Holding, finance, royalty companies
The principal and most effective structures routed through The Netherlands are achieved by interposing holding-, finance-, and/or royalty companies.
A Dutch intermediate company holding shares in a subsidiary company located outside The Netherlands. The benefits can be summarized as follows:
– due to the participation exemption, dividends received from foreign participations as well as on gains realized on the (partial-) sale of shares in the capital of foreign participations are exempt from corporate income tax;
– relatively low withholding tax on dividends paid by a Dutch holding company to a foreign parent company, or received by a Dutch holding company from a foreign participation as provided for by the various tax treaties and the EU directive.
It is possible to perform financing and royalty activities with your Dutch holding company.
The Netherlands do not levy withholding tax on interest. An intermediate finance company has the purpose to facilitate intra-group finance transactions, such as inter-company loans. A Finance Company will borrow and lend funds within its own group of companies (e.g. internal leveraging). Dutch taxes on the interest received and paid with respect to the loans can frequently be reduced to nearly zero as interest paid can be deducted from interest received. Only a (small) spread is regarded as taxable income in the Netherlands. International operating businesses benefit from a Netherlands based finance company due to minimized tax liability as a result of reduced withholding tax rates on interest payments as well as reduced domestic tax. Besides tax savings, also the centralization and management of international financing operations of an international operating business is often a valid reason of establishing a Netherlands based Finance Company.
The Netherlands do not levy withholding tax on royalties. A royalty company has the purpose to facilitate and centralize international licensing of intellectual property rights. The company owning the intellectual property (e.g., trademark, patent or copyright), grants a license to the Netherlands based royalty company to use the intellectual property rights. The Netherlands based royalty company in its turn sub-licenses these rights to other companies worldwide. Royalties paid (without withholding tax) can be deducted from royalties received, leaving only a small taxable spread in Netherlands.
Important reason to establish a royalty company in the Netherlands is to lower a licensor’s liability to global taxation on the receipt of royalties derived from the licensing of its Intellectual property by structuring all its global licensing via a royalty company and taking advantage of the relevant tax treaty and domestic tax benefits available to royalty companies generally.