The Netherlands and
Luxembourg:
The high profile players in
the market of Ukraine
Globalserve Seminar
November 2013
By Phani Schiza Antoniou
Netherlands, the country
 EU member
 Highly strategic commercial location that makes it
the “Gateway to Europe”
 Natural hub for logistics and headquarter
functions
 High educated, multi cultural and multi-lingual
workforce
 High level of infrastructure
 Good economic and financial climate
Netherlands, the country
One of the major and reputable international
Business centers
Extensive Network of double Tax Treaties; 90!!
Good Banking system
Tax Rulings possible
A Dutch B.V
 BV=Private company with limited liability
 Set up by a notary (make up of their articles)
 Official Permission of Minister of Justice
 Minimum share capital is €1
 Registered in the Chamber of Commerce
 Director can be also legal entity
 Min director/ shareholder 1
 Director can be non Dutch resident but for
management and control purposes Dutch director is
advisable
Summary of Dutch Tax Rates
Corporate Income Tax upto € 200000
Corporate Income T above € 200000
20%
25%
Tax on Dividends received
0% if participation exemption applies i.e
5% minimum shareholding in the
subsidiary held as participation not as an
investment
Royalty income
5%
Capital gains tax in the case of disposal of 0% if participation exemption applies i.e
participation
5% minimum shareholding in the
subsidiary, held as participation not as
investment
Profit from the trading in securities
20-25%
Withholding tax on dividends other than
EU or Treaty countries
15%
Withholding taxes on interest, royalties
0%
Summary of the Dutch tax system
GENERAL
Corporate Income Tax rate=25%
Taxable income ≦EUR 200,000=20%
Innovation box income taxed at 5%
Average ETR of Dutch multinational: Between
8% and 20%
Summary of the Dutch tax system
No withholding tax on interest and royalty
payments
Dividend withholding tax =maximum 15%
Qualifying dividends to EU or 0% treaty
country=0%
No capital taxes
Summary of the Dutch tax system
CORPORATE INCOME TAX SPECIFICS
Tax loss carry forward: 9 years
Tax loss carry back:1
Thin cap: 3 to 1 or the group’s debt-toequity ratio
Interest deduction limitations when eroding
the Dutch taxable basis of operating
subsidiaries
These rules do not affect international
structuring
Summary of the Dutch tax system
INNOVATION BOX
 Offers attractive opportunities to lower the ETR for income
allocable to intangible assets to 5% if:
 The intangible assets are self developed, which includes contract
research for the risk and benefit of the tax payer and participation in
R&D activities by means of cost-contribution arrangements (but
excludes marketing intangibles created by the tax payer, such as brand
names, logos and assets alike)
 The intangible assets are purchased, provided the purchased
intangible asset loses its independence and is merged into a new self
developed intangible asset.
 At least 30% of expected income can be attribute to
patents/registrations obtained for the intangible asset
Summary of the Dutch tax system
Test per intangible asset, to be met at the end
of the first year of applying for the Innovation
Box for an intangible asset
No upfront approval of Dutch tax authorities is
required, so Innovation Box can be applied for
by ticking a box in the Dutch corporate Income
tax return. However, in order to determine
income to be allocated to Innovation Box,
consultation with Dutch tax authorities
upfront is highly recommended.
Summary of the Dutch tax system
PARTICIPATION EXEMPTION
100% income (dividend income and capital
gains)exempt from Dutch corporate income
tax if it concerns an investment in shares of
at least 5% of the nominal paid-in capital,
unless it concerns a portfolio investment
company(no minimum holding period)
Summary of the Dutch tax system
SUBSTANCE REQUIREMENTS
Focus should be on substance requirements set by the jurisdiction that pays to a Dutch
holding company;
Presence of local operations
Key executives 'agenda for travel to the holding company jurisdiction
The Dutch tax authorities published the following list with minimum substance
requirements that should be met by so-called financing flow-through ruling companies:
At least 50% of the Board of Directors(BOD) MEMEBRS SHOULD BE Dutch
residents(live and work there)and of a certain professional level and the company
has adequate staff (itself or from 3rd parties)for performing the functions
All key strategic/material decisions of the BOD should be taken in the
Netherlands, such as the entering into contracts and signing of documents
The main bank account should be held in the Netherlands
The bookkeeping is maintained in the Netherlands
The address of the company should be in the Netherlands and the company is not
considered a resident in another state on the basis of a tax treaty
The company has sufficient equity considering its activities and the risks to be
absorbed by the company.
DOUBLE TAX TREATY WITH UKRAINE
DIVIDEND
*o% applies if min shareholding 50% and at least
$300000 investment
** 5% applies if at least 20% shareholding
In all other cases 15%
INTEREST
*2% rate applies to interest paid on loans granted by
a banking institution and financial or to interest paid
by the purchaser of machinery and equipment to the
seller in connection with a sale on credit; the 10%
rate applies in all other cases.
ROYALTIES
* 0% rate applies to royalties paid for a copyright of
scientific work, a patent, trademark, design or
model, plan, secret formula or process, or for
information concerning industrial, commercial or
scientific experience. The 10% rate applies to
0%*/5**%/15%
2*/10%
0*/10%
DOUBLE TAX TREATY WITH RUSSIA
DIVIDEND
•If 25% ownership in the
subsidiary Russian company
and minimum investment of
•€ 75000
5*%/15%
INTEREST
0%
ROYALTIES
0%
Why Luxembourg?
• Providing a platform to the EU: a founding member of the EU
with many EU institutions located on is land
• Population & Workforce: Multicultural and multilingual
population becoming the source of highly trained working
force
• High standards of living and safety
• Business friendly tax framework (large number of double tax
treaties (64), the lowest VAT in Europe etc.)
• Enable flexibility and transparency in doing business
• Solid legal and regulatory framework
• Internationally established financial and investment fund
centre: with more than USD 2.5 trillion in assets (2nd as an
investment fund centre in the world and 1st in Europe)
Why Luxembourg?
•Politically and socially stable
•Established in the fund management market: Easy access to fund management
groups and decision makers with long-standing experience in attracting
international companies; USD 300 billion assets under management; A market
leader in product innovation for UCIT and non-UCIT funds
•Outstandingly developed banking system:
•Strategic location in Europe
•Transport: Highly efficient infrastructure and logistical network (e.g. airport,
railway);
•Known for pro-business legislation and administration with government
encouraging business
•Sound macroeconomic fundamentals. It is the richest country in Europe and
second richest in the world as per per capita income, one of the 11 AAA rated
countries
•The international market in a single place: access to a market of over 100 million
consumers within a 250 km radius
•A base for Islamic products
•Wide range of double tax treaties 64!
Types of Luxembourgish vehicles
.
Regulated by CSSF (Commission de Surveillance du
Secteur Financier) vehicles:
SIF (Specialised Investment Fund)
SICAR (Risk Capital Investment Company)
Unregulated by CSSF vehicles:
SOPARFI (Société de Participation Financière)
SPF (Private Wealth Management Company)
SPV (Securitisation Vehicle)
.
Types of legal forms of investment
vehicles
Public Limited Liability Company- (S.A)
Private Limited Liability Company- (SARL)
Partnerships-(S.N.C.)
Limited partnerships- (S.C.S.)
Partnerships Limited by Shares or Cooperative
companies- (S.C.A.)
Cooperative Company Organised as a public Limited (COOPSA)
European Company (SE)
SOPARFI
.
Société de Participations Financières
a normal and fully taxable commercial company
primary activity is being a holding company and financing
activity
it benefits from “participation exemption/affiliation
privilege” in respect of some or all of its investments
It can also perform commercial, industrial and financial
activities which are subject to VAT
Can be incorporated as SA public limited co or as SARL the
limited liability company or as limited partnership by shares
SCA
Characteristics of SOPARFI
Registered office or central administration in Luxembourg
Registered and bearer shares of various classes
Minimum Share Capital (in any currrency): depends on the form of the business
(S.A./S.C.A. vs S.à R.L)
Directors: minimum of 1 for SARL; a minimum of 1 for SA but only if the
shreholder is also 1, otherwise 3 directors are needed; they an be natural persons
or corporate bodies; of any nationality
BUT even if they do not have to be residents of Luxembourg the majority is
recommended to be so in order to comply with the rules of “permanent
establishment”
No need of a company secretary
Shareholders minimum of 1
Reporting: Annual audit is compulsory and the abbreviated accounts are filed
and accessible to he general public
Thin capitalisation rules
.
Flexible thin capitalisation rules: compliance with a debt/equity
ratio of 15 percent equity / 85 percent debt, or alternatively 1
percent equity/14 percent interest-free loan/85 percent
interest-bearing loan, is required when financing participations.
If a higher ratio is maintained, then it may be considered as non
tax deductible and would potentially be subject to Luxembourg
15 percent dividend withholding tax. No thin capitalisation
rules need to be respected for intra-group financing
Main tax benefits from using Lux cos
 Dividend received, liquidation receipts and capital gains tax
realised by a Luxembourg company are fully exempt from
income tax subject to the participation conditions below:
The subsidiaries are fully taxable EU cos applying EU
parent subsidiary directive
Or if non EU cos, they are taxed at income tax rate at least
10.5% and for which the foreign tax base is similar to
Luxembourg
It has at least 10% shareholding in the capital of the
subsidiary or at least investment of €1.2 million is made
for exception from dividends. For exemption from capital
gains tax a minimum investment of € 6 m is required
Minimum holding period 12 months
Double Tax Treaty between Luxembourg and
Ukraine of 1997 never ratified
Ukraine and Luxembourg signed a tax treaty on 6 September
1997, but the treaty is not yet in force. When in effect, the treaty
provides for a 0% rate on dividends paid to a company that holds
directly at least 50% of the payer for an uninterrupted period of
three years and has an investment of at least USD 1 million (or its
equivalent in the national currency) in the capital of the payor
and the dividends are derived from an industrial or a commercial
activity. A 5% rate will apply where dividends are paid to a
company (other than a partnership) that holds directly at least
20% of the payor; otherwise, the rate will be 15%. A 2%
withholding tax will apply to loans granted by banks and other
financial institutions, and 10% in all other cases. A 5% rate will
apply to patent and trademark royalties and a 10% rate for
copyrights.
New Double Tax Treaty between Luxembourg and
Russia in effect as from 2014
DIVIDEND
•If 10% ownership in the
subsidiary Russian
company and minimum
investment of
•€ 80.000
5*%/15%
The new treaty which is to
be put in effect as from 2014
has reduced the WHT on
dividend from 10% to 5%
under conditions like Cyprus
and Nertherlands
INTEREST
0%
ROYALTIES
0%
Main tax benefits from using Lux cos
 No withholding tax on interest payments
 Benefit from EU interest, royalty and dividend Directive
 Withholding tax of 15% for dividend paid to non EU cos and non
Treaty cos which do not meet the participation exemption
criteria
 Favourable IP regime for royalties at the effective tax rate of
5.85% through 80% income exception from tax arising either
from royalty income or capital gains from the sale of Intellectual
property rights, copyrights patents
 Flexible thin capitalisation rules #
 Corporate tax rate at 28.8% consisting of 20 % or 21% corporate
tax if above € 15000 net profit plus surcharge to the
employment fund plus municipal tax . Minimum flat tax € 3210
 Net wealth tax 0.5%on worldwide net assets but there are
exemptions
 Losses are carried forward indefinitely
Comparison of Luxembourg and Dutch Tax Rates
Luxembourg company
Dutch company
Capital
It has minimum amount and has No minimum
to be paid in advance according
to the type of company
Corporate tax
28.8%
20 % upto € 200000
25% above € 200000
Tax on Dividends received
O% if participation exemption
applies i.e
•10% minimum shareholding or
a minimum of € 1.2 m
investment
•For at least 12 months
•EU co or if non EU to be taxed
at tax rate at least equal to
10.5%
0% if participation
exemption applies i.e
•5% minimum
shareholding in the
subsidiary
•held as participation not
as an investment
Royalty income
5.85%
5%
Comparison of Luxembourg and Dutch Tax Rates
Luxembourg company
Dutch company
Capital gains tax in the
case of disposal of
participation
O% if participation
exemption applies i.e
•10% minimum
shareholding or a
minimum of € 6 m
investment
•For at least 12 months
•EU co or if non EU to be
taxed at tax rate at least
equal to 10.5%
0% if participation
exemption applies i.e
•5% minimum shareholding
in the subsidiary,
• held as participation not as
an investment
Profit from the trading in
securities
28.8%
20-25%
Thin capitalisation rules
15:85 equity /debt
1:3 equity /debt
Withholding tax on
15%
15%
.
Comparison of Luxembourg and Dutch Tax Rates
.
Luxembourg company
Dutch company
Tax loss carried forward
indefinite
9 years
EU dividend , interest and
royalty directives
Yes
Yes
Extensive network of DTT
64
90
DTT with Russia :
WHT on dividend
5%*/15%
*10% participation
And € 80000 investment
5%*/15%
*25% participation
And € 75000 investment
WHT on royalty and
interest
0%
0%
Exchange of information
Yes
Yes
Limitation of treaty
Will not apply provided
Will not apply provided