When it comes to finding a tax friendly holding location for international investments, the Netherlands is often seen as ‘the smart choice’. The Dutch holding company regime is one of the most popular and is used widely to accommodate private equity and real estate investments.
The primary reasons for this are:
+ an established financial centre;
+ the flexibility of Dutch corporate and tax law;
+ the relatively low costs of establishing and maintaining legal vehicles;
+ a highly educated, flexible and multilingual workforce;
+ the low political profile of the Netherlands.
With the spotlight firmly focussed elsewhere, the Netherlands is emerging again as a popular domicile for structuring investments.
The arguments for going Dutch are compelling:
+ a robust and diversified economy;
+ a well-regarded financial centre with good infrastructure and resource;
+ centrally located and easy to get to;
+ stable politically with a developed legal system;
+ a wide range of bilateral investment treaties offering valuable legal protection for cross-border investment;
+ an EU member state with an extensive and well-negotiated double tax treaty network mitigating many withholding taxes;
+ no withholding taxes at all on interest and royalties;
+ little double taxation as a result of the participation exemption and reliefs;
+ a balanced approach to substance arguments; and
+ an established ruling practice.
The Netherlands boasts an impressive range of legal vehicles for structuring investments, which can be used on their own or in combination.
The four most common vehicles are:
1. Foundations (Stichtings)
A Dutch foundation is commonly used as an orphan vehicle. It has legal personality like a company but without members or shares that is established for a purpose, often charitable. As it has no members, it cannot ordinarily be ‘grouped’. A foundation is only subject to tax where it conducts entrepreneurial activities and registrable for VAT if it undertakes an economic activity.
2. Cooperatives (Co-ops)
The Dutch cooperative is a legal vehicle that again has no shareholders, but instead has members with (membership) interests. Being a specific form of an association, the Co-op must have at least two members on incorporation. It is a fully taxable entity but qualifies for the participation exemption and treaty reliefs. The Co-op is commonly used in an investment context because distributions to members do not ordinarily attract any withholding tax.
3. Private companies (besloten vennootschap or BV)
The BV, or private limited company, is the legal vehicle most frequently used by foreign investors for structuring investments. The legal framework for these companies is very simple and straightforward. A BV is incorporated through a notarial deed before a Dutch civil-law notary and registered with the Dutch trade register (Chamber of Commerce). Once established, a company is fully taxable with access to the Netherlands’ extensive treaty network.
4. Limited partnership (commanditaire vennootschap or CV)
A Dutch limited partnership is well established at law and very similar to an English limited partnership. It has no legal personality and can be formed by two or more persons. The limited partnership has two sorts of partners: (i) active partners that undertake entrepreneurial activities and assume liability, and (ii) limited or silent partners that only provide funding and are not actively involved in the enterprise. These partners are not disclosed to the public through the Dutch trade registry (hence are ‘silent’) and are only liable for the amounts contributed by them. A CV is ‘open’ if a partner can be added without the consent of all other partners and is deemed ‘closed’ otherwise. Open CV’s are subject to corporate income tax whereas closed CV’s are considered tax transparent.
The popularity of the Netherlands speaks for itself and was the key reason for the Aztec Group to open its latest office in Amsterdam. Furthermore, in the post AIFMD-world, the Netherlands is increasingly being cited alongside the UK, Luxembourg and Ireland as a place to do business. This is because doing business onshore now has practical advantages and the Dutch regulator is seen to have implemented the AIFMD in a timely, straightforward and pragmatic manner without the unnecessary costs and restrictions that attach elsewhere. Local managers can also take advantage of a growing number of EU product regulations.
In short, whether looking at holding companies or funds, the Netherlands has the full toolkit needed to do business efficiently and effectively in Europe, and provides a politically acceptable environment for all investors (including governmental and developmental agencies).
It’s time to go Dutch.
previous comment / Andreas Demmel
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