How does the Dutch participation exemption work?

Dutch participation exemption regime

Companies which are tax resident in The Netherlands are generally subject to Dutch corporate income tax at the regular corporate income tax rate of 20-25%. For the current Dutch corporate income tax rates we refer to the corporate income tax rate overview. A Dutch company is taxed on its worldwide profits. The world-wide profits include business income, trading income, dividend income, royalty income, and interest income. For specific items of income, a Dutch corporate income tax exemption can be applied. Please find below a brief introduction to:

  1. The Dutch participation exemption regime;
  2. The Dutch participation exemption tests;
  3. The Dutch participation exemption one-pager.

Dutch participation exemption regime

The rules regarding the applicability of the Dutch participation exemption (deelnemingsvrijstelling) apply to entities which are regarded to be a company from a Dutch tax perspective. No distinction in company form is made between companies incorporated under the law of the EU, treaty countries or non-treaty countries. If the participation exemption applies, then no Dutch corporate income tax is due on qualifying income received from a participation.

Under the application of the participation exemption regime, all the income pertaining to a qualifying participation derived by a Dutch resident company is exempt from Dutch corporate income tax.

Dutch participation exemption tests

In order to qualify for the Dutch participation exemption regime, five tests can be distinguished. These tests must be met in order to benefit from the participation exemption. The following tests must be performed to determine if the participation exemption applies:

  1. Company Test;
  2. Shareholding Threshold Test;
  3. Intention Test;
  4. Deemed Portfolio Investment Test;
  5. Qualifying Portfolio Investment Exception Test.

The Dutch participation exemption regime one-pager below

In the Dutch participation exemption regime one-pager below, we discuss the five tests that must be performed to determine if the participation exemption in the Netherlands applies.

Dutch Participation Exemption One-pager