Corporate Income Tax in the Netherlands

This article provides an overview of the Dutch corporate income tax system, examining the impact of international transfer pricing guidelines on national tax legislation. Its purpose is to outline the key principles that are relevant to entrepreneurs and business owners operating in the Netherlands. Please note that the information presented here is intended as a general summary only and does not constitute comprehensive tax advice.

Overview of general aspects of Corporate Income Tax in the Netherlands

Tax Residency                             

• Any company incorporated under Dutch law is considered a fiscal resident of the Netherlands for the duration of its existence.
• Foreign companies may also be treated as fiscal residents if their place of effective management is located in the Netherlands. These companies are subject to Dutch Corporate Income Tax (CIT) on their worldwide income.

Taxation of foreign companies

• Foreign companies with a permanent establishment in the Netherlands are taxed on profits attributable to their Dutch operations.
• CIT rates (as of 2025):
  • 19% on taxable profits up to €200,000.
  • 25.8% on taxable profits exceeding €200,000.

Participation exemption and fiscal unity

• The participation exemption applies to profits distributed from a qualifying subsidiary (a participation of at least 5% ownership). These profits are exempt from CIT at the level of the parent company.
• Companies with at least a 95% shareholding can form a fiscal unity for CIT purposes, allowing them to be treated as one taxpayer. This means:
  • Capital and assets can be transferred tax-free within the group.
  • Losses from one group company can be offset against profits of another.

Withholding taxes

Dividend payments to minority shareholders or natural persons:

• Dividends paid to shareholders holding less than 5% participation, or to individual shareholders, are subject to a 15% withholding tax. This tax can be offset against the recipient’s income tax or CIT liability.

Dividend payments within the EU/EER:

• Under the participation exemption, dividend payments made by a Dutch company to a qualifying shareholder within the EU/EER are generally exempt from withholding tax, provided the recipient holds at least 5% participation and meets the conditions of the exemption.
• This mirrors the treatment of Dutch domestic dividend payments, unless anti-abuse legislation applies (e.g., the Dutch authorities determine that the primary purpose of the structure is to avoid taxes).

Interest, royalties, and dividend payments to low-tax jurisdictions:

• As per the Withholding Tax Act 2021 (extended in 2024), payments of interest, royalties, and dividends to related entities in low-tax jurisdictions or in abusive structures are subject to withholding tax.
• The rate equals the highest CIT rate (25.8% in 2025).

Loss carryforward and carryback rules

• Losses can be carried back 1 year or carried forward indefinitely.
• Loss offset limits (for 2022 and later):
  • If taxable profits are €1,000,000 or less, losses can be fully offset against the profits.
  • For taxable profits exceeding €1,000,000, up to €1,000,000 can be offset, and 50% of the remaining profits can be used for further loss offsetting.

Deduction limitations

Specific restrictions on the deductibility of interest and other expenses may apply, including:

• Earnings stripping rule: Limits interest deductibility to 24.5% of taxable EBITDA (with a threshold of up to €1,000,000). Any non-deductible interest can be carried forward.
• Other important deduction limitations
  • loans that relate to a shareholder’s contribution or a distribution of profits from an affiliated company;
  • loans that are not at arm’s length;
  • loans that are used for financing a participation;
  • loans that are given within a fiscal unity.

Additional considerations for Corporate Income Tax:

• Hybrid mismatch rules: In line with the Anti-Tax Avoidance Directive (ATAD2), the Netherlands has implemented rules to prevent hybrid mismatches that exploit differences between tax systems. These rules are designed to eliminate double deductions or deductions without corresponding income inclusion.
• Controlled Foreign Company (CFC) Rules: The Dutch CFC rules, also based on ATAD, aim to prevent profit shifting to low-tax jurisdictions by taxing the income of controlled foreign subsidiaries directly in the Netherlands.
• Penalties for non-compliance: non-compliance with Dutch tax or transfer pricing regulations can lead to significant penalties, including fines, adjustments, and interest on underpaid taxes. Proper documentation and timely reporting are crucial to avoid these penalties.
• Advance Pricing Agreements (APAs): Companies can apply for an APA with the Dutch tax authorities to secure advance approval on transfer pricing methods. This provides certainty and reduces the risk of future disputes regarding intercompany transactions.

Global Minimum Tax (Pillar 2)

• As of 2024, the Netherlands has implemented the OECD/G20 Pillar 2 rules, following the EU Directive 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups.
• Large multinational groups with consolidated revenues > €750 million are subject to a minimum effective tax rate of 15%.
• Additional top-up taxes may apply if the Dutch or foreign tax burden is below 15%.
• Pillar 1 of the OECD/G20 project, which reallocates taxing rights to market jurisdictions, has not yet been implemented in the Netherlands or the EU as of 2025, but may become relevant in the coming years.

Transfer Pricing regulation in the Netherlands

In the Netherlands, transfer pricing (TP) rules are based on the arm’s length principle, as stated in Article 8b of the Dutch Corporate Income Tax Act. This principle requires that intercompany transactions between related entities, both domestic and foreign, are conducted under conditions that would be agreed upon between independent third parties.

Dutch TP rules remain closely aligned with OECD Transfer Pricing Guidelines, which were most recently updated in 2022. Documentation should take into account Pillar 2 disclosures and potential alignment with EU Directive requirements.

Documentation obligations

To comply with Dutch TP regulations, companies must document how the transfer prices were determined and ensure that these prices reflect market conditions. The required documentation must be available at the time of the transaction and should demonstrate that the pricing is at arm’s length. If a company fails to meet these obligations, the burden of proof shifts to the taxpayer, who must then demonstrate that the applied transfer prices are appropriate.

Local File, Master File, and CbC Reporting

• Local File and Master File: Companies with annual revenues exceeding €50 million are required to prepare a Local File and Master File. These files provide detailed information on intercompany transactions, the group structure, and the allocation of functions and risks within the multinational enterprise.
• Country-by-Country (CbC) Reporting: Multinational groups with consolidated revenues exceeding €750 million must file a CbC report, providing an overview of financial and tax data across all jurisdictions where the group operates.

For more details on these requirements, see the Dutch Decree regarding additional documentation requirements for transfer.

Importance of proper documentation

Proper TP documentation is crucial to:

1. Avoid penalties;
2. Prevent a shift in the burden of proof to the taxpayer;
3. Minimize the risk of tax adjustments by the authorities.

Companies must retain documentation for a minimum of 7 years, and it is recommended that documents are prepared in English, given the international nature of transfer pricing issues.

Compliance with OECD Guidelines

Dutch TP regulations are closely aligned with OECD Transfer Pricing Guidelines, ensuring that documentation follows internationally accepted standards. These guidelines emphasize the need for a global approach, ensuring that transfer pricing methods are consistent and justified across all jurisdictions.

In conclusion

By adhering to the arm’s length principle, fulfilling documentation obligations, and considering new rules such as the Withholding Tax Act (extended to dividends) and the OECD Pillar 2 minimum tax, companies can ensure compliance with Dutch corporate tax and transfer pricing rules and reduce the risk of disputes with the tax authorities.

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