Dutch minimum substance requirements

Dutch corporate law generally does not require Dutch legal entities generally to meet substance requirements.

From a Dutch tax perspective however in certain situations substance requirements should be observed. For example in case when a Dutch resident corporate income taxpayer (“taxpayer”) is engaged in intra-group financing, licensing, rental or leasing activities that could apply the Dutch bilateral tax treaty network or the EU Interest & Royalty Directive, including national rules for implementation of the Directive, meeting substance requirements prevents a spontaneous exchange of information by the Netherlands to relevant foreign tax authorities. Also when seeking advance tax clearance in the form of an advance tax ruling (ATR) or an advance pricing agreement (APA) from the Dutch tax authorities, the taxpayer has to comply with minimum substance requirements. In practice the minimum substance requirements are considered as a best practice and any Dutch taxpayer is mindful to ensure its compliance therewith.

The list of substance requirements is as follows:

• at least 50 percent of the statutory (and decision making) directors of the  taxpayer should be residents of the Netherlands;
• the Dutch resident directors have the required professional knowledge to perform their duties satisfactorily. Their duties should at least include decision making on the transactions of the taxpayer within the framework of their own discretionary authority and normal group influence as well as taking responsibility for the proper implementation of such transactions;
• the taxpayer has qualified personnel at its disposal to adequately execute and register the transactions entered into;
• board decisions are taken in the Netherlands;
• the most important bank account(s) is maintained in the Netherlands;
• bookkeeping is carried out in the Netherlands;
• the business (registered) address is in the Netherlands;
• the taxpayer correctly complies with all its tax obligations;
• the taxpayer is, to the best of its knowledge, not considered as a tax resident of another state;
• the taxpayer bears genuine economic risk in relation to its financing, licensing, rental or leasing transactions;
• the taxpayer has adequate equity (considering its assets and operating risks);
• when the taxpayer operates as a holding company, it applies a maximum debt:equity ratio of 85:15.