Dutch Participation Exemption (PE) Scheme

The Netherlands’ taxation system when it comes to companies offers many advantages under the form of deductions and exemptions. These can be obtained, however, if certain types of structures are employed. Among these, the Dutch limited liability company offers most of the tax benefits.

A few recent changes in the tax laws of the Netherlands have made the country even more appealing for local and foreign investors who benefit from equality when it comes to starting a business here. One of these benefits refer to the Participation Exemption scheme.

Below, our Dutch company formation specialists explain how the Participation Exemption scheme, also known as the PE scheme, applies. They also explain how to test and see if your Dutch company can qualify for the PE scheme.

The Dutch Participation Exemption scheme and its appliance

The tax laws of the Netherlands provide for the corporate tax on local companies to be imposed on the following incomes:

• - business income;
• - trading income;
• - dividend payments;
• - interest payments;
• - royalties payments.

Under the Dutch PE scheme, the income generated by a qualifying income will benefit from an exemption from the corporate tax. The income which can qualify must derive from dividend payments, profit distribution, capital gains and foreign exchange. It is important to know that only Dutch-resident companies can take advantage of the Participation Exemption scheme.

Most of the times, holding companies qualify for the Participation Exemption scheme in the Netherlands.

Our company registration consultants in the Netherlands remind investors that at the beginning of 2019 the corporate tax has been modified in the sense that the lowest rate was decreased from 20% to 19% on the first 200,000 euros generated by a company. In the next years, the rates will decrease even more.

How to verify if a Dutch company can benefit from the PE scheme

In order to qualify for the Dutch Participation Exemption scheme, a company must pass a so-called test which implies complying with a few conditions. The test and its conditions are:

1. the company test – which implies for the subsidiary of the holding company to be a Dutch resident company;
2. the shareholding test – which implies for the holding company to own at least 5% of the paid-up capital in the subsidiary;
3. the intention test – which implies for the holding company not to own the subsidiary as a portfolio investment;
4. the deemed portfolio investment test – which implies the subsidiary not to be a portfolio investment;
5. the portfolio investment test – which implies for the subsidiary to comply with one of the two conditions related to taxation.

The conditions under which the Dutch company can still qualify for the PE scheme even if it is considered a portfolio investment are:

• - the participation is subject to a corporate tax applied in accordance with the tax rules applicable in the Netherlands; or
• - the threshold of the assets subject to a lower tax than the one accepted by the Dutch tax standards is below 50%.

It is recommended to have a company verified for the Dutch Participation Exemption scheme by professionals, which is why our advisors are at your disposal with detailed information in this sense. You can also rely on us if you are interested in company formation in the Netherlands.

What are the assets which can be considered under the Dutch PE scheme?

As mentioned above, in order to qualify for the Participation Exemption scheme in the Netherlands, the assets test must be passed and the assets which can qualify are:

• - immovable property is one of the best assets a company can have for qualifying for the PE scheme;
• - free passive assets which must generate a profit which is taxed at a rate of less than 10%;
• - assets used for various purposes, such as licensing, leasing or financing, under certain conditions;
• - shares in the company, if the holding owns at least 5% of the capital in the subsidiary.

Our specialists can offer more information on the assets which can be held under the Dutch Participation Exemption scheme.

What is the main goal of the Dutch PE scheme?

It is important to know that the PE scheme is an EU regulation meant to favor companies registered in the Union with activities in other EU states. The PE scheme, however, has other international implications, among which the fact that it is meant to help with the avoidance of double taxation of the corporate income tax in certain cases.

If you want to open a company in the Netherlands and need assistance, our local consultants are at your disposal any time.

Please contact us for more information on the Dutch Participation Exemption scheme and assistance in setting up a business in this country.