Tax substance requirements | Netherlands

For actual presence (tax substance) in the Netherlands it is important that the directorship will be provided by Dutch residents. The Dutch minimum tax substance requirements for holding and financing companies read as follows:

> at least 50% of the members of the board of directors, with a right to make decisions, lives or is factually residing in the Netherlands;

> the Dutch resident directors shall have a least equal powers in comparison to the non-resident directors; 

> it is recommended to have an individual acting as director, rather then a Dutch resident company. A look-through-approach is applied in case of a company acting as a director.

> the directors residing in the Netherlands have sufficient knowledge to perform their activities in their capacity as a director of the Dutch company. The company has adequate personnel (either of its own or from third parties) for the adequate execution and registration of the transactions;

> the (most important) board decisions are made in the Netherlands;

> the (main) bank account of  the Dutch company is controlled from within the Netherlands;

> the bookkeeping of the Dutch company takes place in the Netherlands;

> the Dutch company complies with all its tax obligations;

> the Dutch company has its registered address in the Netherlands, while the company is, according to its best knowledge, not (also) a resident of another jurisdiction for tax purposes.

In case any loans flow through the company there is an additional criterium:

> the Dutch company's minimum equity is adequate in relation to the functions performed (taking into account the risks assumed and assets used). It is advised to have an equity of at least 1% of the loan amount with a maximum of EUR 2,000,000. 

Notes

Since 1 July 2019 the tax substance requirements are solely presumptive factors for proving the structure to be non-abusive. So the tax authorities can still counterproof a structure to be abusive, even after meeting the above tax substance requirements. Also advance tax rulings can only be obtained in case of economic nexus, amongst other criteria. From this date, the tax substance requirements are no longer applicable for requesting advance tax rulings.

Also note that the tax substance requirements have no influence on the entitlement to tax treaty or EU parent and subsidiary directive benefits, nor the applicability of the Dutch participation exemption.

In contrast to holding companies, finance companies companies not meeting the tax substance requirements trigger a spontaneous exchange of information to the country the interest is received from informing on the lack of tax substance in the Netherlands. 

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Useful links:

Letter of Dutch State Secretary dated 23 February 2018