The Netherlands as the European business hub for Indonesian companies

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1 The Netherlands as the European business hub for Indonesian companies a tax perspective 2012 edition By Vinod Kalloe, KPMG Meijburg & Co Netherlands Amsterdam 19 September 2012, Jakarta, Indonesia

2 Content - general 1. General introduction 2. Six pillars of the Netherlands tax system 3. Key features of the Netherlands tax system 4. Maturity model for trade with and investments in the Netherlands: Export Sales & marketing Logistics & distribution Manufacturing Holding & finance and treasury Research & development and intellectual property Regional or European headquarters 1

3 2. Pillars of favorable tax climate in the Netherlands Pillar 1 Customs duty deferral on imports through bonded warehouses and various methods for customs value determination. Pillar 2 VAT deferral at import, and VAT shifted to consumer when distributed in the Netherlands. Pillar 3 Tax authorities are highly efficient and effective (incl. horizontal monitoring) and provide advance certainty (rulings). Pillar 4 Attractive, effective corporate income tax rate (rulings, innovation box, holding companies). The Netherlands have one of the most extensive tax treaty networks worldwide Pillar 5 to avoid double taxation on cross-border investments and reduce foreign withholding taxes. Pillar 6 No, or low withholding tax on dividends. No withholding tax on interest and royalties. 2

4 3. Key features of the Netherlands tax system Corporate income tax Withholding taxes 20% on taxable profits below EUR200,000 (2012) 25% on taxable profits above EUR200,000 (2012) 5% (effective) on innovation profits 0% (effective) on dividends received from all subsidiaries (conditions - participation exemption) Rulings available from tax administration: advance certainty on taxable base No, or low withholding tax on dividend distributions to shareholders (under tax treaty or co-operative structure) No withholding tax on interest payments and royalties Personal income and wage tax Income taxed against effective rate of 33%, with a maximum of 52% (including social security contributions ) Wage tax incentive (30%ruling) available for expats, including R&D staff Additional wage tax incentive available for R&D staff effectively lowering wage costs for employers 3

5 3. Maturity model reflects phased growth The Dutch tax system provides incentives for all stages of your market strategy in Europe. For that purpose, this presentation introduces a maturity model reflecting the different trade and investment stages. In this maturity model, we connect each trade and investment stage to the specific tax incentives granted by the Netherlands. The maturity model has seven stages: Exports Sales & marketing Logistics & distribution Manufacturing Holding, finance & treasury Research & development, and intellectual property Regional or European HQ 4

6 Phase 5: Holding, treasury and finance in the Netherlands The Netherlands have a well-developed financial infrastructure to assist companies in setting up an efficient corporate and financing structure. As a result, a Dutch company is usually a tax-efficient financial hub, through which a multinational group can manage its subsidiaries and allocate funds (debt or equity) across the globe. The Netherlands are host to over 20,000 holding and finance companies, reflecting the Netherlands strong position as a tax hub for worldwide investments, given the double taxation agreements that the Netherlands has concluded with a large number of countries, significantly reducing or completely avoiding foreign withholding taxes on dividend sand interest income. 5

7 Phase 5: Holding & treasury & finance in the Netherlands Primary tax opportunities: Corporate income tax - income in the form of dividends and capital gains exempt in the Netherlands (participation exemption, conditions apply); Corporate income tax - financing costs relating to subsidiary deductible, corporate tax rulings available providing advance certainty from tax administration, low taxation of treasury and equivalent operations if they are essentially support services with limited risks only; EU directives apply, avoiding foreign withholding taxes on dividend, interest and royalty income; The extensive tax treaty network often ensuring further reductions by foreign withholding taxes on dividends and interest income from non-eu countries; No, or low NL withholding taxes on dividends (conditions apply), and no withholding taxes on interest and royalty payments from the Netherlands, leading to tax-efficient repatriation of profits to ultimate foreign shareholders. 6

8 Phase 5: Repatriating profits to HQ Basic cooperative structure in the Netherlands Indonesian company Dutch cooperative 1. Holding in Netherlands will allow parent to receive dividends from subsidiaries without foreign withholding tax (or minimize the withholding tax). 2. Income of the Netherlands company minimized (Dutch participation exemption), income in the form of dividends and capital gains exempt (see Annex 5 for conditions, participation exemptions). 3. The foreign EU subsidiaries can distribute dividends to the Netherlands exempt from withholding tax using EU legislation (EU Parent Subsidiary directive). Dutch BV 4. The foreign non-eu subsidiaries can also repatriate cash subject to nil or a reduced tax rates on dividends, based on the extensive treaty network of the Netherlands. Foreign subsidiaries 5. The NL tax treaty network also supports reduced foreign withholding taxes on interest and royalty payments. 7

9 Phase 5: Repatriating profits to HQ Basic cooperative structure in the Netherlands 6. Fiscal unity between Dutch BV and Dutch cooperative. Indonesian company 7. Consequences the same as Phase 4 - key messages. 8. Cooperative legal entity that functions as holding or finance entity. 9. Legally established in the Netherlands. Dutch cooperative 10. Subject to NL corporate income tax. 11. Entitled to the participation exemption. 12. When structured correctly, dividend distributions by co-op to foreign members are exempt from Dutch dividend withholding tax. Dutch BV 13. The tax consequences at the level of the foreign shareholder should be investigated on a per-country basis. Foreign subsidiaries 8

10 Phase 5.1: Financing company in the Netherlands Objectives: Indonesian parent company Reduce interest withholding taxes ( IWT ) on group financing; Equity funding Reduce tax burden at Opco level; Offshore (optional) No Dutch IWT Dutch co-operative Loan Loan No IWT under EU Interest & Royalty Directive EU Opcos Dutch BV Potential deferral of income pickup at parent company level. Only small margin taxable at the level of the Dutch BV on the basis of accepted TP method Loan None or reduced IWT under application of tax treaties Non-EU Opcos 9

11 Phase 6. Research & development in the Netherlands key messages Corporate income tax Wage tax 5% effective corporate tax rate (instead of 25% statutory rate) for income from qualifying know- how (innovation box). Significant wage tax credit for R&D personnel on qualifying R&D projects. Immediate tax deductions (no capitalization required) for R&D costs. Additional wage tax credit for expatriate R&D personnel (30% ruling). An additional 40% R&D corporate tax deduction for qualifying R&D expenses and capital expenditures. 10

12 First R&D incentive: wage tax credit for R&D workers R&D wage tax credit reducing the employer s total wage cost R&D workers seconded to the Netherlands: 30% ruling Based upon salary expense of R&D workers. Personal income tax benefit under the 30% ruling for expatriates may apply to R&D workers, thereby reducing overall employment costs. 42% (60% for start-ups) of the first EUR110,000 R&D wage costs. 14% for the remaining R&D wage costs. Must be applied for before start of R&D project. Upon granting, employers will receive an R&D Certificate. 11

13 Second R&D incentive: 30% personal income tax ruling for expatriates The employer can be: Period A Dutch company to which the employee is assigned; or A foreign company with a Dutch permanent establishment to which the employee is assigned; or A foreign company with no permanent establishment in the Netherlands, but which had itself appointed as a Dutch wage tax withholding agent. The granted 30% tax ruling is valid for a period up to a maximum of 8 years. Non-EU employee work permit When it concerns the secondment of an employee from a non-eu or non-eea country, the first step is to obtain an "authorization for temporary stay". When obtained, the foreign employee is allowed to enter the Netherlands and apply for a residence permit and work permit. At the moment that the residence application is filed, the appropriate employment office should be notified in order to apply for a work permit. 12

14 Third R&D incentive: corporate income tax R&D deductions General rule: immediate tax deductions (no capitalisation required) for R&D expenses. R&D related payments may generate additional corporate income tax deductions: Additional tax deduction of 40% for qualifying (non-salary) R&D expenses and R&D capital expenditures; Available for taxpayers having received an R&D Certificate for wage tax credit purposes; Must be applied for before start of R&D project; For capital expenditure items over 1 million, a maximum 20% deduction per year applies,, in 5 annual instalments; Amount and timing of regular tax deductions not affected; Leading to a possible 140% deductibility of R&D expenses. 13

15 Fourth R&D incentive: corporate income tax at 5% (innovation box) Innovation box: 5% effective corporate tax rate for income from qualifying know-how (e.g. royalty income, part of sales revenue) The innovation box applies to selfdeveloped know-how. This may include further development of purchased base technologies. 14

16 Fourth R&D incentive: corporate income tax at 5% (innovation box) Available for: Patented know-how Non-patented know-how Outsourcing (contract R&D) is allowed without any restrictions; Taxpayer must employ at least one R&D-worker and must have received an R&D Certificate ; The taxpayer must operate as the principal, acquiring ownership of know-how; The taxpayer may commission domestic or foreign contract R&D within the group or from third parties. R&D Certificate is based on the taxpayer s own R&D activities in NL or within EU; Only 49% of R&D can be outsourced, or more if taxpayer operates as coordinator/initiator. 15

17 Innovation box computation Approximately 80% of innovation profit is excluded from taxable base; Remaining 20% taxed at CIT general rate (25%). Licence Dutch BV Manufacturing Royalty (100) Qualifying income of 100 is being taxed at: 5/25 x 100 = 20 taxable innovation profit 20 x 25% = 5 (effective CIT rate of 5%) 16

18 Innovation box: research and development who does what? 17

19 Innovation box who should go where? 18

20 Innovation box who should go where? Indonesian company Dutch company 19

21 Phase 6: R&D combined with IP in the Netherlands Indonesian parent company Dutch co-operative License No RWT under EU Parent Subsidiary Directive. EU Opcos Reduced royalty withholding taxes ( RWT ) on use of IP; Reduced tax burden at Opco level; No Dutch DWT by using a Dutch Cooperative entity. Income from self developed intellectual property taxed at only 5% Objectives Dutch BV Using Innovation Box resulting in a 5% tax rate on IP income; Potential deferral of income pick-up at parent company level. License No or reduced RWT under application of tax treaties Non-EU Opcos 20

22 Phase 6: IP management in the Netherlands Objectives: Indonesian parent company Reduce royalty withholding taxes ( RWT ) on use of group IP; Equity funding Reduce tax burden at Opco level; Offshore IPco (optional) No Dutch RWT Dutch co-operative Licence Sublicense No RWT under EU Interest & Royalty Directive. Potential deferral of income pickup at parent company level. Dutch BV Sublicense Only small margin taxable at the level of the Dutch BV on the basis of accepted TP method No or reduced RWT under application of tax treaties EU Opcos Non-EU Opcos 21

23 Phase 7: EU HQ in NL In recent years, the Netherlands has established itself as a hotspot for international companies and leading site for European headquarters. The final step in the maturity model consists of establishing a European or global headquarters in the Netherlands. Through a Dutch HQ, one can benefit from the tax incentives provided for the combination of aforementioned activities and functions. Multinational and smaller businesses have located their headquarters in the Netherlands, benefiting from the pro-business environment, tax incentives, multilingual labor force, developed infrastructure, and quality of life. The Netherlands government and tax administration are further facilitating this environment by offering advance tax certainty (rulings) and consultations on intended investments in the Netherlands. 22

24 Phase 7: EU HQ in NL Many multinational groups have benefited from combining a number of the abovementioned functions in one Dutch company, or a number of Dutch companies. Incentives exist in the corporate income taxation, personal income taxation, VAT and/or withholding taxation areas. The primary tax opportunities Corporate income tax: 25% in general; 0% on qualifying dividends; 5% on qualifying innovation income; Tax-efficient supply chain structuring. Withholding taxes: No, or low withholding taxes on dividends, interest and royalties from and to the Netherlands (conditions apply). Personal income tax: 30% tax exempt rulings. 23

25 All activities performed and all services rendered by KPMG Meijburg & Co are subject to its general terms and conditions, filed with the Amsterdam Chamber of Commerce. KPMG Meijburg & Co, Tax Lawyers, is an association of limited liability companies under Dutch law, registered under Chamber of Commerce registration number and is a member of KPMG International Cooperative ("KPMG International"), a Swiss entity. The general terms and conditions are available on the KPMG Meijburg & Co website (http://www.meijburg.com/en/people/aboutus/pages/generaltermsandconditions.aspx) and will be supplied upon request. The information contained in this presentation is for the sole use of the addressee. The advice is based on the specific facts and circumstances and the scope KPMG Meijburg & Co' s engagement and is not intended to be relied upon by any other person. KPMG Meijburg & Co disclaims any responsibility or liability for any reliance that any person other than the client may place on this advice. Access to this message by anyone else is unauthorized. If you are not the intended recipient, you are hereby notified that any form of disclosure, review, retransmission, distribution, copying or any action taken or refrained from in reliance on it, is prohibited and may be unlawful. If you are not the intended recipient, would you please notify the sender immediately and destroy the message and, if any, delete all copies. The content of this message is not legally binding unless confirmed by letter or telefax. Please note that KPMG Meijburg & Co is neither liable for the proper transmission nor for the complete transmission of the information contained in this message or for any delay in its receipt. Also please note that the confidentiality of communication is not warranted. KPMG Meijburg & Co, tax lawyers is an association of limited liability companies and is a member-firm of KPMG International.

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