The Netherlands is a major player in the field of economy, serving markets within Europe, the Middle East and Africa. According to the Netherlands Foreign Investment Agency (NFIA), the Dutch economy and Dutch employers benefit greatly from foreign investors. Foreign companies provide 15% of all jobs and 24% of the total added value from the private sector. Moreover, they pay 15% more in salaries than other companies and on average the turnover of employees is lower. Foreign companies deliver 30% of the total volume of business in the Netherlands and account for 21% of investments. Additionally, they are responsible for 22% of investments in research and development.
Finance and economy
The Netherlands has a banking and financial system fully integrated into the international system, and its economy has a strong international focus. Foreign trade is the life-blood of Dutch prosperity: the Netherlands is the eighth largest exporter of goods and capital in the world according to Houthoff Buruma, a Dutch law firm. Owing to the relatively small size of its domestic market, the Dutch economy is one of the most open and outward-looking in the world. Royal Dutch/Shell, Unilever, Philips and Heineken are just a few of the multinationals based in the Netherlands.
The Dutch Central Bank (DNB) registers all foreign direct investments in the Netherlands. These direct investments include transactions that are connected with the acquisition of share capital by foreign companies in Dutch companies (through formation, merger or takeover) with the goal to obtain management control. Additionally, they include all other financial transactions between associated ventures (loans, profit deductions, mutations in mutual current accounts), as well as the purchase and sale of real estate.
The Organisation for Economic Co-operation and Development (OECD) economic survey on the Netherlands from June 2010 says: ‘The global crisis led the Netherlands into deep recession, despite a decisive government intervention to support the financial sector and a timely fiscal stimulus. But the increase in unemployment was surprisingly limited, reflecting, among other factors, a severe pre-crisis overheating of the labour market. Economic growth recommenced in mid 2009. Looking ahead, the recovery is expected to gather pace relatively slowly, according to the OECD. In this context, the main challenges for the government coming in after the June 2010 general election are to exit from stimulus policies and to boost potential growth in an ageing society.
‘The planned fiscal consolidation is a step in the right direction to secure fiscal sustainability. Fiscal policy is appropriately supporting weak 2010 economic activity. In the following years, the recovery should be sufficiently strong to allow consolidation that is at least as sizeable as laid out in the Stability Programme. Fiscal consolidation should be combined with structural reforms to boost employment and participation rates,’ says the OECD.
The Netherlands is proud to have a high standard of living, while maintaining an affordable life for its residents. The costs of living, housing, education and cultural activities are lower than in most Western European countries.
The Port of Rotterdam is the world’s third largest seaport, while Schiphol Airport is recognised as one of the major business hubs in Europe. The Netherlands is also classified as one of the most ‘wired’ countries in the world, a dynamic force in electronic commerce, communications and outsourcing. More than a decade of investment in high-speed internet, cable and digital communication systems, as well as the rapid adoption of state-of-the-art computer and mobile phone technology, have created an ideal base for companies seeking to take advantage of modern technology.
The country lies on the North Sea at the delta of three major rivers leading into the heart of Europe: The Rhine, Meuse and Scheldt. Due to its prime maritime location, the Netherlands has long played an important role as a main port and distribution centre for companies operating worldwide. The port of Rotterdam, handling some 400 million tonnes of goods every year, is the biggest port in Europe, according to Houthoff Buruma. Inland waterways and ports (especially in the Amsterdam area) also link the various parts of the Netherlands together and to its European neighbours.
Houthoff Buruma also ranked Amsterdam Airport Schiphol as Europe’s third-largest individual cargo airport, with an annual transfer of over 1.4 million tonnes of cargo and passenger numbers totalling 47.4 million. Amsterdam Airport Schiphol was ranked as Europe’s fifth-largest passenger airport in 2008. In addition, there are a number of regional airports in the Netherlands, the main ones being Rotterdam Airport, Groningen Airport, Eindhoven Airport and Maastricht Airport.
Furthermore, the Netherlands has an excellent infrastructure, goods roads, a first-rate public transport system, and a close-knit network of trains and buses. France, Britain, Germany, Italy, Austria and Switzerland are within easy reach by rail and road.
The OECD states: ‘For several decades road traffic has increased faster than the expansion of the road network, leading to widespread congestion. As a result, the Dutch spend a large amount of time commuting by international comparison and the share of road transport in CO2 emissions has increased markedly. The proposed nation-wide road pricing scheme is an innovative measure to enhance the efficiency of road transport. An important element in any road pricing scheme is the inclusion of congestion charges, which would further harvest its benefits. To provide alternatives to travellers, the adopted scheme should be accompanied by more efficient provision and use of public transport services and the promotion of different working patterns.
‘The housing market is characterised by numerous rigidities, which may hamper geographical labour mobility. The rental segment is characterised by rigid rent control and an internationally large social housing sector. The below-market rents combined with eligibility checks only at entry have led to low tenant turnover and only 40% of the social dwellings being occupied by households with low incomes. In the owner-occupied segment, mobility is reduced by a high transaction tax and prices are pushed up by a generous tax treatment of mortgages and a rigid supply, which is related to strict land use policies. These issues point to the need for a fundamental change of housing policies combined with rethinking land use regulation.’
As stated in the Houthoff Buruma report, the communications network in the Netherlands is one of the best in the world. The highly developed and well maintained telephone system has an extensive fixed-line fibre-optic network and its cellular telephone system is one of the largest in Europe, with five major network operators utilising the third generation of the Global System for Mobile Communications (GSM). Submarine cables and satellite earth stations enable international communication. Use of the internet is widespread: approximately 83% of Dutch people have an internet connection at home.
The country provides easy access to the European market (including the financial and commercial centres in Britain, France and Germany) and every corner of the European Union. In addition, the Netherlands is a member state of the European Economic Area (EEA), the Schengen Area, the EU Customs Union and the Council of Europe.
The Netherlands has a civil-law system similar to that used in France, Germany and many other countries. As a member of the European Union, the Netherlands is also subject to European law.
The Dutch tax system has a number of features that may be very beneficial in international tax planning. According to NFIA, the relevant factors include a corporate income tax rate of 20% on the first €200,000, and 25.5% for taxable profits exceeding €200,000, which is well below the EU national average. In addition, the Dutch ruling practice, which provides clarity and certainty on tax assessments in advance, can be obtained on future transactions, investments or corporate structures. There is also a broad tax treaty network, reducing withholding taxes on dividends, interests and royalties (for interest and royalties, in some cases, taxes are reduced to 0%).
Additionally, there are no withholding taxes on outgoing interest and royalty payments. Dutch tax law also provides the participation exemption, which states that all benefits related to a qualifying shareholding, including cash dividends, dividends-in-kind, bonus shares, hidden profit distributions and capital gains, are exempt from Dutch corporate income tax.
Furthermore, a patent box called ‘The Innovation Box’ has been introduced, resulting in an effective tax rate of 5% for income in relation to a patent obtained for self-developed intangible assets. There are also advantages in debt and loss structuring: the Netherlands provides companies the ability to carry forward losses for nine years, and to carry them backward for one year.
Finally, there is the 30% ruling, which is a tax-free reimbursement of 30% of the employee’s salary, provided that the employee has been recruited or assigned from abroad and has specific expertise scarce in the Dutch labor market.
For liability reasons, foreign investors often choose to do business in the Netherlands by setting up a wholly owned subsidiary, although Dutch law does recognise the existence of foreign legal entities, according to Houthoff Buruma. This means that any foreign individual, partnership or company (resident or non-resident) may do business in the Netherlands without having to adopt a Dutch legal form.
A foreign investor nowadays also may consider structuring its business as an ‘SE’ (Societas Europaea), meaning ‘European company’. Other corporate forms in the Netherlands include cooperatives, foundations and partnerships of several kinds.
Inward investment incentives
The Dutch government and the European Union offer certain incentives to companies wishing to do business in the Netherlands. Both non-Dutch companies and Dutch companies have access to these incentives on an equal basis, says the Houthoff Buruma report. These incentives are targeted to facilitate economic restructuring and to promote energy conservation, regional development, environment protection, research and development and sustainable development. At a national level, subsidies are also available in the form of tax credits. Non-tax incentives direct grants, low-interest loans, public guarantees, local government participation and guarantees for exports to select areas. Specific subsidies are granted to small and medium-sized enterprises. As a starting point for entrepreneurs, visit Answers for Business at http://www.answersforbusiness.nl to see at a glance which rules, permits, taxes and subsidies apply when you do business in the Netherlands.
Bilateral investment treaties
According to Houthoff Buruma, the Netherlands has UNCTAD-sponsored bilateral investment treaties with more than 90 countries in Asia, Latin America, Africa and Eastern Europe. These agreements provide security and protection to investors from a contracting country in the territory of the Netherlands for the duration of the agreement.
The core of the standard agreement is non-discrimination. Investors are given equal treatment and most-favoured-nation treatment in the host country.
In addition, the standard agreement contains provisions on the free transfer of payments related to an investment, on just compensation in the event of expropriation, and on dispute settlement.
In terms of export financing, the Dutch government provides financing and insurance coverage for companies seeking to export to certain countries. Special government subsidies in the form of guarantees are provided for on the basis of statute called the Framework Act on the Provision of Funds by the Ministry of Finance. These subsidies are managed by a company called Atradius Dutch State Business NV (Atradius DSB), a full subsidiary of the privately owned Atradius Group. Atradius DSB offers credit insurance services relating to national and international business-to-business trade in capital goods and services, and these risks are reinsured with the Dutch government.
Applications for coverage are submitted to Atradius DSB in accordance with the terms and conditions of international trade set out in the OECD-sponsored Arrangement on Guidelines for Officially Supported Export Credits.
The Houthoff Buruma report lists two other government facilities (both managed by the Ministry of Economic Affairs) that are intended to cover risks that do not come under these other schemes:
» the Emerging Markets Guarantee Facility, which is especially designed for risks relating to exporting to countries that qualify for a grant under the Economic Cooperation Programme or the Minister for Development Assistance;
» the SENO Facility which is designed to cover risks for export transactions with Eastern and Central European countries.
As an EU member, companies doing business in the Netherlands have access to EU funding. These programmes make available a range of support in the form of grants, loans and co-financing for training, feasibility studies and infrastructure projects in key sectors like the environmental, transportation, energy sectors. Visit the European Commission’s website for further information on EU grants, funding and programmes: ec.europa.eu/grants/index_en.htm.
For more information:
For more information on doing business in the Netherlands: NFIA http://www.nfia.co.uk, +44 20 7225 1074
OECD Economic Surveys: Netherlands, June 2010, http://www.oecd.org
Houthoff Buruma is one of the leading law firms in the Netherlands. The report ‘Guide to Doing Business in the Netherlands 2010’ is available on request from http://www.houthoff.com.