TAX aspects: Holding companies

General
The principal purpose of interposing a Dutch holding company between foreign operation companies and the ultimate parent is to reduce the burden of (withholding) taxes on the dividend flow from  the subsidiaries to and from the parent company.

This reduction is achieved by the low withholding tax rates as a result of the Dutch tax treaties, the EU Parent-Subsidiary Directive and the participation exemption in the Dutch Corporate Income Tax Act.

Key ADVANTAGES OF A DUTCH HOLDING COMPANY

Participation exemption
One of the most outstanding characteristics of the Dutch Corporate Income Tax Act is the so-called ‘participation exemption’.

Dutch companies are exempt from corporate income tax due on dividends received from (foreign) participation's as well as on capital gains realised on the (foreign) participation's. Please note that certain conditions need to be met to benefit from the participation exemption.

Reduction of the withholding tax
Dividends paid by a Dutch holding company to its foreign parent company are subject to dividend withholding tax. The standard rate is 25%, which percentage is reduced under a Dutch tax treaty or the EU Parent-Subsidiary Directive.

Also dividends received by a Dutch holding company from its foreign subsidiary are usually subject to low withholding tax rates as a result of a Dutch tax treaty or the EU Parent-Subsidiary Directive.