The Dutch B.V. For Tax Planning By Robert Hek Paritax International Tax Advisors (Cyprus) / Fundatio B.V. (the Netherlands) The Netherlands EU member Natural hub for logistics and headquarter functions High educated, multi cultural and multi-lingual workforce High level of infrastructure Good economic and financial climate Political stability The Netherlands One of the major and reputable international Business centers Tax Treaties with more than 90 countries Good Banking system Advantageous Tax System especially with respect to taxation of dividends, royalties and interest Tax Rulings possible The Dutch B.V. One or more 'incorporators’ possible, being either individuals and/or legal entities; No secretary is needed; One or more directors possible; If one shareholder, his name will be registered as such in the certificates of registration of the BV issued by the trade register. The Dutch B.V. Share capital The incorporator can choose how high the share capital will be, which can even be € 1. There must at least be one share with one voting right. A share can have a voting right, a profit right or both. The Dutch B.V. Audit The audit must be performed by external auditors and annual accounts have to be published when (2 out of 3 requirements must be met) : - the company's turnover exceeds EUR 12 million - the balance sheet totals over EUR 6 million - the average number of employees is 50 Time Frame The procedure of incorporation usually takes 2 to 4 weeks. Dutch Corporate Tax highlights Which companies pay tax in the Netherlands? Corporations in the Netherlands (resident taxpayers) Corporations not established in the Netherlands which receive income from sources in The Netherlands (called nonresident taxpayers) Dutch Corporate Tax Highlights Dutch Tax Resident Whether a corporation (not incorporated under Dutch law) is tax resident in The Netherlands depends on the facts and circumstances, such as - place of the effective management - the location of the head office - the place where the general meeting of shareholders is held. Under the Corporation Tax Act, all corporations incorporated under Dutch law are tax resident in the Netherlands unless tax treaty overrules this fiction. Dutch Corporate Tax Highlights SUBSTANCE REQUIREMENTS Substance requirements that should be met by socalled financing flow-through ruling companies (dividend / interest / royalties): • At least 50% of the Board of Directors (BOD) members should be Dutch residents (live and work there) and of a certain professional level and the company has adequate staff (itself or from 3rd parties) for performing the functions; Dutch Corporate Tax Highlights • All key strategic/material decisions of the BOD should be taken in the Netherlands, such as the entering into contracts and signing of documents • The main bank account should be held in the Netherlands • The bookkeeping is maintained in the Netherlands Dutch Corporate Tax Highlights • The address of the company should be in the Netherlands. • The company is not considered a tax resident in another state on the basis of a tax treaty. • The company has sufficient equity considering its activities and the risks to be absorbed by the company. Dutch Corporate Tax Highlights The current corporate income tax rates are: Taxable profit up to and including € 200.000: 20% Taxable profit above € 200.000: 25% Dutch Corporate Tax Highlights The loss carry forward period is restricted to 9 years The loss carry back period is restricted to 1 year. Dutch Corporate Tax Highlights Interest is generally deductible. In some situations however, limitation rules may apply. Limitation on the deductibility of inter-company interest can affect on interest paid on debts arising from: - unpaid dividends to the parent company; - the acquisition of the shares of a company from a group company through an intercompany loan. Dutch Corporate Tax Highlights Thin capitalization rules are applicable for all taxpayers. A Dutch entity is not affected by the thin capitalization rules in the following situations: • The entity is not part of a group; • There is no debt to a related party; • The interest income from related parties equals or exceeds interest expenses to related parties; • Certain debt – equity ratio’s are satisfied; Dutch Corporate Tax Highlights Related party transactions / arm’s length pricing Transactions between related parties that are not concluded at arm’s length basis may be disregarded or may be adjusted appropriately. Dutch Corporate Tax Highlights The participation exemption applies if: The taxpayer owns (generally) at least 5% of the capital of its subsidiary (no minimum holding period) and The subsidiary is not held as portfolio investment (“portfolio investment subsidiary”) Dutch Corporate Tax Highlights If the participation exemption applies, dividends and capital gains arising in respect of shareholdings by a Dutch parent company are free from corporate income tax. Capital losses are available upon liquidation of the participation. Expenses regarding a foreign subsidiary are tax deductible. Dutch Corporate Tax Highlights Withholding Tax Dividends, whether paid to resident or non-resident recipients, are subject to withholding tax at 15%. A reduced percentage may be provided by a double tax treaty. No withholding taxes on royalties and interest. Dutch Corporate Tax Highlights No withholding tax when a dividend is paid by a Dutch company to a European parent company that owns at least 5% of the capital (or voting rights) (European Parent – Subsidiary Directive) Dutch Corporate Tax Highlights Double Tax Treaties with 91 countries are in force per October 1, 2013, including; - Russia - Ukraine - Belarus - Georgia - Latvia - Lithuania - Estonia Dutch Corporate Tax Highlights Tax Information Exchange Agreements (TIEA’s) are signed with 29 countries, , including: - Belize - British Virgin Islands - Cayman Islands - Liechtenstein - Marshall Islands - Seychelles No Double Tax Treaty or Tax Information Exchange Agreement is signed between the Netherlands and Cyprus; DTT Russia – the Netherlands Paid Russia -> Netherlands Netherlands -> Russia Withholding tax - Dividend - Interest - Royalties 5% * / 15% 0% 0% DTT Russia – the Netherlands 5 per cent of the gross amount of the dividends if the beneficial owner of the dividends is a company (other than a partnership) which: - holds directly at least 25 per cent of the capital of the company paying the dividends and - has invested in it at least € 75,000 or its equivalent in the national currencies of the Contracting States; DTT Ukraine – the Netherlands Ukraine -> Netherlands Withholding tax - Dividend - Interest - Royalties 0%*/5% ** / 15% 2%*** / 10% 0%****/10% DTT Ukraine – the Netherlands * 0 per cent of the gross amount of the dividends if the beneficial owner of the dividends is a company (other than a partnership) which: - holds directly at least 50 per cent of the capital of the company paying the dividends and - the investment in the capital of the dividend paying company is at least USD 300.000. DTT Ukraine – the Netherlands ** 5 per cent of the gross amount of the dividends if the beneficial owner of the dividends is a company (other than a partnership) which: - holds directly at least 20 per cent of the capital of the company paying the dividends DTT Ukraine – the Netherlands *** 2% rate applies to interest paid on loans granted by a banking / financial institution or to interest paid by the purchaser of machinery and equipment to the seller in connection with a sale on credit; the 10% rate applies in all other cases. DTT Ukraine – the Netherlands ****0% rate applies to royalties paid for a copyright of scientific work, a patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. The 10% rate applies to royalties paid for the use of, or the right to use, a copyright of scientific work, (including cinematograph film and films or tapes for radio or television broadcasting). DTT Ukraine – the Netherlands Netherlands -> Ukraine Withholding tax - Dividend - Interest - Royalties 0%*/5%** / 15% 0% 0% Beneficial Owner Dividend 0% Interest 0% Royalties 0% Russian / Ukraine Company Cyprus Company Dividend 0% Interest 0% Royalties 0% Dividend Interest Royalties Dutch Company Subsidiaries The rate of the withholding tax depends on the specific tax treaty or the EU parent – subsidiary directive.