A Quick Glance at the Tax Breaks for Foreign Permanent Establishments in Netherlands
The Dutch Government’s 2012 Tax Bill exempts permanent establishments outside the Netherlands from Dutch income tax effective from January 1, 2012. With the new legislation, foreign permanent establishments’ profits and losses will be exempt from Dutch Tax and the losses will be deductible under certain conditions.
Losses will be deductible, if the Dutch company liquidates the foreign company or activities within the group stop to continue or if losses are difficult to compensate from other sources, and starting new activities in the same jurisdiction in next three years post liquidation will be subject to the recapture rule.
Dutch Tax Laws 2012: Changes to 30% Ruling
The 30 % rule will be more restrictive with minimum salary requirement for the exemption set at € 35,000 (EUR 50,000 including the maximum 30% tax-free component); or more. Employees have to be recruited outside the radius of 150 km, and the exemption period is also shortened to eight years.
The standard remuneration set at € 50,000 including tax-free amount will not apply to scientists and scientific researchers working in educational institutions, however, the lower salary standard amount set at € 26,605 excluding tax-free amount will apply for masters and PhD students below 30 years of age.
When employees switch jobs, the term between the end of previous employment and signing of the new contract will be limited to three months. In case of special leaves, special rules will be introduced to decide the salary standard, and earnings post termination will not be eligible for benefits under 30 % ruling.
Dutch Tax Laws 2012: Taxation of foreign substantial interest holders
In addition to the existing clauses for levying income tax on foreign entities in Netherlands, a foreign entity will be subject to Dutch income tax only if the foreign establishment holds the substantial interest with the aim of avoiding dividend withholding tax or income tax of another person.
The tax law also imposes restrictions on deductibility of interest on acquisition debt, dividend withholding tax for cooperatives in abusive structures.
In any international business expansion endeavor, it is imperative for investors to have a thorough understanding about the risks involved. When doing business overseas, incomplete knowledge about foreign markets can be a real impediment to your prospective business venture.
With taxation rules varying from country to country, it is advisable to partner with a business consultant that can provide necessary guidance on tax, compliance, and international accounting that is needed to reduce risk and liabilities of an overseas expansion, and ensure that your international business is a success.
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