Dutch Participation Exemption
The Dutch participation exemption (in Dutch “deelnemingsvrijstelling”) is one of the reason for foreign companies to structure their business (European Headquarters) through the Netherlands by establishing a Dutch holding company. The objective of the Dutch participation exemption is to avoid double taxation when dividends or capital gains are distributed from the subsidiary to the parent company.
Participation exemption Netherlands – general introduction
The Dutch participation exemption regime provides for an exemption at the level of the recipient with respect to benefits derived from its subsidiaries (i.e. capital gains and dividend distributions). In order for the participation exemption, ex. article 13 CITA, to apply, the following requirements have to be met:
- the Dutch company owns at least 5% of the nominal paid-up capital of the subsidiary of which the capital is wholly or partly divided into shares (ownership test); and
- the participation is not considered to be held as a portfolio participation, ex article 13 paragraph 9 CITA (motive test); or
- the subsidiary is subject to tax on profit that results in an effective tax rate according to Dutch standards (subject to tax test); or
- less than 50% of the participations directly and indirectly held assets consist of low-taxed, non-business related assets (asset test).
When the Dutch participation exemption is not applicable based on the above conditions, a tax credit may be available.
Costs which are related to the acquisition and disposal of a participation (e.g. legal fees, compensation, notary fees) are not deductible for corporate income tax purposes. On the otherside, losses arising from the liquidation of a (foreign) subsidiairy are deductible for corporate income tax purposes.
Please find here our article about the Dutch Cooperative which is used many times in tax structuring through the Netherlands and where the Dutch participation exemption is applicable.
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Would you like more information about the Dutch participation?
Do you want more information about the participation exemption in the Netherlands, please do not hesitate to contact us through our contact form or call 085 00 30140 from within the Netherlands, or +31 (0)20 2615615 from abroad.
Please find here information from the Dutch tax authorities.