Netherlands: Better holding jurisdiction than Luxembourg?
With effect from 1 January 2006, the Netherlands will abolish its capital tax and reduce the rate of corporate taxes. The Netherlands has traditionally been regarded as an attractive location for European group holding companies but since the mid-nineties Luxembourg has continuously tried, and in some respects succeeded, to take over. The Netherlands is now trying to regain its leading position.
There are several long-standing and stable features of the Dutch tax system, which have traditionally made the Netherlands an attractive location, such as:
- the "participation exemption", under which dividend income and capital gains derived by a Dutch tax resident holding company in relation to the shares of qualifying subsidiaries are exempt from Dutch taxation
- an extensive network of double tax treaties
- a fairly flexible corporate law regime.
Since the mid-nineties however, Luxembourg has tried to take a slice of the "holding company business" and establish itself as the most attractive European holding jurisdiction by introducing various tax benefits (e.g. a "participation exemption" regime similar to the Dutch one, elimination of Luxembourg withholding tax on various payments made to non-Luxembourg residents etc).
However, in an effort to strike back, the Netherlands has decided to abolish its capital tax, which is currently payable at a rate of 0.55% on the value of capital contributed to a Dutch holding company. By comparison the similar Luxembourg capital tax remains payable at a rate of 1% also after 1 January 2006. Furthermore, the prevailing Dutch corporate tax rates will be reduced below the comparable Luxembourg tax rates. A further pending improvement is the anticipated abolition of dividend withholding tax on dividends distributed by a Dutch holding company to a Netherlands Antilles parent company. These measures could enable the Netherlands to reinforce its status as the most attractive European holding jurisdiction, at least for the time being.
