Business Abroad

If you are conducting or planning to conduct business abroad, you will not only be subject to Dutch taxation but may also encounter tax obligations in the foreign jurisdictions.

Each country has the autonomy to determine its tax regulations, guided by globally accepted principles within a certain range. Moreover, nations have established agreements to prevent double taxation. These agreements are documented in tax treaties or multilateral accords, such as European Directives, generally binding for all European member states.

Key Fiscal Considerations for Dutch Entrepreneurs

At GlobeXpert, we’ve outlined key fiscal considerations for Dutch entrepreneurs engaging in international business. For a comprehensive overview of the available information, including the fiscal aspects of international business, please refer to the Companies – International page on our website.

We start with Dutch taxation: what fiscal aspects should you consider when operating abroad? Additionally, we provide general information on taxation in foreign jurisdictions, along with details on the tax treaties between the Netherlands and other countries.

The information on our website serves an informative purpose. Our aim is to provide an initial introduction to the fiscal aspects of international business, rather than striving for exhaustive coverage.

How GlobeXpert Can Assist You

• Assessing your fiscal position in the Netherlands and advising on an optimal tax strategy for international expansion.
• Negotiating a tax ruling in the Netherlands.
• Providing information on the local tax regime abroad.
• Introducing a foreign expert to advise on local legal, tax, or financial aspects.
• Coordinating foreign advisors (process and cost oversight).
• Negotiating a tax ruling abroad.
• Managing the Dutch corporate income tax return with the correct application of international arrangements.
• Coordinating the foreign registration, filing, and financial statement process (process and cost oversight).

If you wish to avail of our services, you can reach us via email or contact us at our office.

We look forward to assisting you in your international business endeavors and ensuring your compliance with financial advisor Netherlands regulations!

At a global level, there are no universally agreed-upon rules for taxation. Each country has the autonomy to structure its own tax system according to its preferences. While this could potentially lead to a diverse range of tax regimes, incorporated taxpayers, mainly companies, typically encounter two types of tax systems: those based on the residence principle or the territoriality principle.

The Residence Principle in Taxation

The residence principle, also known as the domicile principle, is commonly found in economically developed countries like the Netherlands. In this system, taxation is based on the taxpayer’s residence. For residents, global income is generally subject to taxation, regardless of where it is earned. For non-residents (foreign taxpayers), taxation is usually limited to income from specified sources in the country.

The Territoriality Principle in Taxation

On the other hand, tax regimes based on the territoriality principle consider the source of income. In these systems, only income with a specific connection to the country is subject to taxation, regardless of the residence of the parties involved. This principle is often observed in less economically developed countries as well as in some highly developed countries of Anglo-Saxon origin.

Mixed Tax Systems and International Consequences

Many countries exhibit characteristics of both principles, and this is particularly true for Anglo-Saxon countries like the United States and the United Kingdom. The autonomy each country has in determining its tax rules has several consequences for businesses operating internationally.

One significant consequence is the absence of a universal tax rate, with rates varying from zero percent in tax havens to over fifty percent in some countries. The absence of a universal tax rate is a key driver for international tax planning, where businesses may seek to transfer profits from high-tax-rate countries to low-tax-rate countries.

Efforts to Prevent Double Taxation

Unilateral allowances for income already taxed elsewhere are rare, as most countries are reluctant to make such unilateral arrangements. However, there is a growing trend among economically developed countries to introduce regulations sanctioning tax-driven structures or transactions. This includes additional taxation if the tax rate abroad is substantially lower or withholding benefits if an international structure is primarily tax-driven.

These consequences highlight the challenges and differences in tax regimes, emphasizing the importance of international tax planning for businesses. Countries have made some efforts to prevent double taxation through bilateral tax treaties and multilateral agreements, but complete harmonization of tax regimes remains a complex and challenging goal.

Engaging in business activities abroad doesn’t automatically subject every activity to foreign taxation. Typically, an activity needs to reach a certain minimum threshold in terms of frequency and/or scale. For example, a one-time agreement in a specific country may not trigger tax liability there, but regular engagements might. Each country determines when tax liability arises for foreign enterprises, and countries have made agreements on taxation through tax treaties to protect their citizens/residents.

For an overview of tax treaties concluded by the Netherlands for income and assets, you can refer to the Tax Treaties page.

Role of Tax Treaties in International Business

If no tax treaty applies, your tax liability in a country will depend on the entirety of local tax legislation. Tax treaties play a crucial role in international business, determining which country may tax certain incomes and preventing double taxation.

Regarding income from business activities, your business generally becomes liable to tax in a foreign country only if your local activities meet the definition of a permanent establishment outlined in the treaty. Refer to the Doing Business Abroad – When is Tax Liability Abroad? page for guidelines on determining whether your business becomes liable to taxation in a specific country.

Additional Sources of Tax Liability Abroad

If the tax treaty specifies that your business is not liable to tax in the other country, it doesn’t mean you’re exempt from paying taxes there. The treaty identifies other sources of income that can independently lead to local tax liability. For more details on other potential sources of tax liability abroad, refer to the Tax Treaties – Sources of Tax Liability Abroad page.

Relief from Double Taxation

If the tax treaty determines that your business is liable to tax in the other country, you can assume that your business must register and file local tax returns there. However, this doesn’t mean you’ll pay taxes twice. The tax treaty also specifies relief in the Netherlands for these profits. In most cases, this relief takes the form of an exemption for foreign profits from Dutch corporate income tax. Even if no tax treaty applies, you may qualify for an exemption based on the Netherlands’ unilateral regulation to prevent double taxation.

How GlobeXpert Can Assist You

• GlobeXpert can advise you on the optimal strategy for your foreign activities.
• For foreign tax aspects, GlobeXpert can leverage its global network of local tax advisors.

If you wish to avail yourself of our services, you can reach GlobeXpert via email or call our office.

We are happy to make time for you and ensure that your international business activities are compliant with tax regulations!

For income and assets that, according to a tax treaty, may be taxed in the country of origin, the Netherlands generally grants an exemption to its residents. For foreign taxes on interest, royalties, dividends (withholding taxes), and certain other special income categories that are usually allowed in limited amounts, the Netherlands typically provides its residents with a tax credit.

For a simplified overview of the method usually applied in treaty situations for each income category, refer to the Tax Treaties – Sources of Tax Liability Abroad page. The exemption doesn’t apply to all foreign income but only to the income categories expressly mentioned in the relevant tax treaty.

Calculating the Exemption and Tax Credit

The principles for calculating the exemption are almost always the same, but the method for calculating the exemption may vary per treaty.

The exemption is granted with progression reservation. This means that the income and assets that, according to a treaty, may be taxed abroad are initially included in the basis for taxation according to Dutch tax laws. The Dutch tax on the calculated basis is then reduced by the Dutch tax that can proportionally be attributed to the income or assets that, according to the treaty, may be taxed in the other treaty country. This way, the exemption is calculated against the average Dutch tax rate.

Understanding the Impact of Tax Treaties

Understanding the intricacies of tax treaties and how they impact your tax liabilities is crucial for international business operations. The Netherlands’ approach to exemptions and tax credits can significantly affect your tax planning and financial strategy.

For detailed guidance on navigating tax treaties and optimizing your tax position, consulting with a tax advisor or a firm like GlobeXpert can provide valuable insights and expertise.

The Dutch business environment has seen a significant decline over the years. In an international context, the Netherlands has become an expensive country, not only due to relatively high production costs but also because of relatively high tax rates.

It’s commonplace for Dutch companies to consider relocating business units abroad. In this decision-making process, taxation also plays a crucial role.

The Impact of Relocation on Taxation

Shifting business units to a country with a favorable tax regime (such as lower rates and tax exemptions for activities) can lead to a substantial reduction in the tax burden. Whether this is indeed the case depends on the local tax regime.

For more information on taxation abroad, please refer to the ‘Doing Business Abroad – Taxation Abroad’ page.

Moving a business or business unit abroad can also have significant consequences for Dutch taxation, including:

• The final settlement for corporate income tax (taxation of goodwill and hidden reserves related to the relocated business unit).
• Release of fiscal provisions, such as replacement or reinvestment reserves.
• Release of pension provisions.
• Changes in the tax position of shareholders.
• Implications for other taxes such as VAT, dividend tax, etc.

Continuing Dutch Taxation and Transfer Pricing

Once activities are established abroad, Dutch taxation remains relevant, considering:

• The tax treatment in the Netherlands of future income from abroad.
• Possible discussions about prices charged within the group for internal deliveries or services (transfer pricing).

Although the tax authorities, in most cases, may not welcome a business relocation abroad, it is possible to negotiate with them. The tax authorities will ultimately need to accept the entrepreneur’s choice, provided, of course, that the activities actually take place abroad.

The Importance of Making Agreements with Tax Authorities

Making agreements with the tax authorities about the tax consequences of relocating a business or business unit abroad is common and, in our opinion, highly advisable. Making agreements in advance can alleviate uncertainty about Dutch taxes due to the business relocation and the tax treatment of future foreign income.

How GlobeXpert Can Assist You

• GlobeXpert can advise you on the optimal strategy for your international activities.
• For international tax aspects, GlobeXpert can tap into its global network of local tax advisors.

If you wish to avail yourself of our services, you can reach GlobeXpert via email or call our office. We are here to help you navigate the complexities of international taxation and ensure your business thrives globally.

If your company holds a stake in another enterprise, you are generally liable for tax on the income derived from it.

The fundamental principle for Dutch corporate income tax is that you are subject to corporate income tax on the entire profit, regardless of its origin. As this rule generally applies to all independently taxed enterprises, it may appear that the same profit could be subject to taxation twice: initially with the enterprise generating the profit and subsequently with the shareholder of this enterprise once the profit is distributed.

The Dutch Participation Exemption

The Dutch legislator has aimed to prevent this for corporations by creating an exemption for the shareholder, known as the participation exemption.

Although many countries now have similar regulations, the Dutch participation exemption remains unique. On one hand, the Dutch participation exemption is much broader than comparable regulations in surrounding countries. On the other hand, over the years, it has become a highly technical regulation. The current statutory regulation is filled with anti-abuse provisions often aimed at very specific situations but can have a much broader impact in practice.

Key Points for Corporations with Subsidiaries

We have attempted to outline some key points for a corporate income tax-paying BV with subsidiaries (in the Netherlands or abroad) that may arise. Where possible and meaningful, excerpts from the legal text or derived source documents have been included.

The Importance of Understanding the Participation Exemption

Understanding the intricacies of the Dutch participation exemption is crucial for corporations with subsidiaries. This exemption can significantly impact your tax planning and financial strategy.

For detailed guidance on navigating the Dutch participation exemption and optimizing your tax position, consulting with a tax advisor or a firm like GlobeXpert can provide valuable insights and expertise.

The concept of ‘international tax planning’ is not precisely defined and its interpretation may vary depending on the reader’s perspective.

For a globally active tax expert, however, the term is clear. It involves advising on the actual structuring of cross-border transactions and setups with the aim of achieving tax benefits.

In this context, the term ‘tax benefits’ should be broadly construed, considering the significance of the tax motive for a transaction or structure as a benchmark.

Advice on transactions with a limited tax motive primarily focuses on preventing double taxation when multiple countries seek to include the same profit or income in their taxation. The focus is often on the taxation of outgoing income streams, and key pillars for such advice include the application of tax treaties and multilateral arrangements, such as European Directives, aimed at preventing double taxation.

For more information on the operation of tax treaties, please refer to the Tax Treaties page.

Advice on transactions with a strong tax motive primarily involves advising on structures and transactions that are predominantly tax-driven and would not exist without the tax benefits. While tax treaties and multilateral arrangements are still relevant, the emphasis lies on the tax legislation applicable in individual countries. Local tax rates (tax havens or tax havens, see also the Doing Business Abroad page – the use of tax havens) and differences in the interpretation of instruments or entities (hybrid forms) are particularly important here.

For an overview of the main tax rates in the EU, please refer to the Tax Rates in Europe page.

International tax planning also involves local planning. For example, dropping profits in a tax haven would be meaningless if the investor still has to pay full tax on these profits in their home country. This primarily concerns the treatment of returns on shares (dividends and capital gains) in the home country.

For Dutch companies, international tax planning is possible and meaningful if certain conditions are met, such as:

You must have activities abroad or intend to set them up; The income from foreign activities must outweigh the costs associated with a tax structure; The foreign structure must align with your Dutch structure, meaning you must qualify for a tax exemption or reduction in the Netherlands for the profit realized abroad. To illustrate the tax aspects that a Dutch company must consider when planning its international tax position, please refer to the Doing Business Abroad – relocation of business activities abroad page.

What can GlobeXpert do for you?

GlobeXpert can advise you on the optimal strategy for your foreign activities.

For foreign tax aspects, GlobeXpert can rely on its global network of local tax advisors.

If you wish to use our services, you can reach us via email or contact our office.

We are happy to make time for you!

A consequence of the fiscal autonomy of countries is that certain nations impose low or effectively no taxes. This can include countries with internationally low tax rates or those with a standard base rate but offer special incentives for specific activities. Such countries are labeled as tax havens due to these fiscal advantages.

Tax havens are typically used in international tax planning (see also the international tax planning page) as locations for passive sources of income, requiring relatively little local organization and labor. This primarily includes financing activities, exploitation of intellectual property rights, investments, and E-commerce activities.

In most cases, the ultimate beneficiary of the income will be located in a country with a relatively high tax rate. For these countries, the existence of tax havens often means missing out on tax revenues.

Within the context of international tax planning, the use of tax havens is entirely legal. The fundamental principle is that the choice of the location for activities is a free entrepreneurial decision.

If a business owner decides to carry out certain activities in a tax haven, this is a choice that fiscal authorities must respect. Countries should refrain from fiscal measures that are merely budgetary motivated and essentially aim to boycott the relocation of activities abroad. Within the EU, for example, the free movement of capital, labor, and goods is highly valued.

However, the use of tax havens can also have an illegal motive. Due to often poorly developed bureaucratic systems and legislation, tax havens often lack adequate government control and supervision of the origin and nature of local activities. Tax havens are, therefore, reputed to serve as a haven for money laundering and other illegal activities. It is also a fact that residents of high-tax countries who have transferred capital and income to tax havens often conceal this from the tax authorities in their country of residence, where it would otherwise be subject to some form of income tax.

For some examples of tax havens, please refer to the Doing Business Abroad – tax havens in and outside the EU page.

For more information on the efficient use of tax havens, please refer to the Relocation of Business Activities Abroad page.

What can GlobeXpert do for you?

GlobeXpert can advise you on the optimal strategy for your foreign activities.

For foreign tax aspects, GlobeXpert can rely on its global network of local tax advisors.

If you wish to use our services, you can reach us via email or contact our office.

We are happy to make time for you!