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International aspects of taxation in the Netherlands

International aspects of taxation in the Netherlands Individuals resident in the Netherlands are subject to income tax on their worldwide income.


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Text of International aspects of taxation in the Netherlands

International aspects of taxation in the NetherlandsIndividuals resident in the Netherlands are subject to income tax on their worldwideincome. Companies established in the Netherlands are subject to corporate incometax on their worldwide profits. This is known as resident tax liability. Measures havebeen taken to avoid double taxation, where resident taxpayers pay tax twice on all orpart of their worldwide income or addition, natural persons who do not live in the Netherlands are subject to incometax on income from a number of sources in the Netherlands. These non-residentincome tax payers subject to income tax may still opt to be treated as residence taxpayers (see paragraph ). Companies resident outside the Netherlands are subjectto corporate income tax on their taxable profits from certain sources in theNetherlands. This is known as non-resident tax taxpayers paying income tax may opt to be treated as double taxation for resident taxpayers There are two ways in which resident taxpayers can avoid being taxed twice on theirforeign-source income and foreign- source profits. In the first place, the Netherlandshas concluded bilateral tax treaties with a large number of countries. In the secondplace, the Netherlands has unilateral provisions that in general apply to situationswhere no treaty has been concluded with a specific country or where a tax treatydoes not include a provision pertaining to a specific case. These unilateral provisionsare contained in the 2001 Unilateral Decree on the Avoidance of Double to avoid double taxation The credit methodThe credit method usually applies under tax treaties for foreign withholding taxes onincome from investments such as dividends, interest and royalties. In accordancewith the 2001 Unilateral Decree on the Avoidance of Double Taxation, the creditmethod only applies to investment dividends, interest and royalties from designateddeveloping countries. The Dutch tax is reduced by the foreign tax levied or by theDutch tax payable on the foreign dividends, interest and royalties, whichever is the foreign withholding taxes for which credit is allowed in the Netherlands areusually levied on a gross basis, whilst Dutch income tax is levied on a net basis (afterdeduction of costs), it is quite possible that the Dutch tax will not be sufficient toprovide credit for the tax levied by the foreign source country. Full credit is thus notpossible. In these cases the excess of the foreign tax not credited may be carriedforward and, where possible, credited in subsequent the treaties aimed at avoiding double taxation, the credit method may beapplied to the income from each separate country. On the basis of an approvaldecision issued by the State Secretary of Finance, it is also possible to opt undertreaties for application of the credit method to all foreign income from all countriestaken together. Deduction as costsIn situations in which there are no arrangements for avoiding double taxation, foreigntaxes may be deducted as costs related to the relevant income. This option (in theincome tax and corporate income tax scheme) applies to the year in which theincome is received and to the total amount of dividends, royalties and interestreceived in that year. The taxpayer may elect to deduct the costs against income taxin box 1 or box 2 individually. Costs may not be deducted in box , in situations in which a credit would normally be granted for dividends, interestand royalties, the taxpayer may opt for non-recognition of the tax credit. This isparticularly advantageous if, as already stated, the (high) foreign tax in a year cannotbe fully credited because this is higher than the amount that must be paid in exemption methodThe exemption with progression method usually applies to foreign elements ofincome for income tax and corporate income tax. In principle, foreign elements ofincome are exempt per individual country. The exemption method means thatreductions will be granted for Dutch tax relating to foreign income. For income tax,the exemption is calculated per the income or profits from foreign sources exceed the total income or total profits(for example because the domestic income is negative), exemption may not or maynot fully be granted in the year in question for the foreign income. In such cases, thetotal amount of the foreign-source income respectively the excess of the exemptionmay be carried forward and reduction of tax may be granted in subsequent enables the Dutch tax liability to be reduced in the subsequent losses decrease the Dutch tax liability in the year they are suffered and whencalculating the reduction in subsequent years are deducted from the positive foreignincome qualifying for treaties Outline of treaty policyThe right to levy taxes on certain income or profit is in principle allocated in the taxtreaties to one of the countries, so that ultimately income tax or corporate income taxis levied by one country only and the other country reduces the tax to avoid doubletaxation. The Dutch policy on concluding treaties for the avoidance of double taxationis largely in line with the principles laid down in the OECD Model Tax Netherlands aims in concluding tax treaties are various. Its economy is an openone with a small domestic market and a large foreign market. This means that arelatively large number of industrial and commercial companies operate on a mainlyinternational basis. The country s policy on tax treaties reflects this openness in itsrelationships with EU Member States and with other countries. Dutch policy aims toremove obstacles to the international flow of goods and capital, in this caseinternational double taxation. To encourage international investment it is necessaryfor the tax on dividends, interest and royalties flowing from a country to be as low aspossible, and preferably zero per cent. In line with this policy, Dutch legislation doesnot require withholding tax to be levied on outbound interest and Netherlands also endeavours to guarantee a neutral investment climate forcapital import. As a result, Dutch investors are able to invest in foreign markets onthe same terms as other foreign or domestic investors. In line with this policy, all theprofits received by a Dutch parent company from a foreign subsidiary or madethrough a permanent establishment situated abroad are exempt from taxation in theNetherlands. This ensures that these profits are taxed only in the source country, the activities are performed. Treaties for the avoidance of double taxationThe Netherlands has signed many treaties for the avoidance of double taxation withregard to income tax. In older treaties, too, double taxation on wealth was oftenavoided. Tax treaties with the following countries are in force and effective on 1January 2007:Albania, Argentina, Armenia, Australia, Austria, Bangladesh, Belarus (White Russia),Belgium, Brazil, Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Egypt,Estonia, Finland, France, Georgia, Germany, Greece, Great Britain and NorthernIreland, Hungary, Iceland, Ireland, India, Indonesia, Israel, Italy, Japan, Kazakhstan,Kuwait, Korea, Latvia, Lithuania, Luxembourg, Macedonia, Malawi, Malaysia, Malta,Mexico, Moldavia, Mongolia, Morocco, New Zealand, Nigeria, Norway, Uganda,Pakistan, the Philippines, Poland, Portugal, Romania, the Russian Federation,Singapore, Slovak Republic, South Africa, the Soviet Union (the treaty applies to theformer member states of the Soviet Union with the exception of Azerbaijan and withthe exception of those former member states of the Soviet Union to whom a newtreaty applies), Spain, Sri Lanka, Surinam, Sweden, Switzerland, Thailand, Tunisia,Turkey, the United States of America, Ukraine, Uzbekistan, Venezuela, Vietnam,Yugoslavia (this treaty applies to Bosnia-Herzegovina and Serbia and Montenegro),Zambia, addition, the arrangement between the Netherlands Trade and Investment Officein Taipei and the Taipei Representative Office in the Netherlands also applies for theavoidance of double relations between the Netherlands, the Netherlands Antilles and Aruba areregulated in the Taxation Agreement of the Kingdom of the for the avoidance of double taxation on inheritance and gift tax are in forceand effective on 1 January 2007 with Austria, Finland, Israel, Sweden, Switzerland,Great Britain and the United States of Taxation Agreement of the Kingdom of the Netherlands also contains provisionson inheritance tax. Relief of taxation at source under tax treatiesIn general, tax treaties give natural persons and entities the right to relief for tax atsource on dividends, interest and royalties. The way in which this relief may beobtained is generally laid down in implementation regulations. Here, a distinction canbe made between: foreign regulations for taxpayers resident or established in theNetherlands and Dutch regulations for taxpayers resident or established in implementation regulations are published in the Netherlands GovernmentGazette. The Netherlands only imposes tax at source on dividends (dividend tax);thus there is no tax at source on interest and general rule for relief of dividend tax in the Netherlands is the exemption method:a reduced rate of dividend tax on the dividend distribution. There is also a refundprocedure: the excess amount of withheld dividend tax is countries also apply both methods. Whether both methods or just the taxrefund is possible, depends on the implementation implementation regulations also set out whether (and which) forms should beused for relief for source taxation. Both the Dutch and foreign forms are available freeof charge to interested parties. In the Netherlands these forms can be obtained fromthe Belastingdienst/Centrum voor facilitaire dienstverlening, Afdeling logistiekreprografisch centrum, PO Box 1314, 7301 BN Apeldoorn (Tel: (+31)(0)55-5282016;). Foreign forms can be obtained from the appropriate Tax Administrationsabroad. It is possible that these forms can be downloaded from websites of foreignnational Dutch dividends to which the Council Directive of 23 July 1990 on the commonsystem of taxation applicable in the case of parent companies and subsidiaries ofdifferent Member States (90/435/EEC) applies, the Dividend Taxation Act (Wet op dedividendbelasting) indicates how a reduction of Dutch dividend tax may be of non-resident taxpayersIndividualsNon-resident individuals are subject to income tax in the Netherlands for the followingtypes of income derived in a calendar year:taxable income from work and dwellings in the Netherlands:a Taxable profits from an enterprise which carries on business through a permanentestablishment in the Netherlands or a permanent representative in the Netherlands(Dutch enterprise); the term Dutch enterprise is further extended in the law;b Taxable wages for work performed in the Netherlands;c Taxable income from other activities in the Netherlands;d Taxable periodical benefits or benefits in kind to the extent to which thecontributions were deducted from tax in the Netherlands or if these benefits orbenefits in kind arise from pension schemes, the premiums for which were paid by aDutch enterprise;e The entitlement to periodical benefits and benefits in kind under public law from oron behalf of a Dutch public legal entity;f Taxable income from the taxpayer s owner-occupied dwelling in the Netherlandsless the deduction on account of no or marginal own home-related debt (usually thestandard deduction for own home).taxable income from a substantial interest in a company established in income from savings and investments in the Netherlands:The tax base in the Netherlands is the value of the taxpayer s assets in theNetherlands after deduction of the value of the debts connected with these Dutchassets. Assets in the Netherlands are:a Immovable property situated in the Netherlands;b Rights directly or indirectly related to immovable property situated in theNetherlands;c Rights to participate in the profit of an enterprise the management of which isestablished in the Netherlands, in as far as they do not arise from shareholdings oremployment and have not been taxed on the basis of previous individuals may, subject to certain conditions, elect to be treated asresident taxpayers. In that case they will be taxed as resident taxpayers and will beassessed on their worldwide income for income tax purposes; they will also beentitled to the deductions and levy rebates available to resident taxpayers. CompaniesNon-resident companies are subject to Dutch corporate income tax in a calendaryear for the types of income listed below:Taxable profits from an enterprise which carries on business through a permanentestablishment in the Netherlands or a permanent representative in the Netherlands(Dutch enterprise); the term Dutch enterprise is further extended in the law;Taxable income from a substantial interest in a company established in Pricing Agreement and Advance Tax RulingAdvance pricing Agreement and Advance Tax RulingThe Netherlands has an Advance Pricing Agreement (APA) and an Advance TaxRuling (ATR) practice. The so-called APA/ATR-practice. An Advance PricingAgreement entails providing advance certainty on the fiscal acceptability of the price(transfer pricing) that the Dutch group company pays to or receives from a foreigngroup company for receiving or delivering a service or goods. An Advance Tax Rulingis an agreement on the tax characterization of international corporate structures,such as advance certainty on the application of the participation exemption. TheAPA/ATR-team of the Rotterdam branch of the Rijnmond Tax Administrationdepartment deals with Advance Pricing Agreements and Advance Tax International Investors DeskForeign investors can contact the International Investors Desk (APBI) for informationon the tax implications of a first potential investment in the Netherlands of more than million. The APBI is authorised to provide advance certainty, within the contextof the law, case law and policy, on, for example, corporate income tax, wagewithholding tax, dividend tax, income tax, value added tax and capital transfer APBI acts as the point of contact for import duties and excise duties. The APBI ispart of the Rotterdam branch of the Rijnmond Tax Administration department.

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