The primary taxes in The Netherlands are corporate and personal taxes on income and value-added tax. Individuals are liable for a number of other taxes, such as inheritance tax and gift tax.

Corporate income tax

There are no local taxes levied on business income in the Netherlands. Withholding tax is, in general, only levied on dividends, and not on interest or loyalties. The standard flat rate of Dutch dividend withholding tax is 15%. Dividend withholding tax does not apply to profit distributions made by cooperative associations. Dutch companies can benefit from EU Directives, in particular those regarding withholding taxes and mergers. There is no withholding tax on profit distributions by a Dutch branch or a foreign company to its foreign head office. While corporate shareholders are, in principle, subject to tax on dividend income, an important exemption applies, known as the participation exemption (deelnemingsvrijstelling), where certain conditions are satisfied. Capital gains may also be exempted under the participation exemptions

The Netherlands has an extensive network of tax treaties for relieving double taxation and a modern system for obtaining advance rulings in particular on transfer pricing questions. The Dutch tax administration is generally regarded as both competent and positive towards foreign investors.

A major corporate income tax reform took place in 2007, making the Dutch tax environment for international companies even more attractive. The corporate tax rate has been lowered to 25.5%, which is well below the EU national average. Dividend tax has been reduced from 25% to 15%. Furthermore, a patent box with a 10% tax rate on income from innovations was introduced.

Personal taxes

Individuals may be subject to Dutch income tax either as resident taxpayers or as non-resident taxpayers. Taxable income is divided into three separate categories known as ‘boxes’. Resident taxpayers are liable to tax on all income covered by these boxes. Whole non-residents are in principle liable only for income that is derived from the Netherlands, such as income from Dutch employment activities or income from Dutch real estate.<

A long standing tax incentive applies for expats. This is referred to as the ‘30% ruling’. The employer can pay the employee a tax-free allowance of up to 30% of his total remuneration. This allowance is intended to cover the costs incurred as a result of coming to the Netherlands. However, no proof of these costs being incurred is required.

Value added tax

Value added tax or VAT (Omzetbelasting or BTW), the most important indirect tax, is levied on the net invoice price charged by a business for the supply of goods and services within the Netherlands. VAT is also levied on the intra-EU acquisition of goods and on goods imported into the Netherlands, The general principle is that the VAT paid by a business to its supplier (‘input‘ VAT) can be offset against the VAT it charges to its customers (‘output’ VAT). The net amount of VAT either retained or paid out is then remitted to or recovered from the tax authorities.