Public and private companies pay corporation tax on their profits. Special rules apply to companies that form a tax group and to companies that own more than 5% of another company.
Who pays corporation tax?
Public and private companies usually have to pay corporation tax on their profits. In certain circumstances, foundations and associations must also file corporation tax returns.
Some legal entities, such as tax investment institutions, do not pay corporation tax. The Tax and Customs Administration may also exempt some legal entities that make collective investments from corporation tax.
Natural persons (such as the self-employed) pay tax on their profits through their income tax returns.
Corporation tax rates in 2021
The corporation tax rate depends on the taxable amount. The taxable amount is the taxable profit in a year less deductible losses.
- If the taxable amount is less than €245,000, the tax rate is 15%.
- If the taxable amount is €245,000 or higher, the tax rate is 25%.
A reduced rate applies to activities covered by the innovation box. The innovation box provides tax relief to encourage innovative research. All profits earned from innovative activities are taxed at this special rate.
Tax groups with subsidiary companies
In principle, every company pays its own corporation tax. However, if a parent company forms a tax group with one or more of its subsidiaries, the Tax and Customs Administration will on request treat the companies as a single taxpayer.
The main benefit of a tax group is that a loss incurred by one company can be deducted from the profits earned by other companies in the group.
The formation of a tax group is subject to certain conditions. The main condition is that the parent company holds at least 95% of the shares in the subsidiary. In addition, the parent company and subsidiary must:
- have the same financial year;
- apply the same accounting policies;
- be established in the Netherlands.
Exemption for substantial holdings
Subsidiary companies distribute their profits to their parent companies in the form of dividend. The substantial holding exemption exempts the parent company from paying tax on dividends. This prevents it being taxed twice within the same group of companies. The substantial holding exemption is available only to shareholders who hold at least a 5% stake in a company.
The exemption applies to substantial holdings in resident and non-resident companies. It is a key feature of the Dutch tax regime. Since profits are not taxed twice, subsidiaries located outside the Netherlands can compete with local companies on an equal tax footing. The substantial holding exemption does not apply to holdings in an investment vehicle that is subject to a reduced tax rate.