This act was further amended in 1994 in order to give the exemption of dividend tax a wider application than the EU directive. If certain conditions are met then the exemption now becomes applicable when the shareholder has an interest of at least 10% in the company's capital, or holds at least 10% of the voting shares.
3.4. Fiscal unity; consolidation for tax purposes
Under certain conditions a parent company may form a fiscal unity with one or more subsidiaries. For corporation tax purposes this means that the subsidiaries are deemed to have been absorbed by the parent company. The main advantages of fiscal unity are that the losses of one company can be set off against profits from another company, and that fixed assets can be transferred at book value from one company to another.
This type of tax consolidation is possible only between a parent company and its wholly owned subsidiaries (in practice 99% is sufficient) when all the companies involved in the consolidation are established in the Netherlands. Other conditions are that the parent company and the subsidiaries have the same financial year, and are subject to the same taxes. A request to form a fiscal unity must be submitted to the Inspector on behalf of all the companies involved. The standard conditions drawn up by the Minister of Finance must be met. These conditions cover a large number of technical aspects involved in consolidation.
The fiscal unity can be terminated upon request, or will be terminated automatically if any of the conditions are not met.
Since January 1997 new regulations apply to leveraged acquisitions, in case a leveraged Dutch acquisition vehicle is used to acquire a Dutch operating company. The aim of these regulations is to prevent the acquisition vehicle to form a fiscal unity with the target company in order to offset its interest expenses against the profits of the operating (target) company. In principle, following to the new fiscal unity rules these (interest) expenses are disallowed (for a period of eight years) to be offset against the profits of the target company.
Subject to certain conditions Dutch-based public companies, private companies and mutual funds may apply for recognition as investment institutions for taxation purposes. An investment institution can request to pay corporation tax at 0%. The purpose of this system is to ensure that persons investing in an investment institution shall not receive a less favourable treatment than persons who invest directly. This would not be the case without a special scheme.
As stated in section 3.3.2. an investment institution does not qualify for the participation exemption, whether it be a parent company or a subsidiary.
Several conditions must be met before an organisation may be regarded as a fiscal investment institution. These conditions include the way in which the investments are financed, the distribution of the investment returns, and the ownership of shares in the investment institution. The main conditions are:
· up to 60% of the book value of the immovable property may be financed with borrowed capital. For other investments the limit is 20% of the book value;
· the profits must be distributed within eight months of the close of the financial year;
· when the investment institution is listed on the Amsterdam Stock Exchange, less than 45% of the shares may be held by a corporation liable to corporation tax or several associated corporations (parent, subsidiary, or sister corporations with interests of a third or more in each Mother), unless the corporation is another listed investment institution;
· when the investment institution is not listed on the Amsterdam Stock Exchange then at least 75% of the shares must be owned by individuals, corporations not liable to profits tax, or listed investment institutions which meet the above condition;
· less than 25% of the shares in the investment institution may be held indirectly by Dutch shareholders via foreign-based corporations;
· less than 25% of the shares in the investment institution may be held directly by a single foreign shareholder.
Institutions are allowed to form two special fiscal reserves, the reinvestment reserve and the rounding-off reserve. The reinvestment reserve is formed by non-distribution of capital gains. The level of the annual contribution to the reserve and its absolute size are both subject to restrictions. If, when establishing the amount of the profit to be distributed, an amount remains due to sums being rounded off then this amount may be added to the rounding-off reserve. The rounding-off reserve may not exceed 1% of the paid-up capital.
3.5.4. Allowance for foreign withholding tax
Under Dutch law and Dutch tax conventions withholding tax levied abroad may generally be set off against income or corporation tax payable by the taxpayer in the Netherlands. As an investment institution is liable for corporation tax at a rate of 0% it cannot make use of this facility. To ensure that persons who invest directly and persons who invest via an investment institute receive equal tax treatment, special arrangements are made for investment institutions allowing the former to offset foreign withholding taxes against income from securities and claims. Under these arrangements an investment institution may obtain an allowance from the Dutch tax authorities which amounts to no more than the withholding tax levied abroad. If not all the shareholders in the investment institution are resident or established in the Netherlands then the allowance is calculated according to the number of shareholders resident or established in the Netherlands.
4. Подоходный налог(Income Tax)
4.1 Taxpayers: residents and non-residents
Under the present Income Tax Act residents are liable for income tax on their world-wide income. Non-residents are taxed only on the income from a limited number of sources in the Netherlands. The Netherlands has concluded a large number of double taxation conventions to prevent the double taxation of world-wide income. If no convention is applicable, tax relief may be obtained on the basis of the Unilateral Decree for the prevention of double taxation. (If certain requirements are met, foreign employees temporarily posted to the Netherlands may request the application of a special tax arrangement known as the 35% rule, see 4.4.)
The legal definition stipulates that a taxpayer's place of residence is determined 'according to circumstances'. Several factors are of relevance when deciding whether the taxpayer maintains personal and economic ties with the Netherlands. These include a family home, employment, or registration in a municipal register. Nationality is not a determining factor, but it may be relevant in some cases. The law also provides for a number of special cases. The crews of ships and aircraft with a home harbour or airport in the Netherlands are deemed to be residents of the Netherlands unless they have established residence abroad. Dutch diplomats and other civil servants serving abroad remain residents of the Netherlands. Foreign diplomats and the staff of certain international institutions are exempt from Dutch income tax.
If both spouses are resident in the Netherlands then married couples are taxed individually on their personal income (business profits, salary, pension, etc.) less certain deductions, allowances and premiums. Investment income and non-source related deductions such as certain personal obligations and exceptional expenses are attributed to the spouse with the highest personal income. If only one of the spouses is resident in the Netherlands then their incomes are regarded as completely separate.
4.2.1. Taxable income of residents
The tax year for persons is the calendar year. Residents are taxed on their total gross income, which is the income from all domestic and foreign sources less the associated expenses. This income may be further reduced by certain deductions and allowances not directly related to a specific source of income. The balance is the total net income. This total net income is further reduced by the deduction of losses and a personal allowance before tax is levied. The result is the taxable amount, which is calculated as shown below. The various terms are explained in sections 4.2.3 and 4.2.4.
| GROSS INCOME (4.2.3): | ||
| profits from business or professional activities | ............ | |
| income from a substantial holding | ............ | |
| net income from employment and services rendered outside employment | ............ | |
| net income from capital | ............ | |
| net income in the form of periodic payments | ............ | |
| ______ + | ||
| TOTAL GROSS INCOME | (A) | ............ |
| MINUS: DEDUCTIONS (4.2.4): | ............ | |
| contribution to the old-age reserve | ............ | |
| the self-employed persons' deduction | ............ | |
| business-assistance deduction | ............ | |
| personal obligations (special expenses) | ............ | |
| exceptional expenses | ............ | |
| tax deductible donations | ............ | |
| ______ + | ||
| (B) | ............ | |
| TOTAL NET INCOME | (A-B) | |
| minus: deductible losses | (C) | |
| TAXABLE INCOME | (A-B-C) | |
| minus: personal allowances | (D) | |
| TAXABLE AMOUNT | (A-B-C-D) |
4.2.2. Tax rates and personal allowances
Income tax is levied on the taxable amount calculated as shown above. This is a progressive tax. The rates are:
| 33.90 | on the first | NLG 15,255 |
| 37.95% | on the next | NLG 33,739 |
| 50% | on the next | NLG 58,762 |
| 60% | on the remainder |
The 33.90% rate is comprised of 4.5% tax and 29.40% social security contributions, the second rate is comprised of 8.55% tax and 29.40% social security contributions, whilst the 50% and 60% rates consist solely of tax. A rate of 16% (first rate) and 20.05% (second rate) is applicable to persons aged 65 and over, as they are no longer liable for several social security contributions.
The above diagram shows that a personal allowance is deducted from the total net income before tax is levied. The level of this allowance is determined by the tax class to which the person is assigned. This level depends on the individual circumstances. The basic personal allowance is NLG 8,950. For married or single persons with a spouse or partner without an income the personal allowance is NLG 17,473. For single parents with children living with them the allowance is NLG 15,768. For single parents in paid employment this amount is increased by a maximum of NLG 6,821. For persons older than 65 years the personal allowance is increased by NLG 520 to a maximum of NLG 5,678.
The Income Tax Act distinguishes five different sources of income, which together comprise the total gross income. The five categories are:
| I. | profits from business or professional activities; |
| II. | income from a substantial holding; |
| III. | net income from employment and from services rendered outside employment; |
| IV. | net income from capital; |
| V. | income in the form of periodic payments. |
I. Profits from business or professional activities
For income tax purposes the definition of 'profits' is the same as that for the assessment of the corporation tax which is to be levied, except that in assessing profits for corporation tax purposes a number of special factors, notably those which reflect the difference between liability to pay income tax and liability to pay corporation tax, are taken into consideration. This means that for income tax purposes only sections 3.2.1, 3.2.3 to 3.2.6 (in part), 3.2.7, 3.2.8 and 3.2.11 are applicable.
The following additional rules apply to persons conducting a business who are liable for income tax.
· Accelerated depreciation when starting a business
From 1 January 1996 an accelerated depreciation of fixed assets is permitted, subject to certain restrictions, for persons who have recently started a business.
· Exemption of profits derived from the liquidation of a business
Only part of the profits derived from the liquidation of a business are taxable. The exemption varies with the age of the person who conducted the business. The maximum exemption is NLG 45,000.
· Transfer of a business to a relative
If a person conducting a business transfers the business or part thereof to his or her spouse or partner or children, the transfer may, on request, be exempted from income tax. The successor then takes the place of the person conducting the business. A similar smooth transfer also takes place following the death of the person conducting the business and the dissolution of the community of property.
· Discontinuation of a business liable for income tax when it is to be continued as business liable for corporation tax
If a person conducting a business which is liable for income tax wishes to continue the business activities in the statutory form of company which is subject to corporation tax, e.g. a private company, then he or she may request an exemption from income tax when this conversion is made. The company then takes the place of the person conducting the business. The Ministry of Finance has published standard conditions for such situations.
· Deduction for assistance in the business
If the spouse or partner of a taxpayer conducting a business works for that business for a certain number of hours per year then the taxpayer may make a deduction for that assistance from his or her gross income. The deduction is made from the profits at a rate which is dependent on the number of hours the spouse or partner works for the business. The rate increases to a maximum 4% when the spouse or partner works for 1,750 hours or more in the business in that financial year. At the request of both the taxpayer and his or her spouse the deduction for assistance in the business may be waived. The spouse is then assessed separately on the basis of the wage or salary received from the business.
· Old-age reserve for the self-employed
Resident taxpayers who derive income from the profits of a business or from self-employment are allowed to offset a certain percentage of their gross income towards the provision of a retirement pension. The annual contribution to this reserve may be no more than NLG 21,367 and at no time may the reserve exceed the book value of the business's assets. If this reserve is not converted into an annuity when the business is terminated then tax will be levied over this amount at a rate of 45%.
· Deduction for self-employed persons
Resident self-employed taxpayers between the ages of 18 and 65 who devote at least 1,225 hours to running a business are allowed to offset a deduction for self-employed persons against their gross income. The amount of this deduction is in inverse proportion to the size of the company's profits. A fixed deduction of NLG 13,110 is allowed on profits of less than NLG 96,170. The allowance gradually declines to NLG 8,730 on profits of NLG 108,395 or more. Persons who have recently started a business may deduct an additional sum of NLG 3,840 for the first three years.
II Income from a substantial holding
Income, including capital gains or losses, from a substantial holding in a corporation is subject to income tax and is taxed at a rate of 25% insofar as this income exceeds the first two tax brackets.
A taxpayer is regarded as having a substantial holding in a corporation if he or she, either alone or with his or her spouse, holds directly or indirectly 5% of the issued capital. If the corporation has issued different classes of shares, a substantial holding also exists if the taxpayer, either alone or with his or her spouse, holds more than 5% of the issued capital of a particular class of shares. If the taxpayer holds a substantial interest in a corporation, jouissance rights and debt-claims issued by that corporation and held directly or indirectly by the taxpayer, either alone or with his or her spouse, are regarded as forming part of the substantial holding.