Compliances

Details of the tax compliance services in the Netherlands

Tax compliance in the Netherlands is essential to the Dutch tax system. In contrast, the reputation for having tax compliance services in the Netherlands is relatively high, meaning that most taxpayers must fulfil their obligations and follow the laws and regulations to avoid penalties. The Dutch tax system is based on income tax, environment tax, value-added tax (VAT), and social security contributions. Different types of income have deductions and allowances that can reduce your tax obligation.

A resident or non-resident of the Netherlands must file an annual tax return in early May for the previous calendar year. Failure to comply with a tax return before the deadline can result in penalties and levied interest charges. The exact penalties depend on the nature and severity of the non-compliance. The Dutch tax authorities have developed an online portal, “My Tax Service”, allowing taxpayers to manage their taxes online. It includes filing tax returns, making payments, and accessing information about their tax position.

Therefore, tax compliance in the Netherlands is an essential factor for taxpayers. It is critical to comply with the regulation in order to avoid penalties and other consequences.

Types of Taxes in the Netherlands

Businesses in the Netherlands pay and withhold different kinds of tax, including corporation tax on their profits for tax compliance services, Employers withholding salaries tax and social insurance contributions from their employees’ salaries, and dividend tax withheld from profits distributed to shareholders. There are also several environmental taxes. The Netherland Government has signed treaties with different countries to eradicate the problems of double taxation of international companies.

1. Salaries tax and social insurance contributions

Salaries tax is an advance payment of employees’ income tax to avoid paying a large amount at the end of every financial year; the employers withhold salaries tax in the tax compliance services in the Netherlands. Besides salaries tax, the employer withholds national insurance contributions, and healthcare insurance contributions are deducted from employees’ salaries.

• Withhold salaries tax and national insurance contributions from employee salaries
• Employees have to pay salaries tax from their earnings. An employee works under an employer, forming a relationship authority between the employer and the employee.
• Sometimes, an employee does not have an employment contract like another; in that case, their relationship is called ‘deemed employment’, and the employer must withhold tax and contributions from the employee’s salaries.
• Salaries tax and national insurance Employers must withhold salaries tax and national insurance contributions; the Income component includes salary, holiday allowance, overtime pay, end-of-year bonus and benefits.
• Work-related costs scheme
• The work-related costs scheme provides employers to give tax-free benefits, such as travel allowances, study costs, lunches and Christmas benefits.
• Employers may provide tax-free items if the total value costs scheme is less than 1.5% of salary costs. If their total value costs scheme exceeds 1.5%, the employer has to pay 80% extra tax.
• Employee insurance contributions

Employers also provide employee insurance contributions to their employees. Such contributions are the unemployment benefit scheme (WW), the Work and income scheme (WIA) and the invalidity insurance scheme (WAO). Employers do not withhold these contributions from their employees’ salaries but require them to pay themselves. The government sets the contribution levels twice yearly, in January and July every year.

2. Corporate income tax

Public and private companies must pay corporate income tax on their profits. Special rules apply to those companies that form a tax group and those that own a 5% share or more of another company.

Who pays corporate income tax?

• Public and private companies usually pay corporate income tax on their profits. In the case of foundations and associations, they must also file corporate income tax returns.
• Some legal entities, such as financial investment institutions, do not require to pay corporate income tax.
• The self-employed person pays tax on their profits through personal income tax returns.

Corporate income tax rates

• The corporate income tax rate always depends on the taxable amount. If the taxable amount is EUR 395,000 or less, the corporate income tax rate is about 15%.
• If the taxable amount is more than EUR 395,000, the corporate income tax rate is EUR 59,250, additionally 25,8% for the amount exceeding EUR 395,000.

Tax groups with subsidiary companies

Every company pays its corporate income tax to the concerned Gov for their tax compliance services. However, if a parent company forms a tax group with one or more subsidiaries, the Tax and Customs Administration of the Dutch Gov. declares it as a single taxpayer company.

The primary benefit of forming a tax group is that a loss incurred by one company can be deducted from the profits earned by other companies in the group. In that case, the primary condition is that the parent company holds 95% of the shares in the subsidiary.

3. Dividend tax

Every company can distribute some of their profits as dividends to its shareholders. Dividends are subject to tax; the dividend tax rate is about 15%.

Withholding and deduction of dividend taxis withheld from the profit distributed to the shareholders.

Dividend tax exemption or refund

Sometimes, a company may be entitled to partial or complete exemption from dividend tax or a dividend tax refund.

4. Environmental taxes

Businesses and households pay various environmental taxes, such as a tax on mains water and an energy tax for tax compliance services in the Netherlands.

• Energy tax

The energy taxes pay to the Tax and Customs Administration for the usage of gases may recharge it to their customers. Suppose you use natural gas or electricity to generate electricity. A reduction of tax is granted per electricity connection. The reduction amount is EUR 310.81 in the case of a residential property.

• Tax on mains water

The tax on mains water pays to the Tax and Customs Administration for water usage and may recharge from time to time.

5. Resident taxpayers

All businesses incorporated under Dutch law pay tax on their income in the Netherlands. Overall, the income includes what is earned offshore of the Netherlands.

6. Non-resident taxpayers

Non-resident businesses pay corporate tax in the Netherlands on:

• taxable profit earned from a business;
• taxable income from a substantial holding in businesses located in the Netherlands;

Taxable profit from a business in Curaçao or St Maarten or a permanent establishment in Bonaire, Aruba, St Eustatius and Saba.

Tax treaties between countries

A tax treaty is an agreement between two countries that may levy tax on income. One country will levy taxes, while the other will provide a tax reduction. The Netherlands has signed a tax treaty with other countries’ Tax and Customs Administrations.

APA/ATR policy

In the Netherlands, the Advance Pricing Agreements (APAs) and Advance Tax Rulings (ATRs). APAs and ATRs are binding agreements made with the Tax and Customs Administration on applying tax laws to international groups of companies.

APAs and ATRs assure foreign investors comply with national and international tax rules that will apply to them in the Netherlands. It avoids differences in interpretation later on. The Tax and Customs Administration office deals with requests for APAs and ATRs.

Steps for preventing tax evasion

1. The Dutch Tax and Customs Administration (Belastingdienst) automatically exchanged information to tackle tax evasion and undeclared savings with more countries. It obtains information from financial institutions. The individuals or businesses that may be required to pay taxes abroad. Subsequently, the countries in question are investigated for tax invasion.
2. The FATCA decree has investigated Dutch financial institutions; they started supplying information to the Dutch tax authorities on 1st January 2015.
3. Financial information is exchanged based on the Foreign Account Tax Compliance Act (FATCA)^[1] and the FATCA agreement between the Netherlands and the United States (USA). The FATCA agreement will make exchanging information easier for Dutch financial institutions. They will no longer have to conclude agreements with the IRS separately. And as a result, they will no longer risk paying a 30% withholding tax on US income from the US.
4. The agreement also improves the position of financial institutions’ clients. The institutions will no longer supply information directly to the IRS. The Tax and Customs Administration and the IRS maintain high data protection standards.
5. The Netherlands will also exchange financial information worldwide per the Common Reporting Standard (CRS) only for tax purposes.

Conclusion

Tax compliance services in the Netherlands and businesses to comply with Dutch tax laws and regulations. The tax compliance services benefit taxpayers, whether they are resident or non-resident taxpayers, to avoid penalties for non-compliance.

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