General Memorandum on Dutch taxation of non-resident taxpayers

1. Introduction to Dutch taxation of non-resident taxpayers

Entities resident outside the Netherlands have to fulfill three basic criteria in order to become subject to Dutch corporate income tax ("CIT"):

These conditions, and the manner of calculating the corporate income tax due will be discussed hereafter.

2. Non-resident taxable subjects for Dutch corporate income tax

The following entities resident outside the Netherlands which receive Dutch income are subject to CIT in the Netherlands:

It is important to note that if an entity has substantial activities in the Netherlands (relative to its overall activities), it always recommended to also investigate whether that entity could be considered as being resident in the Netherlands itself.

3. Dutch income

If it is determined that an entity is a possible tax subject in the Netherlands, it is subsequently necessary to determine whether it has any taxable objects, or Dutch income. The Dutch income consist of two main categories (art. 17'3 CIT):

3.1 Income from a Dutch enterprise

Income from a Dutch enterprise include:

  1. income from real estate located in the Netherlands, including rights related to this real estate and rights related to the exploration and exploitation of natural riches in the Netherlands;
  2. income from rights to a share in the profit or the equity of an enterprise of which the management is situated in the Netherlands to the extent that these rights do not stem from securities. This provision generally concerns the participation in e.g. limited partnerships. It is covered both in art. 8'3 CIT and art. 17a'b CIT; it is generally agreed that the scope of the latter extends this measure to also apply in situations where the enterprise of a limited partnership is not situated in the Netherlands, but the managing partner is. It must further be pointed out that since there is no clear definition of what "a share in the profit" is, it can not be excluded that the holders of a profit dependent loan, as described in art. 10'1d CIT, could not be deemed to have a share in the profit of a debtor;
  3. receivables on a company resident in the Netherlands if the beneficiary of the receivable has a substantial interest in that company. This article together with art. 17'3b CIT means that non-resident shareholders could be subject to Dutch corporate income tax on the dividends, interest, currency results and capital gains received on an interest of 5 percent or more in any class of shares of a company resident in the Netherlands;
  4. activities which are being performed as a director or member of an advisory board of an entity resident in the Netherlands even if the authority to act as director or advisory board member is limited to parts of that entity's business located outside the Netherlands; and
  5. activities which are being performed during a period of at least 30 days in, on or above the North Sea exploration area (art. 17a CIT).

3.2 Income from a substantial interest

It is important to note that the tax exposure described hereafter is generally limited by tax treaties, since the right to taxation of the income dealt with here is allocated to the country of residence. Thus, the following generally applies in cases, where an entity is not resident in a tax treaty country, or that entity is resident in such a country, but is not entitled to treaty protection. See under "5. Limitation of tax exposure by tax treaties" hereafter.

A non-resident has a substantial interest in company resident in the Netherlands if it, directly or indirectly:

  1. is shareholder for at least 5 percent in the issued share capital of that company;
  2. has rights to acquire shares representing at least 5 percent in the issued share capital of that company; or
  3. has profit sharing certificates which concerns at least 5 percent of the annual profit of that company or at least 5 percent of its liquidation proceeds (art. 4.6'1 Personal Income Tax Act 2001 ("ITA2001")).

It is important to realise that the rights of enjoyment to shares or profit sharing certificates as well as participations in mutual investment funds can qualify towards holding a substantial interest (art. 4.3'1 and 4.5'1 ITA2001).

The income from a substantial interest does not only include dividends received and capital gains realised, but also income and gains from loans to a company in which a substantial interest is held (art. 17a'c CIT).

Finally it is important to note that a company is only subject to taxation for its substantial interest income, if that substantial interest does not form part of the assets of an enterprise. If it does, then this rule does not apply and the substantial interest holder could only be subject to taxation in the Netherlands if that substantial interest forms part of the assets of a Dutch permanent establishment or a Dutch enterprise as described under "3.1 Income from a Dutch enterprise". In the latter case, the participation exemption may be applicable to income and gains from the shares, which means that such income and gains would be exempt from Dutch corporate income tax. The participation exemption will not be applicable if the substantial interest does not form part of the assets of an enterprise.

4. Withholding Taxes

See our separate memorandum for further information.

The Netherlands does not levy a withholding tax on royalties; nor does it levy a withholding tax on interest, unless the underlying loan is qualified as a profit sharing loan or as equity. See our memorandum on interest deductions for further details.

5. Limitation of tax exposure by tax treaties

Most Dutch tax treaties are based on the OECD model conventions. Thus, the tax liabilities under the above measures are generally limited to withholding tax at the source on dividends, income from real estate and profits from a Dutch permanent establishment.

5.1 Withholding tax

Dividend withholding tax on profit distributions from participations is usually reduced to 0% or 5% under tax treaties (0% within the EU under the EC Parent/Subsidiary Directive). The general treaty rate for profit distributions from portfolio investments is 15%.

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