The present article describes the legal and tax aspects and some practical matters concerning office establishment in Holland. It summarizes information about the Dutch legal and tax system relevant to the required procedures. The article also presents Holland as an international centre of commerce and highlights the location advantages gained by opening a Dutch office. Finally, it discusses other matters of practical importance such as living and labour costs.
Please, do not hesitate to call our tax and incorporation agents if you have legal or tax issues or in case you need any additional information.
Tax aspects of establishing a Dutch office
Company establishment in Holland has numerous tax advantages. Many entrepreneurs choose to incorporate an international structure under an efficient tax regime such as the one in Holland. Dutch legal entities within company structures bring many tax benefits. The main advantages can be summarized as follows:
1) The benefit of double tax avoidance thanks to agreements concluded by Holland and to the EU directives on direct tax;
2) The participation exemption;
3) The option to negotiate agreements with the national tax authorities regarding advance pricing (APAs) and tax ruling (ATRs). Such agreements provide certainty about future tax payments;
4) Holland’s bilateral treaties on investments (BITs)
5) Dutch tax credits for income from foreign sources;
6) The Innovation Box (IB) regime for R&D activities;
7) No withholding tax levied on outbound royalty and interest payments; and
8) The scheme for highly qualified migrants (30 percent ruling).
These tax benefits will be explained in detail below.
Benefits of Dutch holdings
A Dutch holding can serve as an investment centre for companies established in various countries worldwide. Holland is recognized for its favourable regime with respect to holdings, particularly thanks to the participation exemption, coupled with an extensive network of tax treaties and bilateral agreements on investments. The main benefits prompting international businesses to use Dutch holdings as intermediaries are the lower withholding tax in the country where profit is generated, the untaxed receipt of funds accumulated by foreign subsidiaries and the protected status of these subsidiaries. These advantages will be clarified below.
The Government of the Netherlands has declared its general intention to keep and preserve these benefits, considered figuratively as jewels in the crown of the national tax system, regardless of the attempts of the Organisation for Economic Co-operation and Development and the European Union to combat tax avoidance strategies aimed at shifting profits from higher- to lower-tax jurisdictions.
The participation exemption in the Netherlands
As already mentioned, Holland is popular with the so-called participation exemption. If particular conditions are fulfilled, capital gains and dividends obtained from qualifying subsidiaries are not subject to Dutch corporate tax.
This exemption applies if an eligible subsidiary holds no less than 5 percent of the company’s shares. One eligibility criterion is that subsidiaries must not hold the shares with the sole purpose of passive investment in a portfolio. However, even in cases where this purpose is predominant, the exemption still applies if the subsidiaries are paying profit tax of no less than 10 percent (under the rules of tax accounting in the Netherlands) or if less than half of their assets are allocated to passive investments. When the exemption cannot be applied, companies usually have the option for tax credit.
The system for tax ruling in the Netherlands (Advance Pricing Agreements, APAs and Advance Tax Rulings, ATRs)
The Dutch system for advance tax ruling provides clearance in advance by concluding APAs and ATRs with Dutch companies with respect to their tax position. The conclusion of such agreements is voluntary. In general, companies use the system for tax ruling to become aware in advance about the tax liabilities relating to planned intercompany transactions. ATRs provide advance certainty with respect to the tax repercussions of envisaged transactions by clarifying, for example, if they will be eligible for participation exemption. APAs, on the other hand, define when the arm’s length principle can be applied to international transactions between associated companies or different parts of the same company.
Bilateral treaties on investments (BITs)
When investing in a foreign country, one should consider both the respective taxes and the protection of the so-called bilateral treaties on investments, especially if the investments are made in a country with a serious risk profile.
BITs are concluded between two countries to establish the terms for protection of entities from one country investing in the other country. These treaties ensure reciprocal protection and promotion of investments. They secure and protect the investments of entities residing in one of the contracting parties on the other party’s territory. Therefore BITs represent institutional safeguards with respect to foreign investments. Also many BITs provide for alternative mechanisms for dispute resolution where investors whose rights have been infringed upon can opt for international arbitration rather than sue the defaulting country in its courts.
Holland has developed a large network of such bilateral treaties offering investors the best possible security and protection in foreign contracting countries. It is worth to mention that Holland has entered into BITs with approximately 100 states.
Investors who reside in a country signatory can benefit from the protection of its BITs. Therefore Holland is an attractive jurisdiction for setting up holding companies not only due to its favourable tax regime, but also thanks to the numerous BITs it has concluded.
The double tax avoidance decree
In order to encourage Dutch investments into other, especially developing, countries, the Government has introduced a regulation providing a mechanism to lower Dutch corporate tax on profits obtained from investments in countries that have not concluded tax treaties with Holland. This piece of legislation is the Unilateral Double Tax Avoidance Decree (hereinafter referred to as DTAD). As a result of the DTAD the Dutch taxes levied on investments in countries that have not concluded tax treaties with the Netherlands are usually the same as the taxes levied on investments in tax treaty states.
The Innovation Box (IB) regime
Holland boasts a favourable tax climate under the innovation box regime, with regards to companies working in the field of research & development (R&D). Any company generating income from its own developed and patented intangible fixed assets (excluding trademarks and logos) or from assets derived from R&D activities (verified by an official statement) has the option to report the income using the IB regime. Then its eligible income exceeding the costs for the development of the intangible fixed assets will be subject to only 5 percent tax. Any losses associated with the eligible assets can be deducted against the usual corporate tax rate, i.e. 25 percent. If losses are included in the tax return, then they need to be recaptured using the normal rate. Only then the reduced 5 percent rate will become available again.
No withholding tax with respect to royalty and interest payments
Holland is an attractive jurisdiction for setting up (group) license and finance companies. The greatest advantage of establishing a Dutch license or finance company lies in the tax-effective setup of these entities. In broad terms this efficiency stems from the convenient tax treaties that Holland has concluded, coupled with the lack of withholding tax with respect to outbound royalty and interest payments. If certain requirements are fulfilled, these prerequisites allow for an extremely tax-efficient “flow” of license income and finances through the entity in the Netherlands to the eventual recipient.
The scheme for highly skilled migrants
Foreign employees living and working in Holland can benefit from a concession if they meet particular requirements. This concession is called the 30% ruling. According to it, 30 percent of the wages of the international employee remain untaxed. As a result the overall tax rate on personal income revolves around 36 percent instead of the usual 52 percent.
Legal aspects of establishing a Dutch office
Having a Dutch company in the framework of an international corporation provides both tax and legal benefits. Some important legal benefits are:
1) The legal system in the Netherlands has provisions for various entities to match the characteristics and needs of the planned business operations;
2) The Dutch Commercial Chamber (KvK) is very efficient and cooperative;
3) It only takes a day or two to obtain legalization from a Dutch Latin notary and a court-issued apostille;
4) It is easy to arrange the appointment of a local managing director, for example, to meet the subsistence requirements; and
5) In 2012 the laws on private limited companies (BVs) were thoroughly amended and currently they are a lot more flexible.
The corporate law in the Netherlands has provisions for entities both with and without a legal personality (i.e. both incorporated entities and partnerships/contractual entities).
The more commonly used entities without a legal personality include:
1) sole trader/sole proprietor/a one-man business (Eenmanszaak); (technically, sole proprietorships are not legal entities);
2) general partnership (Vennootschap onder firma or VOF);
3) professional/commercial partnership (Maatschap); and
4) limited partnership (Commanditaire vennootschap or CV.
The more commonly used entities with a legal personality include:
1) private company with limited liability (Besloten vennootschap or BV)
2) public company with limited liability (Naamloze vennootschap or NV)
3) cooperative association (Coöperatie or COOP); and
4) foundation (Stichting).
The choice of a legal entity depends on the type of business to be conducted. Owners of small businesses and freelancers usually establish sole proprietorships, while larger enterprises are incorporated as private companies with limited liability (BVs), public companies with limited liability (NVs) and limited partnerships (CVs).
After you decide to start a business, the first step is to register it at the Commercial Chamber which will include it in the Trade Registry. This procedure must take place during the period starting a week before your business becomes operational to a week after that.
Further details about the private company with limited liability (BV)
The private company with limited liability (Besloten Vennootschap or BV) with nominal capital split into shares is the most commonly used entity for business operations in the Netherlands. A BV has one or multiple shareholders and issues only registered shares. It can have one or several “incorporators” or subscribers who can be legal entities and/or natural persons. An entity or an individual, be it resident or foreign, can simultaneously be the sole incorporator and director representing the board of management.
Geographical features: Holland as an international commercial centre
Holland is an ideal strategic destination for businesses thanks to its connectivity. Companies established in the country can easily place their products and services on markets in the EU, Eastern and Central Europe, Africa and the Middle East. Holland is located in the western part of Europe and has common borders with Belgium (south) and Germany (east). To the west and to the north it borders the North Sea and its coastline is 451 km long. Holland is a small country with a territory of 41 526 square kilometres. Its economy is strongly dependent on international trade (more than 50% of the Gross Domestic Product is derived from foreign trade). The country is among the world’s top 10 exporting nations, which is quite an achievement for its size. Approximately 65 percent of all Dutch exports are destined for five countries: USA, the United Kingdom, Belgium, Germany and France.
More than 50% of all export and import in Holland consist of foods, machinery (mainly computers and parts) and chemical products. Many import goods (computers included) are actually destined for other countries and are re-exported largely unprocessed soon after their arrival in Holland. This situation is typical for big transportation and distribution hubs. As a matter of fact many millions of tonnes of North American and Asian goods arrive at Amsterdam or Rotterdam for distribution all over Europe. The role of Holland as an European gateway is also sustained by Schiphol Airport in Amsterdam – the fourth busiest and biggest airport on the continent servicing traffic of both goods and passengers. Most Dutch transportation companies have their bases of operation either in Rotterdam (with Rotterdam The Hague Airport) or close to Schiphol. Other major European airports, namely Düsseldorf and Frankfurt in Germany, Roissy in France and Brussels and Zaventem in Belgium are only several hours away. Furthermore Holland has an exceptional railroad network connecting important European capital cities, including London. The EU capital of Brussels is only a short ride away. Also, Rotterdam’s port is the biggest on the European continent. Until 12 years ago it was also the busiest port in the world, but was overtaken by Shanghai and Singapore. In 2012 it was the sixth busiest port in the world as regards tonnage of cargo per year.
Cost of labour
The living standards in Holland are relatively high and this is reflected by the average salary. In 2015 employers paid 2500 Euro/month to their employees and therefore the average cost of labour was 34.10 Euro/hour. All due taxes are levied at the source of income. The average work week is about 40 h.
The costs of labour in the different members of the EU vary widely. In 2015 the average pay per hour for the whole European Union was 25 Euro, and for the Eurozone the rate was 29.50 Euro. Therefore the costs of labour in the Netherlands are 16 percent higher compared to the average Eurozone value. Still, in 2015, five EU countries had higher labour costs than Holland. The average pay per hour in Denmark (41.30 Euro) and Belgium (39.10 Euro) is approximately 10 times higher compared to the value for Bulgaria (4.10 Euro). The labour in Belgium is more costly than in Luxembourg, the Netherlands, Sweden and France. Yet, the costs of labour in Lithuania and Romania are not much different than the cost in Bulgaria, even though the salaries in these 3 countries are on the rise.
As of 07/2015, the national minimum gross salary in Holland for employees aged 23 and older is 1507.80 Euro/month, i.e. 69.59 Euro/day. Based on 40 working hours per week, this equals 8.70 Euro/hour.
Amsterdam: The new European capital of finance
According to the writer James Stewart, a business columnist working at the NY Times, after Brexit Amsterdam is bound to become the new London thanks to its impressive architecture, top rated schools and exciting night life. Holland has been a global centre of commerce for centuries and so the country is traditionally tolerant to foreigners. Furthermore almost all Dutch residents speak English. The schools in Holland are considered the best on the European continent, with many opportunities for education in English. Amsterdam captivates with its architecture and offers attractive housing options, outstanding restaurants, picturesque views, theatrical and musical performances and an exciting night life. Its citizens have a tolerant, cosmopolitan attitude cultivated for centuries, ever since its emergence as a centre of global trade.
Thanks to the continuous efforts of the nation Holland is currently among the wealthiest states worldwide. The country’s strategic location on the North Sea coast and its rivers, bringing industrial and agricultural benefits have undoubtedly contributed to this success. Thanks to these geographical characteristics and the inherent work enthusiasm of its people, the Netherlands is now a great centre of commerce.
In addition, Holland has a well developed welfare state system ensuring that all the citizens share the prosperity of their homeland. The Dutch take great pride in their high living standards. The expenses associated with living, education, housing and culture are lower compared to most countries in Western Europe. The United Nations Sustainable Development Solutions Network surveys many people residing in various countries worldwide to prepare its annual World Happiness Report. As evident by its name, the report states which countries have the happiest populations. In 2018 Holland took the 6th place.
Cost of living
Similarly to many other countries in Europe, the living cost in Holland has increased with the adoption of the common currency, the Euro. A standard room costs 300 – 600 Euros/month, so it is a lot cheaper to settle in a non-urban area, than to live in a city like Amsterdam or The Hague.
The public transportation is comparatively cheap by EU standards. Most areas work with chip cards (“ov-chipkaart””) that can be used on trams, buses, metros and trains. In the city a single bus ticket costs approximately 2 Euro. A ticket for the train from Schiphol to the Central Station in Amsterdam costs about 4 Euro. A ticket Amsterdam – Utrecht is around 7.50 Euro. In contrast, taxi services are quite expensive. The usual starting cost is 7.50 Euro and the rates reach 2.20 Euro/km.
Please, do not hesitate to call our experts in taxation and incorporation. They will happily assist you with the procedures for starting your own business in Holland.
Brainport Eindhoven is a combination of high tech campuses and businesses. The collaboration between commercial entities and Universities providing theoretical knowledge has proven a fertile ground for innovation. Eindhoven is famous for its Eindhoven University of Technology. Eindhoven is also known for major technology companies based in Eindhoven, such as Philips and ASML.
A complete small-scale high technology infrastructure
Brainport Eindhoven attracts organizations and companies with a wide variety of technologies, top technical universities, popular Original Equipment Manufacturers (OEMs), suppliers undertaking risk-bearing innovations, international knowledge institutions, high expenditure for Research and Development, student teams, start-ups, twenty thousand researchers, shared manufacturing facilities and R&D. This outstanding infrastructure offers all that technology and R&D organizations and companies need to perform to the best of their abilities.
(Article: Netherlands The European Silicon Valley)
Many opportunities to commercialize knowledge
Brainport provides the perfect environment for organizations and companies to commercialize sophisticated products and technologies. The region has developed a comprehensive one-of-a kind technology ecosystem where more than 20 OEMs in the field of high technology work in close collaboration with knowledge institutes and suppliers and has become a lucrative market in its own right. Furthermore, by cooperating with prominent high-quality companies in the development of pilot projects used as showcase, Brainport Eindhoven has become a label of quality leveraging the reputation of businesses. Last but not least, Holland is perceived as a country of pilot projects by the EU, providing various facilities for acquisition of quality labels needed for entry on the market. Brainport can provide independent final verifications of product compliance with global standards in different fields. Thus the region provides the means for companies to establish themselves on international markets.
Cost/risk competitive manufacturing and R&D
Holland, and Brainport in particular, offers businesses and organizations the complete set of tools to perform cost/risk competitive manufacturing of high technologies and R&D. The region makes it possible to work in collaboration with various contract manufacturers of original equipment used to cooperating with giants such as Philips and ASML . They take full responsibility regarding the design and the life cycle of the product. Brainport Eindhoven also offers various R&D facilities as metered services. Thanks to this and the huge diversity of collaborators in prototype design and industrialization, even comparatively small companies have the opportunity to work flexibly on revolutionary technologies and share the involved risks. Furthermore production facilities, services and buildings can be shared flexibly to achieve outstanding cost efficiency.
Eindhoven: A fertile ground for technology and innovation spotting
Brainport has many incubator and accelerator programs and hosts Eindhoven UT, recognized for its partnerships with industry representatives and unparalleled expertise in valorization of knowledge. Therefore the region provides a fertile ground for development of spin-offs, start-ups and scale-ups. These companies make significant contributions to the unique power of innovation of Brainport and its high density of patents. Brainport is also famous with its multidisciplinary initiatives, cross-collaboration and diverse technologies and sectors leading to resourceful crossovers. This combination of factors makes Brainport a perfect region for the purposes of technology spotting.
Cooperation in technology development decreases the period to market
Holland’s technology-minded government and Brainport’s open platforms for research, supply chains, campuses, clusters, and multidisciplinary approach to work allow companies to take advantage from sharing of knowledge, mutual strengthening of core competences, efficient use of Research and Development budgets, risk sharing and product development and testing with potential customers in public areas. The path is open for development of revolutionary technologies at reduced costs that can be quickly released on the market.
Availability of brilliant IT and tech specialists
The outstanding reputation of companies established in Brainport and the knowledge and educational institutions in the region attract talents from around the globe. These acknowledged professionals are willing to contribute to the development of sophisticated top-class technologies. Therefore companies benefit from a large talent pool, including scientists, researchers, physicists, engineers, designers and developers excelling in their fields. Attractive campuses and properties like Strijp-S (a village concept) and the local High Technology Campus offer specialists a sustainable, dynamic working environment. The options for accommodation contribute to a great extent to the attractiveness of the region.
Active support in starting new High Tech businesses
In Brainport, Research and Development companies find everything necessary for a successful business: close collaboration, easily accessible platforms for research, joint innovation programs, open supply chains and attractive campuses. On these campuses, knowledge institutions and companies work together on particular technologies, high-technology clusters and networks, as well as on various events dedicated to technology. The campuses facilitate business development and help newcomers find their way in the region. Furthermore they offer international businesses special partnerships to let them try out the benefits and become a part of the high technology ecosystem. The development agency of the region, Brainport Development, provides full support in setting up a new business locally or finding suppliers and partners.
A creative symbiosis between citizens, industries and governments
Brainport Eindhoven has a technology-minded government, adaptive and innovative citizens, cooperating industry partners, pilot opportunities and living laboratories offering organizations and companies plenty of room for experimentation. The region presents opportunities to test new services and products in real life situations, thus adding value to the goods and ensuring that they meet the end-users’s needs. Brainport is ideal for development and implementation of smart services and products in close collaboration with potential customers in realistic settings. With such background, it is not surprising that the region is leading in the area of smart mobility and city concepts.
Partners and expertise for creation of unimaginable technologies
Brainport Eindhoven is a melting pot of high technology organizations and companies specializing in diverse fields. To them collaboration is a major instrument for development. The region hosts partners who have the abilities to develop, evaluate, prototype and manufacture systems beyond imagination with unparalleled efficiency. There are also private and public partners contributing to the development of a unique platform facilitating an efficient and broad technology roll out. Therefore in Brainport the process from the initial development of products to their introduction on the market is incredibly fast.
Stability, prosperity and international orientation
Holland is a prosperous and stable country that welcomes international business entrepreneurs: a veritable European gateway. Brainport Eindhoven has a strategic location, the largest Dutch airport after Schiphol, a multilingual well-educated workforce, outstanding digital infrastructure, and a growing and thriving international community. The region offers everything needed for a great quality of life.
Do you intend to establish a business in the field of high technology in Brainport open a company? Our local office can assist you in registering your company in the region.
Foreigners residing in the Netherlands can either work for local businesses or establish their own companies. For the past few years people increasingly choose the second option, relying on the governmental support for start-ups.
One of the profitable businesses foreigners can establish in the Netherlands is shops. There are not many requirements to be fulfilled or licenses to be obtained. One significant advantage is the possibility to stock shops with quality products delivered from local manufacturers and producers. This is particularly convenient for low-cost consumer goods that are sold quickly.
Our local agents in company formation can assist you with the procedure for company registration with the aim to open a shop.
Registration of a shop in Holland
In order to open a shop, first you need to register your company at the Commercial Register. The procedure for company formation in the Netherlands requires:
- choosing a company name;
- selecting a form of business;
- registering the selected entity;
- registering with the Tax Administration;
- obtaining a social security registration;
- applying for a company account in a local bank, an additional merchant account is optional;
- obtaining the licenses necessary for operation.
As regards the licenses needed for opening a Dutch shop, the requirements vary depending on the offered products.
Licenses necessary for operating a Dutch shop
Of the permits necessary to open a shop in Holland, perhaps the most significant is called a market license. It allows both sole traders and companies to sell products on the Dutch market. This license is provided by the municipality of the area where the business operates.
In addition to the abovementioned market license, opening a Dutch shop implies certain measures for safety that must be considered by the business owners. The sold products need to be insured, and different contracts with the suppliers need to be signed. In particular cases, when selling imported products, the shop owners will have to obtain import permits.
If you need further information on registering a Dutch company, do not hesitate to get in touch with us. Our local consultants in company registration will assist you with the procedure for business incorporation. You can also check our guide on opening a Restaurant, Cafe or Hotel business in the Netherlands.
