Participation Exemption: 0% Tax Between Your Companies From 5%

What the rule says

Suppose a company owns at least 5% of the shares in another company. Dividends from that shareholding and the gain on a sale are then exempt for the receiving company. It pays zero corporate tax on them, because the company that earned the profit has already paid tax on it.

Why this exemption is the basis of a holding structure

An operating BV (besloten vennootschap, the Dutch private limited company) earns money and pays corporate tax. The holding then receives the net profit tax-free under the exemption. In the holding, the money is safe from the risks of the operating company, and you can invest it or keep it in reserve. When the holding sells the operating company, the full sale price is also exempt. This rule is the reason why a holding plus an operating BV is the standard Dutch structure. Most owners also sell their business through a holding. See tax on selling your company.

The conditions

The holding must own at least 5% of the nominal paid-up capital. It must be a real shareholding in a business. Separate rules apply to low-taxed passive portfolio participations. For the standard Dutch holding above an active operating company, the exemption applies.

The exemption is the reason most foreign owners hold their Dutch company through a holding. For setting up the two companies, see the Dutch holding structure for non-residents. To keep both companies up to date with their obligations, see corporate secretarial services in the Netherlands.

When personal tax applies

Box 2, the tax on income from a substantial shareholding, applies only when the holding pays you privately. You choose the timing. The rate depends on the bracket. You can read more in paying dividend.