made for a successive supply of imported goods; in these cases the placeof the total supply is the Netherlands. The location where services are supplied is generally deemed to be theplace of residence or of establishment of the person supplying the services. There is a separate regulation,however, for certain services, e.g. services involving copyrights, advertising, advice, information, banking,insurance and the supply of staff through an employment agency. The place where these services are supplied isgenerally the place of establishment of the entrepreneur to whom the services are rendered. The same applies totelecommunications services and e-commerce. Services involving immovable property are supplied at the placewhere the property is located.4.5.3.4 RatesThe general VAT rate is 19%. The reduced rate of 6% applies to the supply, import and intra-Communityacquisition of goods and services listed in Table I of the 1968 Turnover Tax Act. The reduced rate is largelyapplicable to foods and medicines. Other goods and services subject to the lower rate include water, art, books,newspapers and magazines, devices for the visually handicapped, artificial limbs, certain goods and services foragricultural use, passenger transport, sports, hotel accommodation, some labour-intensive services and entrancefees for stage performances, museums, cinemas, sports events, amusement parks, zoos and circuses. The zerorate is intended primarily for goods exported from the EU, sea-going vessels and aircraft used for internationaltransport, gold destined for central banks, and all activities that take place in certain types of bonded warehouse.There is also a zero rate for goods transported to other EU Member States. VAT is levied in the Member State towhich the goods are transported, because this is a case of intra-Community acquisition in that Member State.4.5.3.5 ExemptionsSeveral types of transactions are exempt from VAT, which means that tax may not be charged on the transactionsand that the VAT previously paid on these transactions may not be deducted. Exemptions are applicable totransactions such as: the transfer or rental of immovable property (with certain exceptions: for example, tax is payable on a

    newly-built property for two years after it is first put into use. Property is also taxable when the supplierand the customer have opted for taxable supply. The possibility to opt for taxation is, however, limitedto situations in which the property is to be used for purposes of which (almost) all are taxable); Medical services;

    Services provided by educational establishments; Socio-cultural performances; Most banking services; Insurance transactions; Non-commercial activities of public broadcasting organisations; Certain postal services; Burials and cremations; Services rendered by sports organisations for their members (i.e. not entrance fees); Services rendered by composers, writers and journalists; Home care services.

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    Special arrangements for small businesses and the agricultural sector

    Small businesses (natural persons) enjoy a tax reduction. If the VAT payable after the deduction of prepaid tax isless than 1,883, an amount may be deducted; when the balance is less than 1,345, no VAT liability exists. If asmall business continues to be exempt from the obligation to pay VAT, it can apply to be exempted from theobligation to maintain accounting records for VAT. A special provision applies to the agricultural sector (whichincludes arable farming, stock breeding and horticulture), which is designed to exclude the agricultural sectorfrom the VAT system. Farmers do not charge VAT and are not entitled to deduct any previously paid VAT.Companies purchasing agricultural products from these farmers enjoy a fixed flat-rate deduction of 5.1%. If thetax prepaid by the farmer is structurally more than 5.1% of the value of his sales, this special provision would puthim or his customers at a disadvantage. In such cases the farmer may then opt for the normal statutory scheme.4.5.4 The VAT system in the single European market

    There has been a single European market since 1 January 1993. From that date, persons, goods, services andcapital move freely within the EU. The transitional arrangements applicable from this date contain the followingmain points: Private individuals purchasing goods in another Member State pay VAT in the country in which the goods

    are purchased. This is based on the country of origin principle. Exemption on the export of these goodsfrom the Member State and the obligation to pay VAT on them on arrival in the Netherlands do notapply.

    For trade between companies in different Member States, VAT is levied in the Member State to whichthe goods are transported at the rates and subject to the conditions of that Member State. This is basedon the country of destination principle. The business supplying the goods applies the zero rate. Thebusiness receiving the goods submits a tax return for the goods purchased in another Member State.This transitional arrangement applies until the date on which supplies of goods become subject to thecountry of origin principle.

    The country of origin principle (paying VAT in the country where the purchase takes place) also appliesto intra-Community supplies of goods to exempted businesses, farmers under the special agriculturalregime and non-taxable legal entities (such as public authorities). Unless the total value of the goodspurchased exceeds the threshold of 10,000 per calendar year. When the threshold is exceeded, thepurchaser must file a return in the country of destination.

    The above mentioned measure also applies to distance selling (selling where the goods are transportedto the client in another Member State via or at the expense of the supplier) up to a total amount of 100,000 per seller per year, to private individuals, businesses that have been exempted, non-taxablelegal entities (such as public authorities) and farmers under the special agricultural regime.

    The country of destination principle (paying VAT in the country to which the goods are transported)always applies to the purchase by or to private individuals of new, or nearly new, means of transport.

    Every company making in