Tax Compliance Services in the Netherlands: An Overview
There exists a competitive statutory Corporate Income Tax (“CIT”) rate in the Netherlands as compared to the rest of Europe: Additionally, the Dutch tax system has numerous attractive features for international companies. Along with that, compliance processes are clear and supported by technology, thereby providing an excellent fiscal climate to the Netherlands.
There have been many challenges for businesses and business advisers in the Netherlands in the year 2022. Following a record-breaking year for both public and private M&A and financing transactions, geopolitical development – particularly the Russian invasion of Ukraine – and the lifting of COVID-19 restrictions caused a sharp increase in prices of commodities, consumer goods and interest rates.
Amid this persistent economic uncertainty, Dutch businesses continue to be confronted with a range of tax initiatives that may potentially have a big impact on their tax position and tax governance.
Various Taxes in the Netherlands
As most of the other countries in the world, the primary sources of the Netherlands' tax revenue are income Tax, Sales Tax, VAT and Corporate Tax. Residents pay tax on their worldwide income, whereas Non-residents make the payment of tax only on income sourced in the Netherlands. The various taxes in the Netherlands are discussed below.
Income tax in the Netherlands is the primary revenue source for the state. Tax is levied on income from employment, wealth and business ownership. The tax rates can be different depending on the source of income and its amount. As per the Dutch tax office, the income is divided into 3 sources, known as boxes; boxes 1 and 2 and 3. Each box has its own set of tax rates, providing the amount of tax to be paid depending upon the source of income.
- Box 1 shows the amount of tax owed by the assessee from employment (including a home in which the assesse resides or has ownership).
- Box 2 shows the amount of tax owed on income from business ownership.
- Box 3 shows the amount of tax owed on the assets of the assesse(such as cash, bank deposits, real estate, and investments).
There are different sets of taxation rules applicable to each box, and the taxable amounts are expressed as percentages (tax rates).
Sales or value-added tax (VAT, or BTW) follows EU regulations. Value-added tax is calculated on three classes of goods, i.e. Foods and essentials, Non-foods and luxuries and Special goods.
Special goods are Goods that are to be exported, Goods currently in a duty-free zone (e.g. the harbour), Catches of Fish, Excised goods (imported for personal use, within certain limits), and International transport of people.
VAT is typically collected by the entity offering the goods or services in the Netherlands. It must be reported periodically, usually quarterly, and paid to the Dutch tax office by the collecting entity. The reclamation of the VAT paid on goods or services bought by businesses can be made from the Dutch tax office.
Businesses can apply reverse VAT charges for goods or services to move the responsibility for reporting VAT from the seller to the buyer. This system avoids the need for businesses to register for VAT in the country into which they sell.
Businesses which are based in the Netherlands have to pay corporate tax on their worldwide income. The corporate tax rate (2023) is 19% for taxable amounts of up to €200.000. For taxable amounts over €200.000, a tax rate of 25,8%. Under Dutch corporate taxation, profits generated by a business entity being owned by another company are typically free of taxation. Profits and losses within companies that are part of the same fiscal unit can be offset internally.
Other forms of taxation
There are certain other forms of taxation, such as property tax, gift tax, inheritance tax, gambling tax, transfer tax, motor vehicle tax, and import tax (duties). Property tax is collected by the local authority (municipality). Inheritance tax is levied for inheritances received from Dutch residents. Dutch nationals are considered to be Dutch residents for a further 10 years after they have left the country. The inheritance tax rate ranges from 10% to 40%.
The Dutch tax office also handles the payment of allowances for specific purposes. The assesse may be eligible for an allowance for formal childcare costs, rent expenses, and health care insurance.
The import of goods into the Netherlands from outside the EU is subject to import duties. These can include consumption tax, excise duty and other levies. The Dutch customs authorities levy and collect the duty followed by it to the EU. All EU member states apply duties from the same Common Customs Tariff (CCT) system.
Tax compliance in the Netherlands
Tax compliance in the Netherlands is discussed below
Corporate Income Tax Rate
w.e.f 1 January 2023, the first corporate income tax (CIT), there has been a decrease in the tax bracket from EUR395,000 to EUR200,000, while the tax rate of the first bracket has increased from 15% to 19%. The general CIT rate hasn’t changed and thus remains at 25.8%
Corporate ITR and Assessment
A company registered under Dutch law or a foreign company tax resident in the Netherlands must file a corporate income tax (CIT) return on an annual basis.
The CIT Assessment shall be issued by the Dutch Tax Authorities at the start of the FY. For FYs that don't coincide with the calendar year, other time considerations than those discussed herein are relevant.
The issuance of the first preliminary CIT assessment is normally in January month of the relevant year. Generally, the taxable amount in this 1st assessment is on the basis of either the average of the 2 preceding yrs ' taxable income or on a preliminary tax return furnished by the assesse. The payment date is provided in the assessment. Normally, these assessments must be paid within a period of 6 weeks after the issue date of the assessment or in 11 monthly instalments, starting at the end of the 2nd month of the current year (i.e. Feb to Dec). However, the amt. due on the assessment can also is also payable in one lump sum payment. An assesse shall then receive a discount on the amount payable. It must be noted that it is being considered to abolish the payment discount.
It must be noted that any time the assesse can request the Dutch Tax Authorities to issue a revised preliminary CIT assessment. This type of request can be either filed electronically or is normally accepted subsequent to w a revised preliminary assessment that shall be provided to the assesse.
A CIT return must be filed within 5 months, following the end of an FY, with a possible extension of 5 months (prior to 1 June, respectively 1st November of the subsequent FY in case of an FY is equivalent to the calendar year). If the preparation of the CIT return is done by a professional tax firm, a longer extension for CIT return filing can be obtained, up to a total of 16 months after the end of a financial year under certain conditions implying that for FYs that end on 31.12. 2022, the extension for CIT return filing may be granted up to 01.05.24. The maximum extension of 11 (in addition to the usual five months) after the end of the FY is also applicable to companies with a financial year that isn't equivalent to the calendar year.
Upon the tax return being filed, a revised preliminary tax assessment is often issued. Post the examination of the CIT return by the Dutch Tax Authorities. There shall be the issuance of the final CIT assessment, which must be issued within a period of 3 years as from year-end in addition to the period of the extension provided for filing the tax return. The filing of an objection against the final CIT assessment must be done within 6 weeks subsequent to the date of the assessment.
Payment of Taxes
Tax is payable within 6 weeks of the assessment date. Interest must be paid on any difference between the final and the preliminary assessments. The calculation of the interest is made from 6 months from the financial year up until the payment date of the final assessment. The assesse must ensure that a correct preliminary tax assessment is imposed,
In cases where the final assessment reflects a lesser amount of tax due than the preliminary assessment, the assessee must note that ordinarily, no interest is refunded to the taxable entity. In furtherance of the same, it is important to ensure that the preliminary assessments have been estimated as close to the expected final ones as possible.
The Dutch Tax Authorities can also issue an additional assessment post the final assessment is raised within 5 years subsequent to the end of the fiscal year has, if there has been the availability of new of which the tax inspector couldn’t reasonably be aware at the time the final assessment was made. Such a period of 5 yrs is prolonged by the period with which the ITR filling has been extended. In respect of income from abroad, such additional assessments are allowed within 12 months. An additional assessment can involve interest and a penalty of up to 100 % of that assessment. This penalty is not tax deductible.
Master File & Local File / Country-by-country reporting
The country-by-country report must be submitted to the Dutch Tax Authorities within 12 months after the end of the FY. Furthermore, Dutch companies which form a part of a multinational group having a consolidated turnover of a minimum of 50 million euros should retain a master file as well as a local file for administration, irrespective of the ultimate parent company and its tax jurisdictions. These must be in the administration of the Dutch companies in the timeline set for filing the ITR.
A Dutch group entity being a part of a multinational group having a turnover of at least 750 million Euros, must inform the Tax Authorities of Dutch if the ultimate parent company or surrogate parent company would be filing the country-by-country report. If not, it must inform the Tax Authorities of Dutch which group company and its tax residence shall be filing such a report. Such intimation must be made at the latest on the final day of the FY.
Introduction of ATAD3
On 22 December 2021, there was a publication by the EU regarding the proposal of ATAD 3. In January 2023, several amendments to the proposal were published, which were adopted by the European Parliament dated 17 January 2023. Briefly, the broad aim of ATAD 3 is tackling the misuse of undertakings with either no or minimal substance for the purpose of tax by launching a common set of rules across the EU for ascertaining what should be considered as an insufficient substance for tax purposes and by improving the exchange of information between tax administrations relating to shell entities.
The Directive proposal introduces reporting obligations for entities that have mainly passive income and outsource certain operations and functions along with establishing minimum substance requirements for these entities, and imposes sanctions, particularly the denial of tax benefits as per the tax treaties and EU tax directives, on entities that don't meet such requirements. The reporting obligations will be assessed on the basis of the operational set-up of the entity during the 2 years preceding the reporting year.
The ATAD 3 proposal is yet to be adopted by the EU Council, which is proposed to take effect as of 1 January 2024.
Dividend Withholding Tax
Dividend payments, and distributions, the treatment of which is done as dividends and interest on certain profit-participating loans paid by residents’ cos. to residents or non-residents, attract the withholding tax.
The distributing company withholds the tax at the time the dividends are put at the disposal of the recipient. The distributing company is required to file a dividend withholding tax return followed by the payment of the tax withheld to the Dutch Tax Authorities within 1 month of the distribution. Mostly, a dividend withholding tax return has to be filed in the absence of dividend withholding tax being due.
In certain cases and subject to several conditions, if there has been the receipt of a dividend from a subsidiary being a resident within the Netherlands or a country that has entered into a tax treaty with this country and attracted withholding tax in that jurisdiction, by a Dutch entity, it is a possibility that the Dutch dividend withholding tax due on the later dividend distributions to shareholders by the Dutch entity is reduced by 3 % (of the distribution by the Dutch entity).
There can be the imposition of certain additional assessments by the tax inspector within 5 years after the calendar year of the incurrence of the tax liability or the refund of dividend withholding tax was made. In case of an omission in the filing of a dividend withholding tax return or non-payment of the dividend withholding tax ornon-payment of the same within the stipulated period, a penalty may be imposed.
Conditional withholding tax on interest and royalties
From 2021 the interest and royalty payments to group companies established in low-tax jurisdictions shall have withholding tax. If the payment of such interest and/or royalty has been made during the year, an interest/royalty withholding tax return must be filed with the Dutch Tax Authorities ultimately 1 month after that calendar year ends