Financing a Dutch BV in Response to Brexit
As a result of the approaching Brexit, many businesses have already decided to open a branch in the Netherlands. This way they continue to have access to the European market, and with that the four European freedoms remain within reach. Free movement of people, goods, services and capital contribute to easy business within a single European market.
The question then arises as to whether these four freedoms can be safeguarded by establishing a Dutch BV with a virtual office in the Netherlands? After all, this is easy to arrange and involves a few costs. Or do you still have to take other matters into account?
Financing a Dutch BV
Every company has to deal with it. Obtaining sufficient funding to start and/or keep the business running. Whether through a loan, a mortgage or equity in the form of shares, a company has little chance of success without financing.
This method of financing the Dutch BV has immediate tax consequences. For example, the reimbursement for financing with loan capital or interest, is tax deductible. While a reimbursement for equity, or dividend, is not tax deductible.
Dividend tax is deducted from the dividend payment. Not on interest, since the Netherlands has no withholding tax on interest. This will change starting January 1, 2021. If a Dutch company pays interest to a country that levies less than 9% tax on the interest income, the Netherlands will levy extra taxes. The Dutch company will then have to withhold 21.7% tax as withholding tax, when the bill is passed in Parliament and becomes law as from 2021.
Examples of tax on interest payment in the Netherlands
The interest payment to the lender on the Isle of Man or the Cayman Islands is fully deductible from Dutch taxable profit, but it is likely that withholding tax will have to be deducted from this. The rate of the withholding tax is equal to the tax rate of the Dutch corporate income tax. Therefore, on the balance, 21.7% tax is due in the Netherlands on this interest payment. From a tax perspective, this is inconvenient.
A loan from a Hungarian entity will be in the danger zone, while a loan from the UK can be beneficial. After all, interest costs are deductible in the Netherlands at a tax rate that is higher than the rate at which interest income will be taxed in the UK. Moreover, it is unlikely that a withholding tax will have to be withheld in the Netherlands.
Take advantage of the tax-efficient options in the Netherlands
As a result of Brexit, more companies will move to the Netherlands to be able to (continue to) use the four freedoms within the European Union. With a new Dutch company, also consider how to structure its financing. Use the fiscally favorable options that the Netherlands has to offer as much as possible, and stay away from tax risks.
If you have any questions about financing a Dutch BV after Brexit, please feel free to contact us.