A Quick Glance at the Tax Breaks for Foreign Permanent Establishments in Netherlands

A Quick Glance at the Tax Breaks for Foreign Permanent Establishments in Netherlands
The Dutch Government's 2012 Tax Bill exempts permanent establishments outside the Netherlands from Dutch income
tax effective from January 1, 2012. With the new legislation, foreign permanent establishments' profits and losses will
be exempt from Dutch Tax and the losses will be deductible under certain conditions.
Losses will be deductible, if the Dutch company liquidates the foreign company or activities within the group stop to
continue or if losses are difficult to compensate from other sources, and starting new activities in the same jurisdiction
in next three years post liquidation will be subject to the recapture rule.
Dutch Tax Laws 2012: Changes to 30% Ruling
The 30 % rule will be more restrictive with minimum salary requirement for the exemption set at 35,000 (EUR 50,000
including the maximum 30% tax-free component); or more. Employees have to be recruited outside the radius of 150
km, and the exemption period is also shortened to eight years.
The standard remuneration set at 50,000 including tax-free amount will not apply to scientists and scientific
researchers working in educational institutions, however, the lower salary standard amount set at 26,605 excluding
tax-free amount will apply for masters and PhD students below 30 years of age.
When employees switch jobs, the term between the end of previous employment and signing of the new contract will
be limited to three months. In case of special leaves, special rules will be introduced to decide the salary standard, and
earnings post termination will not be eligible for benefits under 30 % ruling.
Dutch Tax Laws 2012: Taxation of foreign substantial interest holders
In addition to the existing clauses for levying income tax on foreign entities in Netherlands, a foreign entity will be
subject to Dutch income tax only if the foreign establishment holds the substantial interest with the aim of avoiding
dividend withholding tax or income tax of another person.
The tax law also imposes restrictions on deductibility of interest on acquisition debt, dividend withholding tax for
cooperatives in abusive structures.
In any international business expansion endeavor, it is imperative for investors to have a thorough understanding about
the risks involved. When doing business overseas, incomplete knowledge about foreign markets can be a real
impediment to your prospective business venture.

With taxation rules varying from country to country, it is advisable to partner with a business consultant that can
provide necessary guidance on tax, compliance, and international accounting that is needed to reduce risk and liabilities
of an overseas expansion, and ensure that your international business is a success.

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