Effective as from January 1, 1997 an extensive bill concerning substantial interest, deduction of interest and amendment of net wealth tax is applicable in the Netherlands. The main aspects of the according amendments are discussed below.
- The tax rate for capital gains on the disposal of shares representing a substantial interest will be increased from 20% to 25% which is in line with the new special tax rate for dividends from shares belonging to such an interest. A substantial interest will be deemed to exist on a private shareholding, i.e. shares not owned by an enterprise, representing at least 5% (previously:33 1/3%) in a resident or non-resident company `s paid-in capital. In determining this percentage only the shareholder and his partner have to be taken into account. The acquisition price of shares already owned by the taxpayer before 1997 and which, as a result of the reduction of the minimum holding threshold, fall under the new regime, are fixed at their market value as of January 1, 1997.
- Under the new regime, an alienation is, besides of a sale of the
- shares or other normal disposal, deemed to take place in the following situations:
1) emigration of substantial shareholders of Dutch companies, or companies that have been resident in the Netherlands for at least 5 years, to another country (exit tax). No alienation will be assumed when a substantial shareholder before his emigration resided less than 8 years in the Netherlands and in the last 25 years resided less than 10 years in Holland
2) inheritance or donation of the shares to entrepreneurs, legal
entities or persons residing abroad.
3) transfer of seat of a resident company to an other country.
However, in the 3 above-mentioned situations a preservation assessment will be imposed, which will not be collectible when the shares are not alienated within 10 years after emigration and if the taxpayer has provided security for payment of the tax with the Dutch tax collector,
- Dividends received from substantial shareholdings and exceeding the amount of the first income tax bracket are taxed at 25 %. Before 1997 these dividends were taxed progressively (i.e. up to 60%). This 25% rate applies if the benefits exceed the amount of the first income tax bracket. Income falling in the first bracket of tax will, in the case of residents, be taxed at a tax rate of 5.05% (1997). In addition, residents and non-residents subject to the Dutch social security regime are, generally due 32.25% (1997) of general social security premiums. The tax rate for those non-residents not subject to the Dutch social security system on the said bracket amounts, according to Dutch law, 25%.
The EC Court of Justice has, however, ruled in the Asscher case (Case C-107/94) that this increased rate is discriminatory in the meaning of art. 52 of the EC Treaty.
- Interest attributable to a loan used to finance the acquisition of a substantial interest is, in principle, no longer deductible from income which is taxable according to progressive rates, but only from income subject to a rate of 25 %.
- A notional income is imputed to the director/substantial shareholders income when he is waiving salary, interest or rental income. In case of waving salary the amount of notional income is NLG 78.000 (1997). The notional income is, in principle, deductible from the company's taxable profit and can be set at a higher or lower amount.
- For the application of the 68% rule for net wealth tax and income tax (anti-cumulation regulation) income taxed at the said special rate for dividends and capital gains or losses arisen from a substantial interest as far as subject to a special rate are disregarded. The 68% rule provides that in case the taxpayer's income tax and net wealth tax exceed 68% of his taxable income, the excess of paid taxes will be refunded on request. The said items of income are not regarded as taxable income for purposes of this 68% rule.
Further information can be obtained from Mr Paul J. te Boekhorst KPMG Meijburg & Co, Amsterdam (Netherlands); fax 31 (20) 656 1247.
Keywords: Netherlands / Europe / EC / European Union / KPMG Meijburg & Co / Capital gains / Substantial shareholdings / Dividends / Deduction of interest
Note: The content of this contribution is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.