Foundations fall under the regulations of the Civil Code and not the Dutch Commercial Code like any other usual company. Even if the resemblance with other types of Dutch companies is important, foundations or “stichting” have no members. They will also have a certain capital, but their main purpose is not to carry out business activities. Dutch foundations are allowed to make profits, but the use of such profits is subject to restrictions.
Even if their main purpose is a social one, foundations registered with the Dutch Companies Registrar are allowed to carry out regular commercial activities. However, foundations are excellent structures suitable for tax minimization purposes, as they are considered Special Purpose Entities (SPEs). Among these are also Dutch holding companies. Both foundations and holding companies are usually associated with the avoidance of dividend and capital gains taxes, due to Netherlands’ double taxation agreements.
Foundations are very easy to set up and do not require governmental approval, hence the name of non-governmental organizations or non-profit organizations. Foreign citizens wanting to set up foundations in the Netherlands are required to draft a deed of formation and the Articles of Association and notarize them. While the deed of formation represents the Memorandum and establishes the creation of the organization, the Articles of Association will determine the activities and the management of the Dutch stichting. An important aspect to keep in mind is that the Articles of Association must be in Dutch.
If registered for commercial purposes, foundations will be required to pay the corporate tax in the Netherlands. However, being a Special Purpose Enterprise, a foundation can also be established as an intermediate holding and thus provide investment protection to its settlors. Dutch Special Purpose Enterprises, therefore foundation, may also receive external funds and thus avoid being withheld the tax on interest payments. Dutch charitable foundations may also own corporate structures and thus benefit from a reduced corporate tax rate. Foundations associated with Dutch private limited companies may also benefit from exemptions from the corporate and dividend taxes.
For information about other tax optimization solutions, please contact our Dutch company incorporation agents.