NETHERLANDS Law and Practice Contributed by: Michael Molenaars, Jeroen Smits, Reinout de Boer and Rogier van der Struijk, Stibbe
2. Corporate Tax Regime 2.1 Taxable Profits
1.3 Tests for Determining Tax Residence For Dutch corporate income tax purposes (with the exception of certain provisions such as the fiscal unity regime and the participation exemption), a BV, NV or co-operative is deemed to be a corporate income tax resident in the Netherlands (regardless of the place of effective management of the entity) if it is incorporated under the laws of the Netherlands (the “incorporation principle”). If a double tax convention is applicable that includes a tie-breaker rule and both treaty-contracting states consider a company to be a resident of their state, typically the place of effective management of a company is conclusive for the place of residence for tax treaty purposes, which is the place where the strategic commercial and management decisions take place. Important elements for determining this place are, for example, the residence of board members and the location of board meetings. In several treaties, the residence is determined on the basis of a mutual agreement procedure (MAP) between the two states if both treaty-contracting states consider a company a resident of their state. 1.4 Applicable Corporate and Individual Tax Rates Corporate income taxpayers are subject to a corpo - rate income tax rate of 25.8% (2026) with a step-up rate of 19% for the first EUR200,000 of the taxable amount. An individual who is a personal income tax resident of the Netherlands is liable for personal income taxation on their taxable income, including business income, at the following progressive rates (brackets and rates for 2026): • EUR0 to EUR38,883 – 8.10% tax rate, 27.65% social security rate, which equals 35.75% com - bined rate; • EUR38,883 to EUR78,426 – 37.56% tax rate; and • EUR78,426 upwards – 49.50% tax rate. The social security rate applied to individuals who are retired is 9.75%, resulting in a combined rate of 17.85%. The official retirement age in the Netherlands in 2026 is 67 years. The retirement age will be raised to 67 years and three months in 2030.
The business income of personal and corporate income taxpayers is determined on the basis of two main principles which have been shaped through extensive case law. The first is the arm’s length prin - ciple (which serves to establish the correct overall amount of profit, or the totaalwinst ), and the second is the sound business principle, also known as sound business practice ( goed koopmansgebruik , which serves to attribute the profit to the correct financial year, the jaarwinst ). It should be noted that the Dutch fiscal concept of business income is, strictly speaking, independent of the statutory accounting rules. In practice, both regimes overlap to a certain extent. Based on the arm’s length principle, business income is adjusted to the extent that it is not in line with arm’s length pricing. Thus, both income and expenses can be imputed in a group context for Dutch tax purposes, regardless of whether the accounting system is statu - tory or commercial. For corporate income taxpayers, this can result in informal capital or hidden dividends. As of 1 January 2022, legislation has entered into force targeting transfer pricing mismatches result - ing from the application of the arm’s length principle (eg, no imputation of arm’s length expense without inclusion of the corresponding income). The legisla - tion aims, among other things, to render the arm’s length principle ineffective between related parties in cross-border situations to the extent that it will deny the deduction of arm’s length expenses, so that the corresponding income is not included in the basis of a (local) profit tax at the level of the recipient.
2.2 Technology Investments The Two Main Tax Incentives Innovation box
The first main tax incentive is the innovation box, which, subject to certain requirements, taxes income in relation to qualifying income from intangible assets against an effective tax rate of 9%, instead of the statutory rate of 25.8%. Only R&D activities that take place in the Netherlands are eligible for the beneficial tax treatment (eg, the “nexus approach”). Qualifying
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