Transfer of tax residence from the Netherlands: what it is and how it works
You have built a Dutch company, you have moved abroad or you are about to, and the question comes up almost by itself: can the company come along? In practice such a move rarely involves packing anything up. The company keeps its Dutch legal form and its registration in the commercial register, and the only thing that really changes is the place from which the business is genuinely run.
That simplicity is deceptive. Moving the place of effective management out of the Netherlands is a taxable event, and the charge is often considerably larger than the balance sheet suggests. It also reaches further than the company itself, because shareholders with a substantial interest receive an assessment of their own. In this article we set out how a transfer of tax residence works, what it costs, when it actually takes place and what the Netherlands continues to claim afterwards. Not a complete legal handbook, but a practical overview of the points that matter most in practice.
Table of contents
1. What a transfer of tax residence actually means
2. Why companies move, and why the reason matters
3. Your company stays Dutch: the incorporation rule
4. When the migration actually takes place
5. The exit tax: what is taxed
6. How the value is determined
7. Paying the exit tax: instalments, security and personal liability
8. What the Netherlands still claims afterwards
9. What it means for you as a shareholder
1. What a transfer of tax residence actually means
A company has two seats, and they are often confused. The statutory seat is a matter of corporate law. It follows from the deed of incorporation and determines under which country's law the company exists. The tax seat, the place of effective management, is a matter of fact. It is simply the place where the company is genuinely run.
These two can be separated. A Dutch private limited company can move its place of effective management abroad while remaining, in legal terms, a Dutch company. It keeps its name, its legal form and its registration. From the outside, very little appears to happen.
For tax purposes a great deal happens. It is the movement of effective management, not the legal form, that determines which country may tax the profits. This is why a quiet relocation, with no new entity and no legal conversion but a board that now sits abroad, is nonetheless a fully taxable event in the Netherlands. It is worth distinguishing this from a cross border conversion, in which the company itself changes nationality and legal form. That is a separate corporate law process with its own consequences. Most relocations we see are of the first type: the company stays Dutch, the management leaves.
2. Why companies move, and why the reason matters
The commercial drivers are usually straightforward. Founders and key management move abroad and want the company where they are. An investor base or a customer market shifts. A group is simplified after a reorganisation. Sometimes it is succession, because the next generation lives elsewhere.
The reason matters more than most entrepreneurs expect. Tax treaties increasingly contain a principal purpose test. If obtaining a treaty benefit was one of the principal purposes of an arrangement, the benefit can be refused. A relocation supported by a genuine commercial rationale is defensible. A relocation whose only visible justification is a lower rate is vulnerable, particularly because the protection you will rely on afterwards is itself treaty based.
The file also speaks for you, or against you. Board packs, internal memoranda and adviser correspondence prepared at the time of the decision are the evidence if the position is ever examined. We regularly see files in which the business reasons are entirely real, but the contemporaneous documents lead with tax efficiency, simply because that is what the finance team was asked to quantify. Where the commercial reasons are genuine, it is worth recording them as the primary rationale from the outset.
3. Your company stays Dutch: the incorporation rule
Here is the point that surprises people most. Relocating the management does not end Dutch tax liability.
Under Dutch law a company incorporated under Dutch law is deemed to be established in the Netherlands. This incorporation rule does not disappear when the board moves abroad. The company therefore remains a domestic taxpayer for as long as it keeps its Dutch legal form. What changes is the treaty position. Once the company is genuinely managed from the new country, that country will normally treat it as resident under its own law as well. The company is then resident in two states, and the applicable tax treaty resolves the conflict. Most treaties allocate residence to the state where the effective management is situated, and that allocation is what ends the Dutch right to tax worldwide profit.
Two things follow. First, it is the treaty, not the move itself, that sets the decisive moment. Second, and this is worth checking early, not every treaty still contains an automatic tie breaker. After the treaty amendments of recent years, a number of treaties provide that dual residence must be settled by agreement between the two tax authorities rather than automatically by reference to effective management. Where that applies, the timing of your migration depends on a negotiation between states rather than on a fact you control. Which regime applies to your destination country is one of the first questions to answer, not one of the last.
4. When the migration actually takes place
The migration date is a question of fact, not of paperwork. Effective management moves when the acts implementing the move are actually carried out, not when the board resolves to move.
In practice the tax seat is assessed on the basis of where the board resides and meets, where the core strategic decisions are taken and ultimate responsibility is borne, where the financial administration is kept and the accounts are prepared, and where the remaining operational and administrative activities are performed. Day to day operational decision making is relevant but not decisive. The emphasis lies on policy and strategy.
This creates a risk that is easy to miss and expensive to discover late. Many Dutch holding companies have quietly ceased to be managed from the Netherlands over the years: no Dutch office, no Dutch staff, and a director whose role has become largely formal. If the core decisions have in fact been taken abroad for some time, a tax authority on either side may take the position that treaty residence shifted at an earlier moment than the one you intended. That is not a technicality. It can move the exit charge into a different financial year, with a different loss position and a different valuation.
Before implementing a migration it is therefore worth establishing and documenting where the key decisions have actually been taken in recent years, and aligning the formal steps with the facts rather than the other way round. From the intended date onwards the evidence should be built deliberately: board meetings genuinely held in the new country, minutes that reflect real decision making, travel records, the administration relocated, and a residence certificate from the new state once it can be obtained.
5. The exit tax: what is taxed
When the Netherlands loses the right to tax a company's profits, it settles up first. The assets whose future profits will no longer fall within the Dutch base are treated as having been disposed of at market value immediately before residence ends. The difference between that value and the tax book value is taxed at the normal corporate income tax rates.
The critical insight is what actually carries the value. For most successful companies the largest component of the exit charge is not on the balance sheet at all. It is self generated goodwill and intellectual property: the brand, the platform, the technology, the customer base, the data. Internally generated goodwill and similar intangibles cannot be capitalised, so they appear nowhere in the accounts no matter how valuable they have become. The result is a pattern we see regularly. A company with a modest book equity and a healthy earnings profile faces an exit charge running into the millions. The tax follows the enterprise value, not the balance sheet.
Three further points are worth knowing. Cash is neutral, because it is included at face value in both the valuation and the book value and therefore carries no built in gain. Carry forward losses can shelter part of the gain, subject to the statutory limits on loss relief, which means that timing matters where those losses are about to be absorbed by ordinary trading profits. And a dividend paid shortly before the migration does not reduce the exit tax. This last point is a common misconception. Distributing cash reduces the value of the company and its book equity by exactly the same amount, so the taxable gap stays where it was.
6. How the value is determined
The Dutch tax authorities generally expect the market value of an active business to be determined using a discounted cash flow method or a method belonging to that family. A valuation prepared for another purpose, for example for an investment round, is a useful starting point but rarely sufficient on its own.
Three practical rules apply. The value has to be determined as at the actual migration date, so a valuation with an earlier reference date should be brought down to that date. The exit tax return should be fully consistent with the valuation report, because an inconsistency between the two is the first thing an inspector will notice. And where the amounts are material, a second independent valuation strengthens the position considerably, since two consistent reports are far harder to displace than one.
Valuation is also the part of the process where a difference of opinion is most likely. It is worth budgeting time for that discussion rather than assuming the first report will simply be accepted.
7. Paying the exit tax: instalments, security and personal liability
Having a charge is one thing, funding it is another. This is where the destination country becomes decisive.
Inside the EU or EEA
For migrations within the EU or the EEA, Dutch law allows the exit tax to be paid in five equal annual instalments. That facility exists because EU law requires it, following a judgment of the Court of Justice of the European Union in 2011 in a Dutch exit taxation case, which held that demanding immediate payment on a cross border move goes further than is necessary. It softens the cash impact substantially.
Outside the EU or EEA
For a move to a country outside the EU and EEA that facility is simply not available. What matters is where the company is established for tax purposes after the migration, not what legal form it retains, so keeping the Dutch legal form does not preserve access to the scheme. The exit tax is then in principle payable within the normal payment term of the assessment. Deferral can at most be requested under the general discretionary framework: it is at the discretion of the tax collector, it will normally require adequate security such as a pledge or a bank guarantee, and collection interest runs throughout. In our experience a pledge over shares is not always accepted, particularly where the underlying assets offer limited comfort, so the form of security is worth discussing early.
There is also an accelerated collection power. An assessment becomes immediately collectible where a taxpayer intends to move its place of establishment out of the Netherlands, unless it can be shown that the debt remains recoverable. A documented payment arrangement, or funds visibly set aside for the charge, takes the sting out of this.
Personal liability
Finally, the point that is most often overlooked. The persons charged with effecting the migration are jointly and severally liable for the corporate income tax and dividend withholding tax owed by the company. A person is released from that liability only insofar as they can prove that the non payment is not attributable to them. This turns an abstract company liability into a personal exposure for the directors or founders who implement the move. It is a strong reason to settle the funding and the payment framework before implementation, and to record in advance who is formally responsible for what.
One related timing point pays for itself. Tax interest on the exit charge starts to accrue from a statutory date well after the year of migration and continues until the assessment is formalised. It can be avoided by requesting a provisional assessment for the exit gain in good time. On a charge of several millions, an administrative step taken a few months early can save a substantial amount in interest.
8. What the Netherlands still claims afterwards
Because the incorporation rule survives the move, the company remains a Dutch domestic taxpayer. The treaty does not end that liability, it limits what the Netherlands may actually tax to the items the treaty allocates to it, typically the profits of a Dutch permanent establishment or income from Dutch real estate. Where neither exists, the Dutch taxable base is in practice nil.
Nil is not the same as absent. The obligation to file Dutch corporate income tax returns continues, formally covering worldwide profit with the treaty position claimed in the return. That is not only a compliance burden. The returns are also part of the evidence that the management genuinely sits abroad, so neglecting them weakens the very position they support.
For dividend withholding tax the rule is even more durable. A company incorporated under Dutch law is always deemed established in the Netherlands for withholding tax purposes, and unlike the corporate income tax rule this one contains no exceptions and does not expire. The company therefore remains a Dutch withholding agent indefinitely. What blocks the levy in practice is the treaty. Many treaties prohibit a state from taxing dividends paid by a company resident in the other state, and where the treaty with the new residence state contains such a provision the Netherlands cannot effectuate its withholding tax. This protection can extend even to distributions to shareholders resident in third countries, which is valuable for an internationally dispersed shareholder group. It does depend entirely on the migration having real substance, and it remains subject to the principal purpose test.
Because the company formally stays a withholding agent under national law, this is an area where advance certainty from the tax authorities, or at the very least a properly documented position in the file, is worth the effort. It allows distributions to be made without a withholding discussion each time. The VAT position and any registrations should be reviewed as part of the same implementation.
9. What it means for you as a shareholder
If there is one message we would want an owner to take from this article, it is that a migration is not only a company level event.
Where an individual holds a substantial interest in the company, broadly an interest of five per cent or more, the migration of the company's effective management out of the Netherlands is treated as a deemed disposal of that interest. You are treated as having sold your shares at market value immediately before the migration and are taxed on the built in gain. This applies to non resident shareholders as well. Someone who has never lived in the Netherlands, and who holds shares in a Dutch company from abroad, is squarely within scope. That is precisely why it is so often missed.
The gain is not collected straight away. It is formalised in a protective assessment, a separately imposed and frozen claim on the value built up before the migration. Payment is deferred for an indefinite period. Within the EU and EEA that deferral is automatic, without a request and without security. For a migration to a country outside the EU and EEA it has to be requested in writing and backed by adequate security. Note that this depends on where the company goes, not on where you live, so a shareholder resident in an EU member state still faces the request and security regime if the company moves to a third country.
Two mechanisms determine the real economic impact. Your acquisition price is stepped up to the value used for the assessment, so the same value cannot be taxed twice and any remaining Dutch claim concerns only growth in value after the migration. It is worth having that stepped up price formally fixed by decision, so the basis for a future claim is settled rather than argued later. The assessment itself is then collected as value is actually realised, on a sale of the shares and on distributions, while relief is available where the shares decline in value or where foreign tax is levied on a later sale.
One practical consequence deserves emphasis. This deemed disposal applies to every individual with an interest of five per cent or more, not only to the founder. Management pools, early employees and co investors are all caught, and each of them will face their own assessment, their own deferral request and their own deadlines. Discovering that after the migration creates a serious problem with exactly the people you can least afford to blindside, so it is worth mapping and communicating well in advance.
10. How to prepare
A migration is best treated as a sequenced project rather than a single decision. In our practice the order that works is as follows.
Establish the present position first and document where effective management has factually been exercised in recent years. If the answer is uncomfortable, it is far better known before implementation than discovered afterwards. Then model the charge on a defensible valuation and test how sensitive it is to timing, particularly where carry forward losses are about to be absorbed. Map the shareholder consequences in parallel, so that every individual with an interest of five per cent or more knows what to expect and what to file.
After that the sequence is largely practical. Any restructuring of the shareholding is generally cleaner before the migration than after, when a deferred assessment is outstanding. Set aside the cash for the exit charge and agree the payment and security framework with the tax authorities at an early stage. Build the substance in the new country from the migration date onwards and document it as you go. Where the amounts justify it, seek advance certainty on the position after the migration and keep a well reasoned position in the file either way.
Relocating a company is entirely feasible, and for many entrepreneurs it is the right commercial decision. It is, however, a settlement with the Dutch tax authorities as much as a move, and that settlement extends to the shareholders personally. Planned early it is manageable and predictable. Planned late it is expensive and, in places, difficult to undo. If you are considering moving the management of your company out of the Netherlands, or you would like to know what an exit charge would look like in your situation, we are happy to think it through with you.
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The unbusinesslike loan: when a write-down on a loan to your own company is not deductible
Lending money to your own company is one of the most common things an entrepreneur does. A holding company funds its subsidiary, an owner-director tops up the working capital of the operating company, or a buyer finances an acquisition through a newly incorporated company. In good times nobody gives it a second thought. The problem only surfaces when the borrower runs into difficulty and the loan has to be written down.
At that point a specific piece of Dutch tax case law comes into play: the doctrine of the unbusinesslike loan (in Dutch, onzakelijke lening). Where it applies, the loss on the loan is simply not deductible, even though the loan is real and the money is genuinely gone. In this article we explain what an unbusinesslike loan is, how the Dutch Supreme Court tests for it, what the consequences are, and above all how to structure and document a related-party loan so that the classification does not catch you out. This is not a complete legal handbook, but a practical overview to help you have a focused conversation with your tax adviser before you lend, and before you write anything down.
Table of contents
1. What is an unbusinesslike loan and why it matters
2. First question: is it a loan at all?
3. The core test: the unbusinesslike debtor risk
4. Direction matters: downward, upward and sideways
5. Can the right interest rate fix it? The guarantee analogy
6. The consequence: a non-deductible write-down
7. Special situations: the owner-director and cross-border loans
8. When an unbusinesslike loan becomes a gift
9. Recent developments (2024-2025)
10. How to prevent the classification: a practical checklist
1. What is an unbusinesslike loan and why it matters
An unbusinesslike loan is a loan between affiliated parties that carries a debtor risk which an independent third party would never have accepted. The starting point is that the money really is a loan, both under civil law and for tax purposes. The Dutch Supreme Court accepts that the loan exists, that the interest is deductible for the borrower and taxable for the lender, and that repayment is genuinely owed. What it does not accept is a deduction for the loss when the loan turns out to be worthless.
The doctrine dates back to a landmark decision of the Supreme Court of 9 May 2008. The facts were familiar: there was no written loan agreement, no security had been provided, there was no repayment schedule, and the interest was never actually paid but simply added to the principal. On those facts the court held that the lender had accepted a risk that only a shareholder would accept, not an independent financier. The consequence was that the impairment could not be deducted.
This matters because the situation is so ordinary. Owner-directors who lend to their own private limited company (BV), holding companies that fund a subsidiary, and acquisition structures in which a new company borrows to buy a business are all exposed. The interest keeps flowing through the tax return without any issue for years. It is only when the value falls away that the classification becomes expensive, and by then the terms of the loan can no longer be changed.
2. First question: is it a loan at all?
Before you even reach the question of an unbusinesslike debtor risk, there is a prior question: is the money a loan at all for tax purposes? As a rule the civil-law form is decisive. If the parties have agreed a loan and documented it as such, it is treated as a loan. There are three exceptions where a so-called loan is in reality equity, and where a write-down is off the table from the start.
The first is the sham loan (schijnlening): the parties present the funding externally as a loan but have privately agreed to treat it as capital. The second is the bottomless-pit loan (bodemlozeputlening): at the moment of provision it is already clear that the borrower will never be able to repay, so the money can only have been provided because of the shareholder relationship. The third is the participation loan (deelnemerschapslening): the terms are so close to the characteristics of equity that the loan is treated as equity, for example where the interest is profit-dependent, the loan is deeply subordinated, and there is no fixed maturity.
In each of these three cases the funding is reclassified. Money provided by a shareholder to the company becomes a capital contribution, which increases the acquisition price of the shares for a private individual and the cost base of the participation for a corporate shareholder. Money provided by the company to the shareholder becomes a distribution. Only if none of these three exceptions applies do you move on to the unbusinesslike debtor risk.
3. The core test: the unbusinesslike debtor risk
The heart of the doctrine is a single question. Would an independent third party, on the same terms and in the same circumstances, have accepted the same debtor risk in return for a fixed interest rate? If the risk is so high that no independent party would have taken it, or would only have taken it against an interest rate so high that the interest effectively becomes a share in the profits, then the loan carries an unbusinesslike debtor risk. The lender has accepted that risk in its capacity as shareholder, not as a financier.
The assessment is in principle made at the moment the loan is provided. That is important: a loan that was businesslike when it was granted does not automatically become unbusinesslike simply because the borrower later gets into trouble. However, a loan can become unbusinesslike during its term, for instance if the conditions are amended, the amount or maturity changes, or the borrower's financial position deteriorates and the lender fails to call the available security or to take timely enforcement action. The burden of proving that a healthy loan later became unbusinesslike lies with the tax inspector, and case law shows that this burden is a heavy one.
Two practical points deserve emphasis. First, a loan is assessed as a whole. You cannot argue that only part of a one million euro loan carries an unbusinesslike risk and that the remainder may still be written down. As soon as part of the loan is unbusinesslike, the entire loan is tainted and no impairment is possible, not even on the businesslike part. That is a reason to consider splitting a large facility into separate loan agreements, so that each is assessed on its own. Second, the factors that matter are exactly the ones an independent lender would care about: a written agreement, adequate security, a realistic repayment schedule, interest that is actually paid rather than rolled up, a sensible term, the ranking against other creditors, and a credible business plan at the time of lending.
4. Direction matters: downward, upward and sideways
The tax consequence of an unbusinesslike loan depends on the direction in which the money flows. A loan runs downward when a parent company or shareholder lends to the company, upward when the company lends to its shareholder, and sideways when one sister company lends to another.
For a downward loan, the non-deductible loss is treated in the capital sphere: it is regarded, in economic terms, as an informal capital contribution to the borrower and it increases the cost base of the participation. For an upward loan, an uncollectible unbusinesslike claim is treated as a distribution by the company to its shareholder, which may fall within the participation exemption. A sideways loan between sister companies is analysed through the common shareholder, as if the money first went up to the shareholder and then down to the other company. Getting the direction right is essential, because it determines both where the loss lands and whether any relief, such as the participation exemption, is available.
5. Can the right interest rate fix it? The guarantee analogy
A natural reaction is to think that the problem can be solved by charging a higher interest rate. Unfortunately it cannot. The whole point of an unbusinesslike loan is that the debtor risk is so high that no fixed interest rate could compensate for it without the interest becoming, in substance, a share in the profits. You cannot price your way out of an unbusinesslike risk.
What the case law does provide is a method for setting the interest that still applies to the loan. The arm's length rate is determined using the guarantee analogy (borgstellingsanalogie): you look at the interest a third party would have charged if the parent or shareholder had guaranteed the loan. That, generally lower, rate remains deductible for the borrower and taxable for the lender. In other words, the interest continues to run on businesslike terms, but the loss of principal, the write-down itself, remains outside the profit and loss account.
6. The consequence: a non-deductible write-down
The central consequence is straightforward and painful: the impairment on the loan is not deductible. The value has really been lost, but that loss cannot be set against taxable profit or income. For a company the loss falls in the capital sphere and is treated much like a participation, so it does not reduce the corporate income tax base.
There is a mirror image on the borrower's side. Because the lender cannot take the loss, the borrower does not have a taxable gain when the same unbusinesslike loan is later released or waived. The two sides are treated consistently: no deductible loss for the lender, and no taxable release for the borrower. This symmetry is a deliberate feature of the doctrine and can occasionally work in the taxpayer's favour, but it is no substitute for the deduction that has been lost.
7. Special situations: the owner-director and cross-border loans
The doctrine has a particular edge for the owner-director who lends privately to their own company. Such a loan falls under the rules for assets a substantial-interest holder makes available to their own company, which are taxed in box 1. The unbusinesslike loan doctrine applies there too, so a write-down in box 1 is refused. The loss is not always gone for good: it typically shifts to the acquisition price of the shares in box 2, where it can still be relieved later, for example on a sale or liquidation. The timing and the box change, which makes early advice worthwhile.
Cross-border structures add a further layer. A Dutch holding company that lends to a foreign subsidiary faces both the unbusinesslike loan doctrine and the arm's length principle in transfer pricing, and the interaction with the participation exemption needs to be mapped out carefully. In the other direction, an owner-director who has emigrated cannot write down a claim on a Dutch company against Dutch-source income. For internationally mobile entrepreneurs these points are easy to overlook and expensive to get wrong.
8. When an unbusinesslike loan becomes a gift
A more recent development is that providing an unbusinesslike loan can, in some situations, contain a gift from the outset. In a decision of 5 April 2024 the Supreme Court accepted that a gift can be embedded directly in the granting of an unbusinesslike loan. Where one company lends on unbusinesslike terms to another, the enrichment can be treated as a gift from one shareholder to the other; where a parent lends on unbusinesslike terms to a company owned by their child, the enrichment can be a gift to the child.
The practical significance is that a single transaction can trigger two separate consequences at once: a non-deductible loss for income or corporate tax purposes, and a gift for gift tax purposes. Whether a gift actually arises depends closely on the facts, in particular on who is enriched and by how much, but the possibility should be on the radar whenever family members or their companies fund one another.
9. Recent developments (2024-2025)
The doctrine continues to develop through both case law and published positions of the Dutch tax authorities. In particular, the knowledge groups of the tax authorities have published a series of positions that sharpen the practice. These cover, among other things, when a gift arises on an unbusinesslike loan to a child, how interest that is settled after the event is treated, and how an unbusinesslike loan affects the cost base of a participation and the liquidation loss that may eventually be claimed.
The common thread is a steady increase in scrutiny of write-downs on loans within a group or family. In practice the tax authorities are quick to argue that a related-party loan is unbusinesslike, and the taxpayer then carries the burden of showing otherwise. That makes the quality of the file, drawn up at the time of lending rather than reconstructed years later, the single most important factor in the outcome.
10. How to prevent the classification: a practical checklist
The good news is that the classification is largely within your control. An unbusinesslike loan is, in the end, a loan that was not documented and administered the way an independent lender would have insisted on. The following points, applied at the moment of lending rather than afterwards, make all the difference:
Put the loan in a written agreement at inception, and record the facts and the purpose of the loan. Agree an arm's length interest rate and actually pay it, rather than simply adding it to the principal. Set a realistic repayment schedule and make the repayments. Provide adequate security wherever possible, and document why the borrower is creditworthy, ideally with a business plan or forecast. If the borrower's position deteriorates, act on it: call the security or take enforcement steps that the agreement allows. Consider splitting a large facility into separate loans so that each is assessed on its own. Where you can, keep evidence that a third party, such as a bank, would have been willing to lend on similar terms. And review the position annually, recording any change in creditworthiness and the action taken.
The unbusinesslike loan is a technical and highly fact-driven area, and the difference between a deductible and a non-deductible loss often comes down to the file that was, or was not, built at the start. If you are about to lend to your own company or group, or if a loan already on your books is at risk of being written down, it is well worth reviewing the position before you act. We work closely with you to make sure the tax and the documentation are fully aligned.
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The Dutch will in 2026: which building blocks are available to you?
For many people, a will is something you draw up once and then forget about. For entrepreneurs, individuals with significant wealth and families with an international footprint, that rarely turns out to be enough. Tax rules evolve, family circumstances change and businesses grow. What looked like a watertight will ten years ago may now produce unnecessarily high tax bills, or worse, lead to distributions among heirs that no longer match the testator's intentions.
In this article we set out the main building blocks that a Dutch civil-law notary and a tax adviser have available to construct a will tailored to the situation. We start at the default position under Dutch intestate succession law and then work our way through progressively more specific instruments. This is not a complete legal handbook, but a practical overview that helps you have a focused follow-up conversation with a tax adviser or notary.
Table of contents
1. The statutory default as the starting point
2. The surviving-spouse will and the quasi-statutory distribution
5. The topping-up legacy and the interest clause
8. The living will as a complement
10. How these building blocks work together
1. The statutory default as the starting point
If you die without a will and you leave behind a spouse or registered partner together with one or more children, Dutch intestate succession applies automatically. This is governed by article 4:13 of the Dutch Civil Code. In practice, it means the surviving spouse receives all assets of the estate, and the children receive a monetary claim on the surviving spouse equal in value to their share of the estate. That claim becomes due, in principle, only upon the death of the surviving spouse, or if the surviving spouse becomes bankrupt.
At first glance this looks like a workable arrangement. The surviving spouse can continue life undisturbed, and the children receive their inheritance later. In practice, however, this construction often falls short. The statutory interest on the claim is fixed at the legal interest rate minus six percent, with a floor of zero. That sounds attractive because no interest accrues, but for tax purposes it is actually unfavourable. Because no interest accrues, the value of the claim does not grow between the two deaths, so at the second death the children pay inheritance tax on a larger share of the parental estate.
In addition, the statutory default makes little allowance for blended families, business owners with substantial company holdings, or wealth intended to remain in the family for several generations. For these reasons, in virtually any situation involving significant wealth, deviating from the statutory default by means of a will is worthwhile.
2. The surviving-spouse will and the quasi-statutory distribution
The surviving-spouse will is the building block most people are familiar with. At its core it confirms the statutory default, but with one important addition. The interest on the children's monetary claim can be set by will at a tax-efficient level, typically six percent compound. This means the children's claim against the surviving spouse grows in value, so that at the second death the inheritance tax payable on the parental estate is reduced. At the same time the surviving spouse remains protected, because the claim is not due during her or his lifetime.
Many modern surviving-spouse wills go a step further and contain a quasi-statutory distribution. This is a testamentary construction in which the statutory default is in fact excluded, and the surviving spouse is given the power, via a choice clause or a settlement administration, to subsequently divide the estate as if the statutory default applied. The advantage is flexibility. Unlike the statutory three-month deadline, the surviving spouse can take more time to determine which interest rate, which division and which tax outcome best fits the actual circumstances at the time.
In situations where you cannot predict how the family or wealth situation will look at the moment of death, this construction offers the broadest scope for tailoring.
3. The usufruct will
The usufruct will is a fundamentally different building block. Instead of letting the surviving spouse inherit everything, the children immediately receive bare ownership of the estate, while the surviving spouse receives the usufruct. That means the surviving spouse may continue to use what belongs to the estate, including rental income and dividend income, while legal ownership passes directly to the children.
The tax effect works in a particular way. The value of the usufruct is determined by reference to an age-based factor from the Dutch Inheritance Tax Implementation Decree, combined with a deemed annual return of six percent. For a spouse aged around forty, the value of her usufruct is set at approximately 84 percent of the estate's value. The remaining 16 percent is the value of the bare ownership that passes immediately to the children. As the surviving spouse ages, the usufruct percentage decreases and the bare ownership percentage rises accordingly.
At the moment of the surviving spouse's death, the usufruct ceases and the children's bare ownership accretes to full ownership without further taxation. This is where the tax strength of the usufruct will lies. The children pay inheritance tax only on the initial bare ownership and not again on the value of the usufruct at the second death.
In the early years after the first death, this form costs more in tax than the statutory default, because the children have to pay inheritance tax immediately on their share. As time passes and the estate grows, the balance shifts. In our experience, the usufruct will becomes the more tax-efficient option from a horizon of roughly 25 years onwards, provided the wealth continues to grow.
We often combine this form in practice with a differentiated remarriage clause, to which we return below.
4. The two-step disposition
The two-step disposition is a building block for situations in which a specific asset is to land first with one person, and on that person's death is to pass on to other specified persons. Under Dutch civil law this is governed by article 4:141 of the Civil Code. In the will you designate a first beneficiary, the burdened, who initially acquires the asset, and one or more expectants who acquire the asset only at the moment the first beneficiary dies.
A classic example is a family farm or a family residence that you wish to bequeath initially to one child but which, on that child's death without descendants, should fall back to your other children. The first beneficiary in principle cannot alienate the asset, and the expectants have an enforceable right. To strengthen this further, a complementary administration is often included, so that the asset is also protected against unwanted external influence.
For tax purposes, the two-step disposition is less favourable than a usufruct will applied to the entire estate, because in principle the inheritance tax is levied twice. First on the first beneficiary at the full value, and then again on the expectants at the full value, because they inherit directly from the original testator rather than from the first beneficiary. For that reason a two-step disposition is typically used for a specific asset and not for the entire estate.
A Dutch Supreme Court decision from 2026 has refined the analysis of the depressing effect of two-step conditions on the imputation against the forced heirship share. In certain situations the value for the forced share is not the same as the tax-based usufruct valuation. For anyone considering a two-step disposition combined with disinheritance of a child, this is a point of attention for the notarial drafting.
5. The topping-up legacy and the interest clause
The topping-up legacy is a tax optimisation technique that ensures the child exemption of EUR 26,230 for 2026 is fully used at the first death. In the statutory default, children only receive a monetary claim on the surviving spouse. That claim is deducted from the surviving spouse's estate and no inheritance tax is payable on it. But if the value of the claim remains well below the child exemption, part of that exemption is wasted.
With a topping-up legacy, the value of what the child receives can be topped up to exactly the amount that can be received tax-free. With two children, this produces a tax-free shift of approximately EUR 52,460 in 2026 from the surviving spouse to the children, and that amount stays out of the second-death taxation. That sounds modest, but applied across several children and a large estate, the effect is significant.
It is important to recognise that the topping-up legacy fits most naturally in a will using the statutory default or in a choice will. In a pure usufruct will it is less self-evident, because the children already acquire substantial bare ownership. In that case the topping-up legacy can be made optional through a choice legacy. The surviving spouse may then choose between usufruct over the entire estate, or full ownership combined with a topping-up legacy to the children. That flexibility is valuable in practice, because the optimal variant only becomes clear at the moment of death.
The interest clause runs in parallel. By setting a testamentary interest rate on the children's non-callable claim, typically six percent compound, the claim grows in value and the inheritance tax payable at the second death is reduced.
6. Tailored legacies
A legacy is a testamentary commitment of a specific asset, amount or right to a designated person. Unlike an heir, who shares in all assets and liabilities of the estate, a legatee receives only what is described in the legacy. Several forms exist that are often combined in practice.
The specific-asset legacy
The specific-asset legacy is the bequest of a particular item, for example the shares in an operating company, a house or a specific painting. For the inheritance of shares to an individual, this form is often more tax-efficient than a cash legacy under a duty to purchase, because the real estate transfer tax on the inheritance of shares by an individual is, on the basis of article 3, paragraph 1, sub a of the Dutch Real Estate Transfer Tax Act, in principle zero. By contrast, a forced purchase by a BV triggers the regular real estate transfer tax.
The cash legacy
The cash legacy is a commitment of a fixed monetary amount. The cash legacy under a duty to purchase is a variant where the legatee receives the amount under an obligation to use it to buy a specific asset, for example shares in the family company. Since a Dutch Supreme Court decision of April 2026, this variant has become less attractive in the context of real estate companies, because the subsequent purchase is, under Dutch civil law, a purchase rather than an inheritance and therefore does not fall under the inheritance exemption.
The choice legacy
The choice legacy gives a person, often the surviving spouse or executor, the authority to choose from a predefined group of assets or heirs. This is an excellent flexibility tool, because the optimal choice only becomes clear at the time of death.
The percentage legacy
The percentage legacy is a commitment of a percentage of the net balance of the estate. It functions effectively as an heir designation, but without the legatee being involved in the estate administration. For situations where you want a large number of persons to share in the estate at different percentages, this is a commonly used form.
The maintenance legacy
The maintenance legacy is a commitment of a periodic payment, typically monthly, in favour of a person who is in financial or care-related need of support. It is often used for an elderly parent, a child with a disability or a close relative who is not able to provide for themselves.
The grandchild legacy
The grandchild legacy is a variant where grandparents include a direct legacy in favour of their grandchildren, often combined with a topping-up legacy up to the grandchild exemption. This prevents the wealth from being taxed first in the children's generation and then again when it passes on to the grandchildren.
7. Protective clauses
In addition to the main building blocks above, a number of clauses are included in virtually every modern will to safeguard the testator's wishes.
Testamentary administration
The testamentary administration ensures that the heir cannot freely dispose of the inheritance. The administrator manages the assets until a specified age is reached, typically 25 years. For children who are young at the time of death, this prevents them or others from inadvertently disposing of substantial amounts. Administration can also be put in place for life, for example for a child with a mental disability.
Substitution
The substitution clause, plaatsvervulling in Dutch, sets out what happens if a designated heir predeceases the testator or rejects the inheritance. Under article 4:11 of the Dutch Civil Code, the descendants of that heir then take their place. We recommend including this provision explicitly for legacies as well, because the statutory rule does not automatically apply to legatees.
Executor appointment
The executor appointment places the administration of the estate in the hands of a trusted person. For business owners and families with complex wealth, it is important to designate an executor who has the overview and who can take decisions promptly and thoughtfully. In some situations we recommend appointing a business partner or the family's own adviser.
Remarriage clause
The remarriage clause determines what happens to the surviving spouse's usufruct if she or he remarries. In the differentiated variant, the usufruct over business assets lapses on remarriage, while the usufruct over the marital home is preserved. This prevents a new partner from sharing in the family wealth, while at the same time guaranteeing the surviving spouse's housing security.
Long-term care clause
The long-term care clause, referred to in Dutch practice as the WLZ clause, ensures that if the surviving spouse enters a long-term care facility, the children's monetary claim against the surviving spouse becomes immediately callable. This prevents the parental wealth from being consumed by the personal contribution to long-term care, which in 2026 can rise to approximately EUR 3,062 per month.
8. The living will as a complement
Despite the name, a living will is not a will in the legal sense. It is a notarial power of attorney that governs what happens while you are still alive but no longer able to make decisions yourself. It addresses two areas, financial matters and medical matters.
On the financial side, you can designate a representative to manage your affairs, for example continuing to run your business or making payments on your behalf. On the medical side, you set out your wishes regarding invasive treatments and, if desired, euthanasia. That last point is particularly relevant in situations where dementia develops and you may no longer be able to express your wishes later in life.
We typically advise clients to draw up the living will at the same time as the revised will. For business owners, the living will is at least as important as the will itself, because the continuity of the business in case of incapacity or prolonged illness depends directly on it.
9. The codicil
For a number of items, a notarial deed is not required and a handwritten and dated document, the codicil, will suffice. Under article 4:97 of the Dutch Civil Code, you can use a codicil to allocate specific items of clothing, jewellery and personal effects to named individuals. The codicil is not a substitute for a will, but a useful supplementary instrument for distributing personal items of emotional value, without having to execute a separate notarial deed.
10. How these building blocks work together
A well-drafted will is rarely a choice between one of the above forms, but a combination of them. The usufruct will can be combined with a differentiated remarriage clause, a two-step disposition for specific assets, an administration up to a defined age and an executor appointment. In addition, a living will can be drafted at the same time, to provide for situations in which you are still alive but no longer able to make decisions.
The value of a tailored will lies in the interaction between the building blocks. Which building blocks fit best depends on the family situation, the composition of the wealth, any business interests and the wishes regarding succession. For one client the priority is tax optimisation, for another the protection of a specific asset or a specific person. In virtually every case the same advice applies, look not only at the moment of death but at the horizon of twenty to thirty years thereafter, and build in flexibility for circumstances you cannot currently foresee.
The result is a document that is future-proof for decades, that minimises the tax burden, that anchors the testator's wishes and that protects the heirs against unwanted influence.
If you would like to explore which combination of building blocks best fits your situation, please feel free to get in touch with our team. In every case we work closely with a specialist civil-law notary, and we ensure that the tax and legal sides are fully aligned.
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Asset protection: what it is and how it works
Every entrepreneur who has built something of value eventually faces the same question: how do I protect what I have built? Asset protection, the discipline of structuring personal and business wealth so that it remains insulated from future claims, is one of the most consequential decisions a business owner can make. It determines whether years of hard work can withstand a creditor claim, a divorce, a sudden death, or a regulatory event, and whether the next generation inherits anything at all.
Yet asset protection is widely misunderstood. Many entrepreneurs associate it with offshore secrecy or aggressive tax planning. In reality, modern asset protection is built on full transparency towards tax authorities, banks and regulators, while creating legal distance between the entrepreneur's personal sphere and the assets being preserved. A business owner setting up a foundation in Liechtenstein after selling part of their company, a family establishing a Cook Islands trust to safeguard long-term investments, or an entrepreneur moving to the UAE and using a DIFC foundation as the central vehicle for family wealth: all of these are asset protection structures designed to outlast the events of an entrepreneur's lifetime.
This article explains what asset protection is, how it works, and why it matters. We cover the difference between foundations and trusts, the distinction between common law and civil law jurisdictions, the leading jurisdictions used in practice, the principle of separation, governance, and the tax considerations that always sit alongside the structuring. While the topic is international in nature, we pay particular attention to issues that affect Dutch entrepreneurs and those who plan to relocate, including the Dutch ten-year tail on gift and inheritance tax.
Table of contents
2. Why business owners need it
6. The principle of separation
10. How to approach this for your business
1. What is asset protection?
Asset protection is the discipline of structuring personal and business wealth so that it remains insulated from claims that may arise during a business owner's lifetime or upon transfer to the next generation. It sits at the intersection of corporate law, civil law, tax law and private banking. Done well, it allows an entrepreneur to continue running an active business while ensuring that the bulk of accumulated wealth is held in a separate legal vehicle that does not get pulled into operational disputes.
The purpose of asset protection is not secrecy. Modern asset protection is built on transparency towards tax authorities, banks and regulators, while creating legal distance between the entrepreneur's personal sphere and the assets that are being preserved. Where older planning often relied on opacity, today's structures rely on robust governance, well-drafted constitutional documents and a clear separation between operating risk and accumulated capital.
For most clients we work with, the conversation begins after a liquidity event, a sale of part of the business, or a move to a new jurisdiction. In each case the question is the same: how do we keep what has been built, and how do we make sure that future events such as creditor claims, divorce, succession or operational liabilities do not undo the work of a lifetime?
2. Why business owners need it
Three forces drive the demand for asset protection among entrepreneurs.
The first is operational exposure. A business owner with a single trading entity often has personal wealth that sits very close to the operating risk of that entity. A product liability claim, a supplier dispute, a platform suspension or a regulatory investigation can put the entire net worth of the entrepreneur at risk if the legal distance between personal wealth and operational vehicles is insufficient.
The second is succession. As an entrepreneur accumulates wealth, the question of what happens at death or incapacity becomes more pressing. Without planning, a sudden event can freeze bank accounts, halt corporate decision-making and force the family into a probate process that may take months or longer. A properly designed structure allows the wealth to continue being managed by an independent body, with clear instructions on how and to whom distributions are to be made.
The third is mobility. Entrepreneurs increasingly move between jurisdictions, often for tax, lifestyle or family reasons. Without a vehicle that holds the wealth independently of personal residence, every move triggers a new analysis of exit taxes, anti-abuse rules and bank acceptance. A well-structured vehicle stays in place across moves and provides continuity of governance regardless of where the entrepreneur resides.
For each of these reasons, the structure has to do more than offer a tax advantage. It has to function as a long-term governance and continuity vehicle for the family wealth.
3. Foundations and trusts
Two legal forms dominate the international asset protection landscape: the foundation and the trust.
A foundation is a legal entity with its own legal personality, established by a founder who transfers assets to it and sets out its purpose and beneficiaries in a constitutional document. The foundation is governed by a council, often supported by an independent guardian. Because it is an entity, the foundation can hold bank accounts, sign contracts and litigate in its own name. Civil law jurisdictions have used foundations for over a century. More recently, several common law jurisdictions have introduced foundation legislation to combine the recognisable corporate form with common law trust principles.
A trust is a legal relationship rather than an entity. A settlor transfers assets to a trustee, who holds them on behalf of beneficiaries under fiduciary duties set out in a trust deed. The trust itself has no legal personality and acts through its trustee. Trusts originated in English common law and remain the dominant private wealth instrument in jurisdictions that follow that tradition.
Both forms can achieve the same functional result: separating assets from the personal sphere of the founder and managing them for the benefit of designated persons. The choice between them depends on the rules of the jurisdiction, the preference of the entrepreneur for an entity-based or relationship-based form, and the acceptability of each form in the banking and audit environment where the structure will operate.
Within each form there are further design choices. A discretionary structure leaves distribution decisions to the council or trustee, which provides the strongest creditor protection because beneficiaries hold no enforceable claim. A fixed interest structure gives beneficiaries a specific entitlement, which provides legal certainty but exposes that entitlement to creditor attack. An irrevocable structure cannot be undone by the founder, which strengthens the asset protection effect. A revocable structure leaves the founder in a position of control, which weakens the protection and usually causes the structure to be treated as transparent for tax purposes.
4. Common law and civil law
The choice of jurisdiction is shaped by whether that jurisdiction operates under a common law or a civil law system.
Common law jurisdictions include the United Kingdom and the majority of its former overseas territories. The trust has been recognised in these jurisdictions for centuries and the case law is rich. Within these jurisdictions, financial centres such as the British Virgin Islands, the Cayman Islands, Jersey, Guernsey, Isle of Man, the Bahamas and Singapore have developed specialised trust legislation that adapts the classical trust to modern wealth planning needs.
Civil law jurisdictions include continental Europe, much of Latin America and large parts of Asia. These jurisdictions traditionally do not recognise the trust as a domestic instrument, although many have ratified the Hague Trust Convention which allows foreign trusts to be recognised under local law. Civil law jurisdictions traditionally use the foundation. Liechtenstein has the oldest continental foundation tradition and remains a benchmark for private wealth foundations.
The distinction matters in practice for two reasons. First, banks and auditors in continental Europe are often more comfortable with a foundation than with a trust, and this affects onboarding and ongoing administration. Second, the legal protection offered by the structure is determined by the law of the jurisdiction, so the strength of the firewall provisions, the limitation periods for creditor claims and the recognition of foreign judgments differ materially between systems.
The financial free zones in the United Arab Emirates, namely the Dubai International Financial Centre and the Abu Dhabi Global Market, are an interesting hybrid. They sit in a civil law country but operate under their own English common law systems, with their own courts and their own foundation legislation. For an entrepreneur who is resident in the UAE, this offers the combination of common law governance and local presence that very few other places provide.
5. The leading jurisdictions
In our practice we work most often with the following jurisdictions.
The Dubai International Financial Centre offers a foundation regime with strong statutory firewall provisions that were further strengthened in 2024. Its three year limitation period for clawback claims, its express exclusion of foreign forced heirship claims and its duress provisions make it one of the most attractive jurisdictions for entrepreneurs who are resident in the UAE or who plan to relocate there. The Abu Dhabi Global Market offers a similar foundation regime, with a pure English common law system and the option of a single-member council.
Liechtenstein remains the European reference point for private foundations. Its limitation period of one year for ordinary creditor actions, extending to five years where the creditor can establish intent to defraud, is shorter than that of most other European jurisdictions. The mandatory involvement of a licensed local trustee adds cost but also adds professionalism and a regulatory layer that European banks recognise.
The Crown Dependencies of Jersey, Guernsey and the Isle of Man have mature trust regimes that are well accepted internationally. Their firewall provisions are robust and their trust law has been refined through decades of case law. The trustee-driven nature of these regimes means the founder retains less direct control than in a foundation, which suits some clients and not others.
The Cook Islands and Nevis are best known for the strongest statutory asset protection in the world. Limitation periods of one to two years, criminal-standard evidence requirements and outright non-recognition of foreign judgments make them the most difficult jurisdictions for a creditor to attack. The price of that protection is reputational. Major private banks in Europe and Asia are frequently reluctant to onboard structures based in these jurisdictions, which means the structure often needs to be combined with bank accounts in other places.
Singapore and Hong Kong combine a developed trust framework with first tier financial centres. They are particularly appropriate for clients with strong commercial ties to Asia. The cost of structures in Singapore is typically higher than offshore alternatives, reflecting the regulatory and substance requirements imposed on licensed trust companies.
The United States offers a relatively new family of structures known as domestic asset protection trusts, with South Dakota, Nevada, Wyoming and Delaware leading the field. These structures provide strong creditor protection under state law and offer one notable feature that no other major jurisdiction offers: the United States does not participate in the Common Reporting Standard, so a US trust does not feed information into the international exchange network in the same way that a structure elsewhere would. For non-US founders, however, the US tax rules are complex and require careful planning to avoid unintended exposure.
Within the European Union, Cyprus, Malta and Luxembourg each offer interesting structuring options, although recent and forthcoming European transparency and reporting legislation will continue to shape what is feasible in those jurisdictions. The Bahamas, BVI, Cayman and Belize each have well developed legislation, although they sit on the same spectrum of banking and reputational considerations as the Cook Islands and Nevis. Mauritius is sometimes used for clients with an Indian or African nexus. Switzerland does not have its own trust legislation but recognises foreign trusts and is widely used as a banking and trustee jurisdiction alongside a structure formed elsewhere. Panama remains in use for some Latin American families but carries the reputational legacy of earlier exposures.
6. The principle of separation
The single most important principle in asset protection is separation. The structure must be legally, operationally and administratively separate from the personal sphere of the founder. If the personal sphere and the structure become entangled, a court is likely to disregard the structure altogether, and the entire protection collapses.
Separation has four dimensions in practice. The first is legal. The structure has its own constitutional documents, its own bank accounts, its own auditors where required and its own decision-making body. It is not a vehicle that the founder uses interchangeably with their own balance sheet.
The second is operational. Operating businesses are held in operating entities. They generate operating revenue, pay operating costs and distribute dividends to the shareholder. The structure receives those dividends only after they have flowed through the shareholder personally, or it receives them directly through a clearly documented intermediate holding layer. The structure does not pay supplier invoices, does not contract with customers and does not employ staff for the operating business.
The third is administrative. Cash flows of the structure are recorded separately from personal cash flows. Investment decisions are taken by the council or trustee and documented in minutes. Distributions to beneficiaries are processed through clear formal channels.
The fourth is documentary. The source of the funds entering the structure and the long term source of the wealth must be capable of being demonstrated to a bank or auditor at any time. This is not a one-off exercise at onboarding. It is a continuous discipline that allows the structure to withstand external review.
Where these four dimensions are respected, the structure functions as intended. Where they are not, the structure exists on paper but offers no real protection, and the founder is often worse off than if they had not set anything up at all.
7. Governance and control
Good governance is what makes the structure credible. It is also what allows the founder to sleep at night, because it ensures that the structure will continue to operate sensibly even if the founder is no longer able to be involved.
The roles within a typical foundation are the following. The founder transfers the assets and sets out the foundation's purpose, beneficiaries and governance rules in the constitutional documents. The founder may sit on the council but should not be the sole decision-maker. The council is the governing body and takes the day-to-day decisions on investments, distributions and contracting. A guardian, sometimes called a protector, sits above the council and has supervisory powers, often including the right to veto certain decisions or to remove and replace council members. The beneficiaries are the persons for whose benefit the foundation exists. In a discretionary foundation they do not have an enforceable right to a distribution; their interest is contingent on the exercise of the council's discretion.
In a trust the roles are similar, with settlor replacing founder, trustee replacing council and protector replacing guardian.
The letter of wishes is an instrument that bridges the founder's personal vision and the council's formal decision-making. It is a non-binding document in which the founder expresses how they would like the council to exercise its discretion in particular scenarios. Although not legally binding, the letter of wishes is followed in practice in the vast majority of cases. It is the way an entrepreneur communicates to a council of professional bodies that their teenage children should not receive significant distributions before a certain age, that a future spouse should be protected if there are children, or that a particular charitable cause should be supported.
The balance between control and independence is what separates a structure that works from a structure that does not. Too much control retained by the founder turns the structure into an extension of the founder personally, with all the legal consequences that follow. Too little control, and the founder loses any meaningful voice in the management of what is, after all, family wealth. The right balance is achieved through a thoughtful constitutional document, an independent guardian or protector and a clear letter of wishes.
8. Tax considerations
Asset protection is not primarily about tax, but tax is always part of the analysis. Three jurisdictions matter: the jurisdiction of the structure, the jurisdiction of the founder and the jurisdiction of the beneficiaries.
The jurisdiction of the structure determines the local tax treatment. Most jurisdictions used for asset protection levy no tax on a non-resident foundation or trust, although several apply a small minimum charge. Where the structure is taxable locally, the analysis becomes more complex and the structure is rarely competitive.
The jurisdiction of the founder determines whether the transfer of assets into the structure triggers a taxable event and whether the income and gains of the structure are attributed back to the founder under anti-abuse rules. Most developed jurisdictions have rules that look through structures controlled by their residents, sometimes referred to as transparent treatment, attribution rules or controlled foreign company rules. A founder who is resident in such a jurisdiction will typically be taxed as if the structure did not exist.
The jurisdiction of the beneficiaries determines how distributions are taxed in their hands. A beneficiary resident in a high tax jurisdiction will normally pay tax on the distributions they receive, regardless of where the structure sits. A beneficiary resident in a no tax jurisdiction such as the UAE will normally receive distributions without further taxation.
For founders who emigrate, the jurisdiction of departure usually retains a tail of taxing rights for a defined period. The Netherlands, for example, applies a ten year fiction for gift and inheritance tax after emigration, regardless of where the assets sit. This is not a reason not to plan; it is a reason to plan with full awareness of what events trigger taxation and when the tail ends.
The interplay between these jurisdictions is best mapped out in the design phase, before any commitment is made. Adjustments after the fact are often costly and sometimes impossible.
9. Common pitfalls
Several recurring issues compromise the effectiveness of asset protection structures. Recognising them at the design stage is far less expensive than fixing them after they have arisen.
- Sham characterisation: a structure in which the founder retains every meaningful decision-making power, or which is used as a personal current account, will not withstand challenge. Courts in many jurisdictions look at the actual conduct of the parties, not the words of the trust deed.
- Banking acceptance: not all jurisdictions are equally well received by tier one private banks. A structure that is legally bulletproof but cannot open and maintain bank accounts loses much of its practical value. Pre-clearance with the intended bank is an essential step before setting up the structure.
- Late filings: structures often depend on annual filings to maintain their tax status. A foundation that fails to confirm its transparent status with the local tax authority within the prescribed window can lose that status, with material tax consequences for the following financial year.
- Overlapping anti-abuse rules: international tax cooperation continues to expand. Substance requirements, anti-mismatch rules and minimum tax frameworks have all changed the cost and feasibility of structures that were standard a decade ago. A periodic review of the structure against current rules is essential.
Each of these pitfalls is avoidable with careful design, but each can compromise a structure entirely if ignored.
10. How to approach this for your business
For business owners considering asset protection, the practical starting point is a conversation about objectives. Protection against what, for whom, over what time horizon, and how much complexity is acceptable in exchange for that protection. There is no single answer and the right structure is always the one that fits the situation, not the most elaborate or the most fashionable.
The typical sequence is the following. A first assessment maps out the entrepreneur's residence, family situation, sources of wealth, operating activities and likely future moves. A second phase narrows down the choice of jurisdiction and vehicle. A third phase compares quotes from licensed service providers and confirms acceptance by the intended bank. Only then do the constitutional documents get drafted, the structure get formed and the wealth get transferred. The whole process usually takes between two and three months from first conversation to functioning structure, although it can be longer where the underlying assets or family situation are more complex.
Throughout the process, the structure is documented as if it will be reviewed by a sceptical third party at some point in the future. That third party may be a tax authority, an auditor, a bank, a future spouse, a future creditor or a future generation. Designing for that review at the start is what gives the structure its long term value.
If you are exploring asset protection for your wealth or your business, we are happy to discuss what would be appropriate in your situation. Our team works with structures across all of the jurisdictions mentioned in this article and we can talk through the options before you commit to any one of them.
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Business succession scheme 2026: key changes every DGA and entrepreneur needs to know
Business succession is one of the most consequential fiscal events in the life of a Dutch entrepreneur. Whether you are planning to transfer your company to the next generation during your lifetime or arranging the transfer upon death, the tax consequences can determine whether the business survives intact or whether a forced sale becomes necessary. To prevent that outcome, Dutch tax law has long provided two important facilities: the bedrijfsopvolgingsregeling (BOR) and the doorschuifregeling (DSR). Together, they allow entrepreneurs to transfer a business with very substantial tax relief. As of 1 January 2026, however, both facilities have been significantly tightened as part of a multi-year legislative overhaul.
The 2026 changes are the most far-reaching phase of that overhaul. They affect who qualifies, which shares are covered, how long the possession period runs, and how the rules interact with corporate structures that many DGA's rely on in practice. For any entrepreneur, director-shareholder or estate planner who has not yet reviewed their situation in light of the new rules, the changes warrant close attention.
Table of contents
1. Why the BOR and DSR matter for Dutch business owners
3. A phased overhaul: changes across 2024, 2025 and 2026
4. The ordinary shares requirement: who still qualifies?
5. Letter shares and the risk of unintended reclassification
6. Extended possession periods: the age-related tightening
7. Anti-abuse rules and the double-BOR prohibition
8. Relaxed restructuring rules: a positive development
1. Why the BOR and DSR matter for Dutch business owners
When a business is transferred by gift or inheritance, two separate tax claims can arise at once, sometimes on the same underlying value. On one side, the recipient may face a gift tax (schenkbelasting) or inheritance tax (erfbelasting) obligation on the value of the business assets received. On the other side, the transferring entrepreneur may owe income tax on the embedded capital gain built up over the years the business was owned. In a scenario without any relief, this combined burden can be large enough that a business would need to be partially liquidated or sold simply to pay the tax bill. The resulting disruption can be devastating, particularly where the business is a family enterprise that provides livelihoods for multiple people.
The Dutch legislature recognised this problem decades ago and introduced two facilities specifically designed to allow businesses to transfer without forcing a sale. The BOR significantly reduces the gift and inheritance tax burden on qualifying business assets. The DSR defers the income tax claim by allowing the transferor's fiscal cost basis to be passed on to the successor rather than triggered at the moment of transfer. When both facilities apply, the immediate tax cost of passing a business to the next generation can be reduced to a fraction of what it would otherwise be.
That is why the BOR and the DSR are routinely among the most heavily planned-around provisions in Dutch fiscal law. Business owners with substantial companies often begin structuring their succession years in advance. But the rules governing these facilities have never been static, and the changes introduced in 2026 are among the most significant the system has seen.
2. The BOR and DSR explained
The bedrijfsopvolgingsregeling (BOR)
The BOR is a facility within Dutch gift and inheritance tax law (the Successiewet 1956). It provides a large conditional exemption when qualifying business assets are transferred by gift or upon death to a business successor. The idea behind the facility is straightforward: because a business is not a liquid asset, the beneficiary cannot necessarily pay tax on its full value without disrupting the enterprise. The BOR therefore allows a substantial portion of that value to be transferred without triggering an immediate gift or inheritance tax charge.
To qualify for the BOR, several conditions must be satisfied. The assets being transferred must constitute an active business or a qualifying shareholding in a company. The transferor must have held the interest for a minimum period (the bezitseis, or possession requirement). And the recipient must continue operating the business for a specified number of years after the transfer (the voortzettingsvereiste, or continuation requirement). Where those conditions are met, the BOR provides very significant tax relief on the transfer.
The doorschuifregeling (DSR)
The DSR operates in a different tax dimension. When a business owner transfers shares or a business interest, any latent capital gain built up over the years of ownership would ordinarily be realised and taxed. The DSR allows that tax claim to be deferred: instead of triggering the gain in the hands of the transferor, the fiscal cost basis of the interest is passed on to the recipient. The income tax obligation is carried forward rather than extinguished, meaning the successor will ultimately pay it, but only when they in turn dispose of the interest.
Like the BOR, the DSR attaches conditions, including a continuation requirement and, from 2026, a requirement that the transferred interest consists of qualifying shares.
Why both matter together
In practice, DGA's and family business owners use both the BOR and the DSR together to minimise the combined tax cost of succession. The BOR handles the gift or inheritance tax; the DSR handles the income tax. Together they make it possible to transfer a business across generations without a forced sale. Because both are conditional on the type of interest being transferred and how long it has been held, the 2026 changes to those conditions have broad practical implications.
3. A phased overhaul: changes across 2024, 2025 and 2026
The changes to the BOR and DSR did not arrive all at once. The legislature spread the overhaul across three years, giving entrepreneurs a staged tightening rather than a single sharp shift.
In 2024, the first phase focused on limiting the BOR to interests in genuine operating companies. The rule that investment assets held within a company could benefit from the BOR alongside genuine business assets was narrowed. The threshold for this absorption was reduced, meaning more investment assets now fall outside the facility.
The 2025 changes brought adjustments that were broadly welcomed, including the shortening of the continuation requirement for recipients. Under the previous rules, a business successor had to continue the business for five years to maintain the benefit of the BOR. From 2025, that period was reduced to three years, making it somewhat easier for successors to adjust the business structure post-transfer. The possession requirement for the transferor was also refined in 2025.
The 2026 package, which is the focus of this article, introduced the most technically demanding changes. It brought the ordinary shares requirement, the age-related extension of possession periods, the double-BOR prohibition, and greater flexibility for restructurings. Each of these is examined in the sections that follow.
4. The ordinary shares requirement: who still qualifies?
Perhaps the most impactful change introduced in 2026 is the restriction of the BOR and DSR to ordinary shares. Until the end of 2025, both facilities applied to any qualifying interest that met the general conditions, regardless of the exact type of share. From 1 January 2026, the facilities apply only to what the law defines as gewone aandelen, or ordinary shares.
What counts as an ordinary share?
The legislation defines an ordinary share by exclusion. A share is ordinary if it does not carry preferential rights regarding the distribution of profits or the proceeds of liquidation. Shares that do carry such rights are classified as preferential shares (preferente aandelen) and no longer qualify for the BOR or DSR as a matter of principle.
Specifically excluded from the definition of ordinary shares are:
- Preference shares: shares with a priority right over other shareholders in profit distributions or liquidation proceeds
- Tracking stocks: shares whose return is tied to the performance of a specific part of the business rather than the whole
- Profit participation certificates (winstbewijzen): instruments that participate in profits without carrying voting rights or full share characteristics
- Options and other derivative interests in share capital
The exclusion of preference shares aligns with a long-standing concern that certain structures were designed primarily to shelter investment or passive assets behind a business facade. Requiring ordinary shares pushes the BOR back towards its original purpose: facilitating the genuine transfer of active business interests.
Preference shares from phased successions
There is an important exception for preference shares that arose in the context of a phased succession (gefaseerde bedrijfsopvolging). In many family business successions, a parent converts ordinary shares into preference shares as part of a structured handover process. These succession preference shares often represent a deferred purchase price or a retained economic interest while the business is gradually transferred to the next generation. Shares of this type remain eligible for the BOR and DSR under the 2026 rules, provided they satisfy the applicable conditions.
The distinction matters in practice: preference shares created to implement a genuine business succession remain within the system, while preference shares that existed for other commercial or tax reasons do not. The boundary between these two categories requires careful analysis in each specific situation.
5. Letter shares and the risk of unintended reclassification
The ordinary shares requirement has a particularly significant knock-on effect for DGA's who use letteraandelen, or letter shares. Letter shares are a widely used structure in the Netherlands. Instead of holding a single class of shares, shareholders hold different classes, typically labelled A, B, C and so on. Each class carries the same nominal value and the same voting rights, but the dividend policy for each class can be set independently. This allows shareholders to take different amounts of dividend in different years according to their personal circumstances.
This flexibility has made letter shares attractive, particularly in structures with multiple shareholders who have different tax positions or different liquidity needs.
When letter shares become preference shares
Under the 2026 rules, a letter share can unintentionally be reclassified as a preferential share. The mechanism is subtle. If one shareholder takes a large dividend from their letter class while another shareholder does not, the retained profits attributable to the non-distributing class build up in the company. Over time, if the retained balance in one class significantly exceeds that of another, the share linked to the higher-reserve class may effectively carry a priority right over liquidation proceeds. At that point, the share risks being classified as a preferential share rather than an ordinary share, with the result that it no longer qualifies for the BOR or DSR.
Any company with two or more shareholders, multiple letter share classes, and a history of different dividend distributions should review whether a reclassification risk has already arisen or is at risk of arising in the near future. The only reliable way to avoid the risk is to ensure that per-class reserves remain equal across all letter classes, which requires coordinating dividend distributions carefully.
6. Extended possession periods: the age-related tightening
The BOR and DSR have always included a possession requirement: the transferor must have held the business interest for a minimum period before the transfer in order for the facilities to apply. From 2026, the possession requirement has been tightened for transferors who are of more advanced age at the time of transfer. The change responds to concerns about rollator constructions: situations where an elderly individual converts non-business assets into a business interest shortly before death or donation, specifically to claim the BOR on wealth that was never genuinely part of an active enterprise.
For inheritances, the extended possession requirement begins to apply for deceased persons who were at least three years past the pension age (AOW-leeftijd) at the time of death. For each additional year of age beyond a certain threshold, the required possession period increases by six months. For gifts, a similar extension applies for donors who are at least seven years past the pension age.
The age-related extension is unlikely to affect most entrepreneurs who have built their businesses over a long career and plan succession at or shortly after retirement. Where it has more impact is in scenarios involving later-life restructuring or the acquisition of new business interests at an advanced age.
7. Anti-abuse rules and the double-BOR prohibition
From 2026, the BOR can only be applied once per enterprise per chain of succession. If the BOR was used on a first transfer, a subsequent transfer of the same enterprise does not qualify for the BOR until a full possession period has elapsed from the moment of the first facilitated transfer. This prevents structures that were designed to strip the inheritance or gift tax base through multiple facilitated transfers in quick succession.
The rollator construction measures described in the previous section complement this prohibition. Together, these provisions reflect a clear legislative intent: to maintain the BOR and DSR as genuine facilities for business continuity, while closing off avenues that allow them to be used as general wealth transfer vehicles. The exemptions remain large and valuable, but the conditions attaching to them are now more precisely targeted at the transactions they were designed to benefit.
8. Relaxed restructuring rules: a positive development
The 2026 changes were not uniformly restrictive. On one significant point, the rules were actually made more favourable: the interaction between internal restructurings and the possession requirement. Under the previous rules, certain forms of internal restructuring could inadvertently restart the possession period. If a business owner undertook a legal merger, demerger, share conversion or similar transaction within their corporate structure, the restructured interest was in many cases treated as a new interest, meaning the clock restarted and the possession requirement had to run again from the beginning.
From 1 January 2026, restructurings that do not change the proportional entitlement of the transferor no longer cause the possession period to restart. If the entrepreneur emerges from a merger, demerger, conversion, share issuance or share buyback with the same proportional economic interest in the underlying enterprise, the possession period continues to run without interruption.
This change allows business owners considerably more freedom to reorganise their corporate structures during the period leading up to a succession. In-house mergers, holding restructurings, and other common reorganisations can now be implemented without the fear of inadvertently resetting the possession clock. The relaxation also extends to the continuation requirement on the successor's side, giving more room for restructuring during the continuation period as long as the nature of the enterprise being continued does not fundamentally change.
9. Planning steps to take now
Given the scope of the 2026 changes, there are several areas where existing structures should be reviewed. The following are not recommendations for any specific situation, but an indication of the areas most likely to require attention.
- Review the share structure: Any company with letter shares or multiple share classes should review whether per-class reserves have remained equal. Where they have diverged, specialist advice is needed to assess the reclassification risk and identify remediation options.
- Check the possession period: Business owners approaching retirement should verify that the possession period has been satisfied for each interest they hold, and confirm whether any recent restructurings affected the clock under the old or new rules.
- Consider the age-related rules: Entrepreneurs significantly past pension age, or those acquiring new business interests at a late stage, should assess whether the extended possession periods apply to their situation.
- Assess the double-BOR prohibition: Where a family business has already been the subject of a BOR-facilitated transfer, check whether a subsequent planned transfer falls within the prohibition.
- Coordinate dividend policy: If a letter share structure is to be maintained, establish a clear protocol for coordinating dividend distributions to ensure per-class reserves remain equal. In some cases, simplifying to a single share class may be more efficient.
- Verify succession preference shares: Entrepreneurs holding preference shares arising from a genuine phased succession should confirm that those shares satisfy the conditions for the succession preference share exception.
10. Conclusion
The BOR and DSR remain among the most generous succession planning facilities available to Dutch entrepreneurs and DGA's. The underlying principle has not changed: business continuity is valuable, and tax law should not force a sale to fund a succession tax bill. But the conditions attaching to those facilities are now considerably more technical than they were even three years ago, and the 2026 changes in particular have introduced a set of rules that interact in non-obvious ways with common corporate structures.
The ordinary shares requirement, the reclassification risk for letter shares, the age-related extension of possession periods, the double-BOR prohibition, and the relaxed restructuring rules all need to be considered together in the context of each individual structure. A structure that worked well under the pre-2026 rules may require adjustment. A structure that was set up with succession in mind may have been overtaken by legislative changes that were not anticipated at the time.
For any business owner who has not yet done so, now is the time to review the structure and the plan with a specialist who can assess the current position and identify any issues before they become problems. The complexity of the 2026 rules is an argument for early action rather than deferred attention.
Please feel free to reach out to our team if you would like to discuss your situation.
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Transfer pricing: what it is, how it works, and why it matters
Every cross-border transaction between related companies raises a fundamental question: is the price right? Transfer pricing, the set of rules governing how multinational groups price their intercompany transactions, is consistently ranked as the most important tax issue facing international businesses. It determines how profits are allocated across jurisdictions, how much tax is paid and where, and whether a business is exposed to adjustments, penalties, or double taxation.
Yet transfer pricing is widely misunderstood. Many entrepreneurs and business owners associate it exclusively with large multinationals or aggressive tax planning. In reality, transfer pricing applies to any business that conducts transactions with a related party in another country, regardless of size. A Dutch BV paying a management fee to a foreign holding company, a subsidiary purchasing inventory from its parent, or a group company licensing a trademark to an affiliate: all of these are transfer pricing transactions that must comply with the arm’s length principle.
This article explains what transfer pricing is, how it works, and why it matters. We cover the arm’s length principle, the main pricing methods, documentation requirements, the role of intangibles, and what happens when things go wrong. While the rules are international in nature, we pay particular attention to how they apply in the Netherlands and highlight developments that business owners should be aware of.
Table of contents
3. Transfer pricing methods: how prices are tested
4. The functional analysis: functions, assets and risks
5. Intangibles and the DEMPE framework
6. Documentation requirements: master file, local file and country-by-country report
7. Transfer pricing in the Netherlands
8. Business restructurings and transfer pricing
9. Enforcement, penalties and dispute resolution
10. Getting transfer pricing right
1. What is transfer pricing?
Transfer pricing refers to the prices charged in transactions between related parties, typically companies that belong to the same multinational group. These transactions can involve goods, services, the use of intangible assets such as trademarks or technology, financial arrangements such as intercompany loans, or any other commercial or financial dealing between entities under common control.
When two independent companies transact with each other, the price is determined by market forces: supply, demand, negotiation, and competition. When two related companies transact, those market forces may be absent or weakened. The parent company and its subsidiary do not negotiate at arm’s length in the same way that unrelated parties would. This creates the risk that the prices set on intercompany transactions do not reflect what the market would produce, which in turn affects how profits are distributed across the countries where the group operates.
Transfer pricing rules exist to prevent this profit shifting. They require that intercompany transactions be priced as if the parties were independent, ensuring that each country collects its fair share of tax on the economic activity taking place within its borders. The international consensus on transfer pricing is set out in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, most recently revised in January 2022, and implemented through domestic legislation in over 140 countries.
2. The arm’s length principle
At the heart of all transfer pricing rules lies the arm’s length principle. This principle, codified in Article 9 of the OECD Model Tax Convention and incorporated into virtually every bilateral tax treaty, provides that conditions in commercial and financial relations between associated enterprises should be consistent with those that would have been agreed between independent enterprises in comparable transactions under comparable circumstances.
In practice, this means that a multinational group must price its intercompany transactions as if each entity were dealing with an unrelated party. If a Dutch subsidiary purchases goods from its German parent, the price must reflect what the subsidiary would have paid if it had bought the same goods from an unrelated supplier under similar conditions. If a holding company charges a management fee to its operating subsidiaries, that fee must correspond to what an independent service provider would charge for equivalent services.
The arm’s length principle treats each entity within a group as a separate enterprise. This separate entity approach ensures broad parity of tax treatment between multinational groups and independent businesses operating in the same markets. It also prevents the artificial shifting of profits from higher-tax to lower-tax jurisdictions by requiring that the allocation of profits follows the allocation of economic functions, assets and risks.
Why not just use a formula?
An alternative to the arm’s length principle that is sometimes proposed is global formulary apportionment: dividing a group’s total worldwide profit among countries based on a predetermined formula, such as the proportion of sales, employees, or assets in each country. The OECD and its member countries have consistently rejected this approach. A formula would be inevitably arbitrary, difficult to agree upon internationally, and would fail to account for the specific facts and circumstances of individual transactions. It would also create significant risks of double taxation where countries disagree on the formula or its inputs.
3. Transfer pricing methods: how prices are tested
The OECD Guidelines describe five transfer pricing methods, divided into two categories. The goal is always to select the method that is most appropriate to the circumstances of the case, taking into account the nature of the transaction, the availability of reliable comparable data, and the degree of comparability between the controlled and uncontrolled transactions.
Traditional transaction methods
- Comparable Uncontrolled Price (CUP) method compares the price charged in a controlled transaction directly to the price in a comparable transaction between independent parties. This is the most direct method and is preferred whenever reliable comparables exist. It is particularly effective for commodity transactions where quoted market prices are available.
- Resale Price Method (RPM) starts from the price at which a product purchased from a related party is resold to an independent customer, then subtracts an appropriate gross margin for the reseller. It is most useful for distribution activities where the reseller does not add substantial value to the product.
- Cost Plus Method (CPM) begins with the costs incurred by the supplier in a controlled transaction, then adds an appropriate markup. It is commonly applied to contract manufacturing arrangements and intercompany services where the supplier performs routine functions.
Transactional profit methods
- Transactional Net Margin Method (TNMM) examines the net profit that a taxpayer earns from a controlled transaction relative to an appropriate base, such as costs, sales or assets, and compares it to the net profit earned by comparable independent enterprises. TNMM is a one-sided method: it tests only the less complex party (the "tested party"). It is the most commonly applied method in practice because net profit indicators are generally less sensitive to transactional differences than prices or gross margins.
- Transactional Profit Split Method identifies the combined profits from a controlled transaction and divides them between the parties based on their relative contributions. It is most appropriate when both parties make unique and valuable contributions, such as when each contributes significant intangible assets, or when the operations are so highly integrated that a one-sided method cannot reliably isolate the contribution of either party.
There is no strict hierarchy among these methods, but the OECD Guidelines indicate that traditional methods are generally preferred over transactional profit methods when both can be applied with equal reliability, and that the CUP method is preferred over all others when a comparable uncontrolled transaction can be identified.
4. The functional analysis: functions, assets and risks
The foundation of any transfer pricing analysis is the functional analysis. Before selecting a method or identifying comparables, it is essential to understand what each entity within the group actually does: what functions it performs, what assets it uses, and what risks it assumes. This analysis determines the characterisation of each entity and, consequently, the level of profit it is entitled to earn.
An entity that performs routine distribution functions, uses limited assets, and bears minimal risk is characterised as a limited-risk distributor and is entitled to earn only a routine margin. An entity that develops products, owns valuable intellectual property, makes strategic decisions, and bears the entrepreneurial risk is entitled to the residual profit, the return above the routine compensation paid to limited-function entities.
The five comparability factors
The OECD Guidelines identify five factors that must be examined when comparing a controlled transaction to an uncontrolled transaction:
- Contractual terms of the transaction, recognising that the actual conduct of the parties prevails over written agreements where the two are inconsistent
- Functions performed, assets used, and risks assumed by each party, which is the core of the functional analysis
- Characteristics of property or services transferred, including physical features, quality, availability, and volume
- Economic circumstances of the parties and the market in which they operate, including market size, competition, consumer purchasing power, and regulatory environment
- Business strategies pursued by the parties, such as market penetration, product diversification, or risk aversion
Risk analysis
Risk is a central element of the functional analysis. The party that controls a risk and has the financial capacity to assume that risk is entitled to the return (or loss) associated with that risk. A party that neither controls nor assumes a risk is not entitled to any share of the upside or downside returns from that risk. Under the OECD framework, risk is analysed through a six-step process that examines who identifies economically significant risks, who contractually assumes them, who actually controls the risk through decision-making, and who has the financial capacity to bear the consequences. If a party lacks control over a risk that it contractually assumes, the risk is reallocated to the party with both control and financial capacity.
5. Intangibles and the DEMPE framework
Intangible assets, including patents, trademarks, know-how, trade secrets, customer relationships, and proprietary technology, are often the most significant drivers of value in a multinational group. How the returns from intangibles are allocated among group entities is one of the most contested areas of transfer pricing.
The OECD defines an intangible for transfer pricing purposes as something that is not a physical asset or a financial asset, that is capable of being owned or controlled for use in commercial activities, and that would be compensated if transferred between independent parties. Importantly, this definition is broader than accounting or legal definitions: internally developed intangibles that do not appear on a balance sheet, such as the cumulative value of years of marketing expenditure, may still be relevant for transfer pricing purposes.
The DEMPE framework
The OECD introduced the DEMPE framework to determine which entity within a group is entitled to the returns from intangible assets. DEMPE stands for the five key functions related to intangibles:
- Development of the intangible, such as product R&D or brand creation
- Enhancement of the intangible, including improvements and updates over time
- Maintenance of the intangible’s value through quality control and ongoing investment
- Protection of the intangible through legal measures such as trademark registration, patent filings, and enforcement of IP rights
- Exploitation of the intangible to generate revenue, such as commercialising a product or licensing a brand
The critical insight of the DEMPE framework is that legal ownership of an intangible, by itself, does not entitle the owner to the income generated by that intangible. An entity that merely registers a trademark or holds legal title to a patent but performs none of the DEMPE functions is not entitled to the residual profits. Instead, it is entitled to no more than a risk-adjusted return on its funding contribution, if it provides any funding at all. The entity that actually performs the important DEMPE functions, controls the associated risks, and has the financial capacity to bear those risks is entitled to the intangible-related returns.
This principle has far-reaching implications for structures in which intellectual property is held by a shell company in a low-tax jurisdiction while all development, marketing and strategic decision-making occurs elsewhere. Under the DEMPE framework, such arrangements may not withstand scrutiny.
6. Documentation requirements: master file, local file and country-by-country report
The OECD recommends a standardised three-tier approach to transfer pricing documentation, adopted by the majority of jurisdictions worldwide:
Master file
The master file provides a high-level overview of the multinational group’s global business operations, organisational structure, intangible assets, intercompany financial activities, and overall transfer pricing policies. It is designed to give tax authorities a comprehensive picture of the group’s global operations and how transfer pricing policies fit within that context. The master file covers five categories: organisational structure, business description, intangibles strategy, intercompany financial activities, and the group’s financial and tax positions.
Local file
The local file supplements the master file with detailed information on material intercompany transactions involving the local entity. It includes a description of the local entity, its management structure and business strategy, a detailed functional analysis for each material intercompany transaction, the transfer pricing method selected and the rationale for that selection, the comparability analysis including benchmarking data, and the financial information used to apply the selected method. The local file is where the substance of the transfer pricing analysis resides.
Country-by-country report
The country-by-country report (CbCR) provides aggregate, jurisdiction-by-jurisdiction information on the global allocation of income, taxes paid, employees, and tangible assets. It is intended for high-level risk assessment by tax authorities and is explicitly not to be used as a basis for transfer pricing adjustments or formulary apportionment. The CbCR is required for multinational groups with consolidated group revenue of at least EUR 750 million.
7. Transfer pricing in the Netherlands
The Netherlands has been an early adopter of the arm’s length principle and maintains a transfer pricing framework that closely follows the OECD Guidelines. The Dutch framework is built on several legal foundations.
Article 8b of the Corporate Income Tax Act
The arm’s length principle was codified in Dutch law through Article 8b of the Wet op de vennootschapsbelasting 1969 (Corporate Income Tax Act), effective 1 January 2002. This article provides that where conditions agreed between related entities differ from those that would have been agreed between independent parties, taxable profit is determined as if arm’s length conditions had applied. Article 8b also introduces a documentation requirement: taxpayers must include information in their records demonstrating how transfer prices were established and that they are consistent with what independent parties would have agreed.
The 2022 anti-mismatch rules
Since 1 January 2022, the Netherlands has introduced Articles 8ba through 8bd of the Corporate Income Tax Act, which significantly changed the Dutch transfer pricing landscape. These provisions were designed to prevent situations of double non-taxation that could arise from unilateral downward transfer pricing adjustments.
Under the new rules, a downward adjustment of the Dutch tax base is only permitted to the extent that the corresponding upward adjustment is included in the taxable base of the related party in the other jurisdiction. The burden of proof lies with the Dutch taxpayer, which must demonstrate that the counterparty is indeed taxed on the higher amount.
Documentation obligations
Article 29g of the Corporate Income Tax Act implements the OECD’s three-tier documentation framework for the Netherlands. Multinational groups with consolidated group revenue of at least EUR 50 million are required to maintain both a master file and a local file. These documents must be prepared in Dutch or English and completed by the filing deadline of the corporate income tax return. The country-by-country reporting obligation applies to groups exceeding the EUR 750 million threshold.
8. Business restructurings and transfer pricing
Business restructurings, the cross-border reorganisation of functions, assets, and risks within a multinational group, are one of the most complex areas of transfer pricing. Common examples include converting a full-fledged distributor into a limited-risk distributor, transforming a manufacturer into a contract manufacturer, centralising intellectual property in a single group entity, or consolidating procurement, logistics, or back-office functions in a shared service centre.
The OECD Guidelines require that the arm’s length principle be applied not only to the post-restructuring transactions but also to the restructuring itself. If value is transferred from one entity to another, for example through the surrender of a profitable distribution right or the transfer of customer relationships, the transferring entity must receive arm’s length compensation for the value it gives up.
Profit potential and compensation
The concept of "profit potential" plays an important role. When a full-fledged distributor with a history of high and variable returns is converted into a limited-risk entity earning a fixed routine margin, the question arises whether the distributor is being adequately compensated for the profit potential it surrenders. The analysis depends on the options realistically available to the restructured entity: would an independent enterprise in the same position have accepted the same terms, or would it have negotiated indemnification or other compensation?
9. Enforcement, penalties and dispute resolution
Tax authorities worldwide have significantly increased their focus on transfer pricing in recent years. Audit activity has expanded, specialised transfer pricing units have been established, and information exchange between jurisdictions has intensified, particularly through the automatic exchange of country-by-country reports.
Audit triggers
Common audit triggers include persistent losses in a local entity despite group-level profitability, significant intercompany transactions relative to total turnover, payments to related parties in low-tax jurisdictions, recent business restructurings, and inconsistencies between the local file and other publicly available information. Country-by-country reports give tax authorities a high-level view of the group’s global profit allocation, which they use to identify potential mismatches between where profits are reported and where value is created.
Penalties
Most jurisdictions impose penalties on transfer pricing adjustments, particularly where the taxpayer has failed to maintain adequate documentation. In the Netherlands, the general penalty framework for corporate income tax applies. Where a taxpayer has maintained proper contemporaneous documentation and can demonstrate reasonable efforts to comply with the arm’s length principle, penalties are generally avoidable. However, the absence of documentation can shift the burden of proof to the taxpayer and expose it to both adjustments and penalties.
Double taxation and dispute resolution
One of the most significant consequences of a transfer pricing adjustment is the risk of double taxation. If one country increases the taxable profits of a group entity by adjusting a transfer price upward, and the corresponding country does not make a matching downward adjustment, the same income is taxed in both countries. To address this, most tax treaties include a mutual agreement procedure (MAP) under which the competent authorities of the two countries negotiate to eliminate double taxation. More recently, the EU Arbitration Convention and the Multilateral Instrument (MLI) have introduced binding arbitration mechanisms to ensure that disputes are resolved within defined timescales.
10. Getting transfer pricing right
Transfer pricing is not merely a compliance exercise. It is a core element of how a multinational business structures its operations, allocates its resources, and manages its tax risk. The businesses that approach transfer pricing proactively, rather than reactively, are consistently better positioned to withstand audit scrutiny, avoid double taxation, and maintain commercial flexibility.
The key principles to keep in mind are:
- Every intercompany transaction must be priced at arm’s length, supported by a functional analysis that accurately reflects the functions performed, assets used, and risks assumed by each party
- The entity that performs the important value-creating functions, controls the associated risks, and has the financial capacity to bear those risks is entitled to the residual profit
- Documentation must be contemporaneous, meaning it should be prepared at the time the transaction is entered into or, at the latest, by the time the tax return is filed
- Transfer pricing policies must be consistent with the actual conduct of the parties, not merely with what is written in intercompany agreements
- Business restructurings that transfer value between group entities require arm’s length compensation for the value transferred
- Advance pricing agreements (APAs) can provide certainty for material or complex intercompany arrangements
Every situation is different. The right transfer pricing approach depends on the specific facts of the business, the jurisdictions involved, the nature of the intercompany transactions, and the commercial objectives of the group. Transfer pricing arrangements must reflect genuine economic substance and be supported by robust, contemporaneous documentation.
At Taxboutiq, we specialise in transfer pricing, international tax structuring, and cross-border advisory for entrepreneurs and businesses. Whether you are setting up your first intercompany arrangement or reviewing an existing transfer pricing policy, we work as part of your team to implement solutions that are both compliant and commercially effective.
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Emigrating from the Netherlands: UAE, Malta, Cyprus or Switzerland
An increasing number of Dutch entrepreneurs, director-shareholders (DGAs) and high-net-worth individuals are considering a move abroad. The tax burden in Box 2 has risen sharply in recent years, Box 3 continues to generate uncertainty, and for those who operate internationally, the fiscal arguments to remain in the Netherlands are becoming harder to sustain. At the same time, destinations such as the United Arab Emirates (UAE), Malta, Cyprus and Switzerland offer lower tax rates, flexible regimes and a growing community of international entrepreneurs and professionals.
But emigration is not a simple tax solution. Those who leave without thorough preparation risk a deferred exit tax assessment that remains outstanding for years, a holding structure that the Dutch tax authorities treat as artificial, or a foreign entity that is never recognised as genuinely established. Choosing the right country is only step one. Step two is building a structure that is legally, fiscally and operationally sustainable.
This article compares the four most popular emigration destinations for Dutch entrepreneurs: the UAE, Malta, Cyprus and Switzerland. We address when you are considered to have genuinely emigrated for Dutch tax purposes, how the exit tax works, what each country offers fiscally, and where the risks lie.
Table of contents
1. Why emigration is increasingly relevant for entrepreneurs
2. When have you genuinely emigrated from the Netherlands?
3. Exit tax and the protective tax assessment
4. UAE: 0% income tax and substance requirements
5. Malta: the refund mechanism and effective tax burden
6. Cyprus: the non-dom regime and low corporate tax
7. Switzerland: lump-sum taxation and cantonal differences
8. Common mistakes in emigration planning
1. Why emigration is increasingly relevant for entrepreneurs
The Netherlands has become a fiscally demanding environment for entrepreneurs with accumulated wealth. In 2026, the Box 2 rate stands at 24.5% on the first €68,843 and 31% on the excess. For a director-shareholder with €5 million of retained earnings in a private company, a dividend distribution generates over €1.5 million in Box 2 tax, on top of the 25.8% corporate income tax already paid at company level. The combined effective burden on distributed profits can exceed 45%.
Box 3 adds further pressure. The wealth tax regime has been in flux for years, and the transition to a system based on actual returns introduces new uncertainty. For those holding wealth in shares, real estate or investment portfolios, the Dutch fiscal environment has become increasingly unpredictable.
At the same time, international mobility has made emigration practically viable. Remote businesses, e-commerce and digital services allow entrepreneurs to continue operating without being physically tied to the Netherlands. Where emigration was once the preserve of retirees, it is now a genuine option for active entrepreneurs in their thirties, forties and fifties.
The question is no longer whether emigration is possible, but whether it is fiscally and structurally sound, and which country best fits your specific situation.
2. When have you genuinely emigrated from the Netherlands?
Dutch tax law determines fiscal residence based on all facts and circumstances (Article 4 of the General Tax Act, AWR). There is no objective threshold such as a 183-day rule. The decisive question is whether the individual maintains a lasting personal tie with the Netherlands.
Under Dutch case law, the following circumstances are considered relevant in assessing whether a durable personal tie with the Netherlands exists. No single factor is decisive in isolation; all relevant facts and circumstances must be weighed in their mutual connection:
- whether a permanently furnished home is available in the Netherlands;
- the place of residence, work or school of the partner and family;
- the place where work is carried out;
- the place where cash withdrawals or credit card payments are made;
- gas, electricity and water consumption at a Dutch address;
- where bank accounts and investments are held;
- where insurance policies are taken out;
- where medical treatment is received, including by a GP, dentist or physiotherapist;
- membership of sports clubs, charities, religious organisations or similar associations;
- where subscriptions are held; and
- where the individual is registered in the municipal records.
Formal circumstances such as deregistration from the municipal population register and nationality are of subordinate importance under Dutch tax law. Unlike in civil law, registration in the population register does not in itself determine fiscal domicile.
The Netherlands does not apply an objective threshold such as a 183-day rule. Fiscal domicile is determined by a subjective assessment of all relevant facts and circumstances taken together. Dutch case law includes instances in which an individual was held to be a tax resident despite spending only 60 days in the Netherlands in the relevant year. The duration of physical presence is therefore only one element among many.
In practice, two risks recur most frequently. The first is dual residence: both the Netherlands and the destination country claim the individual as a tax resident. Tax treaties typically resolve this through tie-breaker rules, examining in which country a permanent home is available and where personal and economic ties lie most strongly. Tie-breakers only work where a treaty applies and where its outcome is in your favour.
The second risk concerns emigration that the tax authorities do not consider genuine, because the factual situation has not materially changed. An individual who retains a Dutch home, returns to the Netherlands on a regular basis and continues to manage their company from Amsterdam has not, from a Dutch tax perspective, genuinely departed, regardless of formal deregistration from a Dutch municipality.
Genuine fiscal emigration requires demonstrable severance of ties with the Netherlands and the establishment of ties in the destination country. In practice, this typically involves:
- selling or renting out the Dutch property;
- relocating the family to the destination country;
- transferring bank accounts and insurance policies; and
- living and working in the destination country in a manner that can be substantiated with documentation.
3. Exit tax and the protective tax assessment
Any individual who holds a substantial interest in a Dutch company at the time of emigration is subject to the exit tax provisions of the Dutch Income Tax Act 2001. A substantial interest exists when you directly or indirectly hold 5% or more of the shares in a company. Upon emigration, a deemed disposal is triggered: your shares are treated as if sold at fair market value at the moment immediately before departure. Box 2 tax is levied on the resulting gain, and a protective tax assessment is issued.
In 2026, Box 2 rates are 24.5% on the first €68,843 and 31% on the excess. Fiscal partners may each apply the lower rate independently, allowing a couple to apply 24.5% on up to €137,686 combined. The assessment does not need to be paid immediately upon emigration.
Deferral conditions depend on the destination country. For emigration to an EU or EEA member state such as Cyprus or Malta, automatic and indefinite deferral is granted without any requirement for security. This follows from the free movement of persons and capital within the European Union. For emigration to a country outside the EU and EEA such as the UAE or Switzerland, deferral is only available subject to the provision of adequate security, typically in the form of a bank guarantee, a pledge over the shares, or a mortgage over a Dutch property.
The protective tax assessment on a substantial interest has no expiry date. The assessment remains outstanding indefinitely and is collected when a triggering event occurs: a sale or other disposal of the shares, a dividend distribution, or a repayment of paid-in capital. Dividends paid after emigration therefore trigger immediate collection of part of the outstanding assessment, making dividend policy one of the most critical planning considerations after departure.
Structuring dividend distributions through a foreign holding company established in the country of residence, rather than receiving them directly as an individual, forms a central element of post-emigration tax planning. This transition requires careful preparation and, in most cases, precedes the actual emigration.
4. UAE: 0% income tax and substance requirements
The UAE levies no personal income tax. There is no payroll tax, no wealth tax, no tax on dividends received by individuals, and no withholding tax on any outbound payments. For entrepreneurs seeking to extract wealth from a corporate structure, this is structurally attractive. A dividend of €1 million received by an individual from a UAE holding company is received entirely free of local tax.
Tax residency in the UAE arises after 183 days of presence within a 12-month period, or after 90 days of presence combined with a permanent place of residence and a valid UAE residence visa. A Tax Residency Certificate, issued by the Federal Tax Authority, is typically required to demonstrate to the Dutch tax authorities that the fiscal centre of gravity has genuinely shifted.
Since June 2023, the UAE levies a federal corporate income tax of 9% on taxable profits above AED 375,000. The first AED 375,000 is taxed at 0%. For Qualifying Free Zone Persons, a 0% rate may apply to qualifying income subject to substance requirements and activity conditions.
The critical consideration for Dutch nationals emigrating to the UAE is the tax treaty between the Netherlands and the UAE. This treaty contains a specific restriction: its tie-breaker provisions and other protections apply exclusively to UAE nationals. For Dutch nationals, the treaty offers no protection in a dual residence situation and does not limit Dutch taxing rights over the exit tax assessment. The Netherlands retains unrestricted taxing rights over the substantial interest for as long as the protective tax assessment remains outstanding.
This makes restructuring through a UAE holding company essential in most cases. By interposing a UAE entity between the shareholder personally and the Dutch operating company, dividends can be received at holding level rather than directly by the individual shareholder. Subject to sufficient substance and the anti-abuse conditions being met, this may bring the Dutch dividend withholding tax exemption into play.
Substance in the UAE is not a formality. A postal address or virtual office is insufficient. The Dutch tax authorities will require that the entity carries on genuine economic activities: its own staff, a physical office, and decision-making that actually takes place in the UAE. For those who live full-time in the UAE and genuinely manage their business from Dubai, this is achievable. For those using the UAE as a letterbox while remaining factually active elsewhere, the risk of reclassification is substantial.
5. Malta: the refund mechanism and effective tax burden
Malta operates a distinctive corporate tax system built around full imputation and tax accounts. The nominal corporate income tax rate is 35%, but non-resident shareholders can reclaim up to 6/7 of the tax paid by the Maltese company when profits are distributed from the Maltese Taxed Account. This reduces the effective tax burden to approximately 5%. The refund is paid directly by the Maltese tax authorities, typically within fourteen working days of the refund application.
What further distinguishes Malta is the remittance basis available to non-domiciled residents. Individuals who are tax resident in Malta but not domiciled there are taxed on foreign-source income only to the extent it is remitted to Malta. Foreign income retained outside Malta is not taxable. Foreign-source capital gains are always exempt in Malta, regardless of remittance, meaning gains on the disposal of shares in non-Maltese companies are never subject to Maltese tax.
Tax residency in Malta is established by more than 183 days of presence per calendar year or by demonstrable intention of permanent settlement. Maltese tax law distinguishes between residence and domicile. Those who are resident but not domiciled fall under the remittance basis.
For Dutch director-shareholders optimising their holding structure through Malta, the combination of the low effective rate through the refund mechanism and the remittance basis offers significant advantages. Malta is an EU member state, meaning automatic and indefinite deferral of the protective tax assessment is available without security. The participation exemption applies to dividends from qualifying subsidiaries where a holding of at least 10% has been maintained for at least 183 days.
The complexity of Malta lies in the cash flow. To fully benefit from the remittance basis and prevent dividends from being treated as remitted to Malta, careful structuring of the payment flow is required, typically through a foreign intermediate holding company outside Malta through which dividends are received before any transfer to Malta is considered. This requires precise administrative setup and annual monitoring.
6. Cyprus: the non-dom regime and low corporate tax
For many Dutch director-shareholders, Cyprus is the most straightforward EU option. The system is clear, the costs are low and the benefits are substantial. At the heart of the regime is non-domiciled status: a non-domiciled resident of Cyprus is fully exempt from the Special Defence Contribution, the Cypriot levy on dividend and interest income. This means dividends received by a non-dom resident are entirely tax-free, regardless of whether they originate from a Cypriot or foreign company.
Non-dom status applies to individuals who have not been Cypriot tax residents for more than sixteen of the preceding twenty years. For new arrivals, non-dom status therefore applies automatically from the date of establishment, and lasts seventeen years. After this period, the non-dom status can be extended twice, each time for five years, against payment of €250,000 per extension, allowing the regime to last up to twenty-seven years in total.
Tax residency in Cyprus can be obtained through the 183-day rule or through the flexible 60-day rule. The 60-day rule requires a minimum of 60 days of presence in Cyprus, an available home (rented accommodation qualifies) and some economic activity or a directorship in a Cypriot company. From 1 January 2026, the condition that the individual must not be a tax resident in any other country has been removed, making the 60-day rule considerably more flexible for internationally mobile entrepreneurs.
The Cypriot corporate income tax rate is 15%. Cyprus has a broad participation exemption that exempts both dividends received from subsidiaries and capital gains on the disposal of shares from corporate income tax, provided no more than 50% of the subsidiary's assets consist of passive investment assets. There is no withholding tax on dividends paid by Cypriot companies to non-residents. Capital gains on shares are fully exempt from tax in Cyprus, with the sole exception of gains on directly held Cypriot real estate.
A critical point concerns the interaction between the Netherlands-Cyprus tax treaty and an outstanding protective tax assessment. Contrary to what is sometimes assumed, the treaty does not limit Dutch taxation of dividends to the 15% withholding rate for as long as the exit tax assessment remains outstanding. The Netherlands retains, by virtue of the saving clause in the treaty, its full Box 2 taxing rights over dividend distributions attributable to the period of Dutch residence. This makes the strategic timing of dividend distributions after emigration to Cyprus particularly important.
Cyprus is an EU member state, so automatic and indefinite deferral of the protective tax assessment is available without any requirement for security.
7. Switzerland: lump-sum taxation and cantonal differences
Switzerland is the destination of choice for high-net-worth individuals who prioritise stability, privacy and quality of life, and who are prepared to accept a predictable, fixed tax burden in return. The Swiss tax system has three layers: federal, cantonal and municipal. The combination of these levels means that the actual tax burden varies considerably from one canton to another.
For foreign nationals without income from Swiss professional activity, Switzerland offers lump-sum taxation, known as Pauschalbesteuerung. The taxable base is the higher of two amounts: seven times the annual rental value or actual rent paid for the Swiss home, or the federal minimum of CHF 434,700 for 2026. The applicable cantonal and federal tax rates are then applied to this deemed base.
The effective tax burden on the lump-sum base varies significantly by canton. In the most favourable cantons, Zug, Schwyz and Nidwalden, the effective rate ranges from approximately 18% to 22%. In more expensive cantons such as Geneva or Vaud, the rate can reach 40% or above. The lump-sum regime is no longer available in the cantons of Zurich, Basel-Stadt, Basel-Landschaft, Schaffhausen and Appenzell Ausserrhoden, where it was abolished by referendum.
Under the lump-sum regime, all income, including foreign dividends and interest, is treated as covered by the deemed base. No separate tax is levied on dividends or capital gains received. Private capital gains on shares are fully exempt from Swiss tax, both within and outside the lump-sum regime.
One point requiring attention is the Swiss Verrechnungssteuer of 35%, which is withheld on income from Swiss sources, specifically dividends from Swiss companies and interest on Swiss bank deposits. For Swiss residents, this withholding is fully creditable against Swiss tax.
Switzerland is not an EU or EEA member state. Emigration to Switzerland therefore requires security to be provided for deferral of the protective tax assessment. The Dutch anti-abuse rules apply in full: a Swiss holding company without genuine activity and with decision-making that factually takes place elsewhere will not be recognised as a legitimate intermediate holding vehicle.
8. Common mistakes in emigration planning
Most problems in emigration cases do not arise from a breach of the law, but from a structure that does not match the actual situation. In practice, a number of mistakes recur consistently.
The most common mistake is leaving too early, without adequate preparation. Someone whose shares are worth €3 million at the time of emigration will receive a protective tax assessment of over €900,000. A well-structured emigration requires at least twelve to eighteen months of preparation.
A second frequent mistake is incorrect assumptions about what zero percent tax actually means in practice. The UAE levies no income tax, but the Dutch treaty does not protect Dutch nationals: the Netherlands retains taxing rights over substantial interest dividends for as long as the protective tax assessment remains outstanding. Cyprus has a non-dom regime, but the interaction with the Dutch exit tax means dividends paid during the deferral period may still be taxed in the Netherlands. The headline numbers presented in promotional material rarely reflect the full picture for a Dutch emigrant.
A third mistake is establishing a foreign company without genuine substance. The Dutch tax authorities will assess whether a foreign holding company is artificial: is there local staff, a physical office, and are decisions genuinely made in the destination country? A postal address in Dubai or Nicosia is not sufficient. Those unwilling to transfer real activities abroad should not pursue an offshore holding structure.
A fourth mistake is underestimating the emigration tax return, the M-biljet, and the ongoing obligations that follow. The valuation of the shares included in the emigration return directly determines the size of the protective tax assessment. A valuation that is too low attracts scrutiny; one that is too high costs unnecessary money. Both require careful substantiation.
Finally, we regularly encounter situations where an entrepreneur has relocated abroad while the Dutch company continues to function exactly as before. The director lives in Dubai but calls in daily, makes all decisions and is the only person who genuinely understands what happens inside the company. The Dutch tax authorities can argue that the company's effective management rests with the director and therefore lies outside the Netherlands, triggering an exit charge at corporate level, or that the director should have been receiving a market-rate management fee that is taxable in the Netherlands.
9. What should you do now?
Emigration as a tax strategy works, but only when the preparation is thorough, the structure is sustainable and the factual situation corresponds with the legal framework. Each of the four countries discussed in this article offers material advantages over the Netherlands, but each comes with different conditions, different risks and a different ideal profile.
Cyprus is the most accessible EU option for director-shareholders with a substantial interest: automatic deferral of the exit tax, non-dom status from arrival, 0% tax on dividends for non-domiciled residents and a minimum presence requirement of 60 days. Malta offers comparable EU advantages but requires more structural complexity to fully benefit from the remittance basis. The UAE offers maximum fiscal freedom but demands a robust holding structure, genuine substance and a complete severance of Dutch ties to realise those benefits. Switzerland is the choice for those who place stability, privacy and quality of life above achieving the lowest possible effective tax rate.
The steps we recommend:
- Have the current value of your substantial interest assessed and calculate the potential exit tax exposure.
- Determine which country best aligns with your personal circumstances, business activities and preferred lifestyle.
- Design the optimal holding structure for the destination country, including a substance plan and dividend strategy.
- Plan the emigration at least twelve months in advance and document every step, from deregistration in the Netherlands to genuine establishment abroad.
- Work with advisers who have hands-on experience in both Dutch and foreign taxation.
Emigration is not a one-time transaction; it is an ongoing process that requires annual monitoring and active management.
Taxboutiq specialises in international tax structuring for entrepreneurs, director-shareholders and high-net-worth individuals. We advise on the full emigration process: from the initial assessment and exit tax calculation through to the design of the foreign structure, the build-up of substance, and the ongoing fiscal compliance in the destination country.
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Transfer pricing for cross-border e-commerce: structuring your US operations the right way
Cross-border e-commerce sellers generating revenue in the United States face a critical decision: how to structure their US operations in a way that is tax-efficient, compliant, and operationally advantageous. The wrong structure can result in effective tax rates exceeding 45%, while the right one can bring the US tax burden down to less than 1% of revenue, all within the boundaries of the law.
In this article, we explain the key tax and operational considerations for e-commerce businesses operating in the US market from jurisdictions like Hong Kong, the Netherlands, or the UAE. We cover the risks of commonly used structures, how transfer pricing works in practice, and why a US entity may offer significant commercial advantages beyond tax savings alone.
Table of contents
1. The common setup: why it is risky
2. The disregarded entity trap
3. The C-Corporation solution
4. Corporate tax landscape: US vs Hong Kong
5. Transfer pricing: how it works for e-commerce
6. Substance requirements and the DEMPE framework
7. The operational case: payment processing and credit advantages
8. IRS enforcement: what happens if you get it wrong
9. Common e-commerce structures and their tax implications
10. What should you do next?
1. The common setup: why it is risky
A structure we frequently encounter among e-commerce entrepreneurs looks something like this: a holding company in Hong Kong or the UAE owns a single-member US LLC. The LLC opens US bank accounts, connects to payment processors like Stripe or Shopify Payments, and sells products to American consumers through platforms such as Amazon and Shopify. The entrepreneur, often a tax resident of Dubai or another low-tax jurisdiction, assumes the LLC is "tax-free" because LLCs are not subject to US income tax at the entity level.
This assumption is a half-truth. And half-truths in international tax law can be very expensive.
While it is correct that a single-member LLC is not itself a taxable entity for US federal income tax purposes, the income does not simply disappear. It flows through to the owner. If that owner is a foreign corporation or individual, the US tax consequences can be severe, depending on how the LLC is classified and what activities it performs in the United States.
2. The disregarded entity trap
By default, a single-member LLC owned by a foreign person is classified as a "disregarded entity" (DRE) for US federal income tax purposes. This means the LLC is transparent, the IRS looks through it and treats the foreign owner as directly conducting business in the United States.
Effectively connected income (ECI)
When a foreign owner conducts a trade or business in the US through a disregarded LLC, for example, by holding inventory in US warehouses, fulfilling orders to US customers, or using a third-party logistics provider (3PL) that acts as a dependent agent, the resulting income is classified as effectively connected income (ECI). ECI is subject to US federal income tax at regular rates: up to 37% for individuals, or 21% for corporations.
The determination of whether a 3PL creates a dependent agency relationship, and therefore a permanent establishment, depends on the specific facts and circumstances. If the 3PL regularly fills orders, maintains inventory, and performs core business functions exclusively for one foreign company, its activities may be imputed to the foreign owner.
Branch profits tax (BPT)
On top of the regular income tax, a foreign corporation operating through a US branch (including a disregarded LLC) is subject to the branch profits tax (BPT) under IRC Section 884. The BPT imposes an additional 30% tax on the "dividend equivalent amount", essentially the after-tax earnings deemed remitted to the foreign home office.
This second layer of tax is analogous to the withholding tax on dividends paid by a US subsidiary to a foreign parent. Critically, the statutory BPT rate can be reduced by an applicable tax treaty. The US-Netherlands treaty, for example, typically reduces the BPT rate significantly. However, there is no US-Hong Kong tax treaty, meaning Hong Kong-based owners face the full 30% BPT rate.
The combined effect for a Hong Kong company operating through a US disregarded LLC can be staggering: 21% corporate income tax plus 30% BPT on the remaining 79% results in an effective tax rate of approximately 45% on US-source income. And if the foreign owner fails to file a timely Form 1120-F, it may lose the right to claim deductions, meaning the tax applies to gross revenue, not net profit.
3. The C-Corporation solution
The structural problems described above can be largely resolved through a single election: having the US LLC elect to be treated as a C-Corporation for US federal income tax purposes by filing IRS Form 8832 (the "check-the-box" election).
How it works
Once the election is made, the LLC is treated as a separate US domestic corporation. It files its own tax return (Form 1120), pays the flat 21% federal corporate income tax on its taxable income, and, crucially, is no longer a branch of the foreign owner. This eliminates the branch profits tax entirely.
Instead, a withholding tax applies only when dividends are actually distributed to the foreign parent. The statutory rate is 30%, but treaty rates often reduce this significantly. More importantly, if the US entity retains its earnings and reinvests them into the business, no second layer of tax arises at all.
This distinction is significant in practice. Under a properly implemented transfer pricing arrangement, the US entity earns only a routine profit margin of 1% to 5% of revenue. When dividends are eventually distributed, the withholding tax applies only to this limited amount, not to the full revenue stream. By contrast, in a disregarded entity structure the full profit of the US operations is treated as effectively connected income of the foreign owner, meaning the foreign owner is subject to US income tax on the entire net profit, not just a routine margin. On top of that, the BPT applies to all after-tax profits attributable to the US branch, which typically represents a far larger base. The C-Corporation structure therefore not only defers the second layer of tax but also significantly reduces the amount subject to it. The applicable withholding rate on dividends depends on the tax treaty between the US and the parent company's jurisdiction. The US-Netherlands treaty, for instance, can reduce the rate to as low as 5% for qualifying participations. However, there is no comprehensive income tax treaty between the US and Hong Kong, nor between the US and the UAE, meaning that in these structures the statutory 30% withholding rate applies in full upon dividend distribution.
Key advantages
- No branch profits tax — BPT only applies to branches of foreign corporations, not to US domestic corporations
- Deferral of dividend withholding — the second layer of tax is triggered only upon actual distribution, not accrual
- Cleaner compliance profile — the entity files Form 1120 (standard US corporate return), not Form 1120-F
- Transfer pricing flexibility — the C-Corp structure enables a defensible transfer pricing arrangement where the US entity earns only a routine profit margin
- Foreign ownership permitted — foreign nationals can own 100% of a US C-Corporation without any citizenship or residency requirements
4. Corporate tax landscape: US vs Hong Kong
United States
The US imposes a flat 21% federal corporate income tax on the worldwide income of domestic corporations. In addition, most states impose their own corporate income tax, with rates ranging from 0% (in states like Nevada, South Dakota, and Wyoming) to over 9% (in states like New Jersey and California). State tax planning, including the choice of incorporation state, is therefore an important consideration.
The US does not impose a federal VAT or sales tax, but nearly all states impose sales and use taxes that e-commerce sellers must collect and remit once they exceed certain economic nexus thresholds (typically $100,000 in sales or 200 transactions, following the South Dakota v. Wayfair decision).
Hong Kong
Hong Kong operates on a territorial basis of taxation: only profits arising in or derived from Hong Kong are subject to profits tax. The two-tier profits tax rates are:
- First HKD 2,000,000 (~USD 256,000) of assessable profits: 8.25%
- Profits exceeding HKD 2,000,000: 16.5%
There is no capital gains tax, no withholding tax on dividends, and no sales tax or VAT in Hong Kong. For e-commerce businesses selling primarily to customers outside Hong Kong, profits may be considered offshore-sourced and potentially exempt from Hong Kong profits tax, provided the business can demonstrate genuine economic substance in Hong Kong.
The FSIE regime
Since 1 January 2023, Hong Kong has implemented the Foreign-Sourced Income Exemption (FSIE) regime to align with EU and OECD standards. The regime targets four types of passive offshore income received by multinational enterprise (MNE) entities in Hong Kong: dividends, interest, disposal gains from equity interests, and intellectual property income. From 1 January 2024, its scope was expanded to include disposal gains on non-equity assets.
These income types are now deemed Hong Kong-sourced and taxable unless the entity meets an economic substance test, demonstrating adequate employees, expenditure, and decision-making in Hong Kong, or qualifies under specific exemptions such as the participation exemption for dividends and gains.
5. Transfer pricing: how it works for e-commerce
Transfer pricing is the mechanism by which related entities within a multinational group price their intercompany transactions. Under both the OECD Transfer Pricing Guidelines and US domestic law (IRC Section 482), these transactions must be priced at arm's length, meaning the price must reflect what unrelated parties would have agreed upon under comparable circumstances.
For cross-border e-commerce structures, transfer pricing is the tool that determines how much profit is allocated to the US entity and how much remains with the foreign parent.
The limited-risk distributor model
A common and well-established transfer pricing model for e-commerce involves characterizing the US entity as a limited-risk distributor (LRD). In this arrangement:
- The foreign parent owns the brand, product intellectual property, and customer data. It selects products, manages supplier relationships, makes strategic decisions, and bears the entrepreneurial risk.
- The US entity acts as a limited-risk distributor: it purchases goods from the foreign parent (or receives them on consignment), fulfills orders through Amazon FBA or its own logistics, handles US customer service, and collects payments.
Because the US entity performs only routine distribution functions and bears limited risk, it is entitled to earn only a routine profit margin under arm's-length principles. Based on benchmarking analyses of comparable independent distributors, this margin typically falls in the range of 1% to 5% of net sales, with 2% to 3% being the most commonly observed interquartile range for limited-risk distributors.
The remaining profit flows to the foreign parent through intercompany pricing, the cost of goods sold, management fees, or IP royalties, where it may benefit from favorable tax treatment depending on the parent's jurisdiction (e.g., Hong Kong's territorial exemption or a UAE free zone).
Transfer pricing methods
The most commonly applied transfer pricing methods in e-commerce distribution arrangements are:
- Transactional Net Margin Method (TNMM) — compares the net profit margin of the tested party (the US entity) against comparable independent companies performing similar functions. This is the most widely used method for limited-risk distributor arrangements.
- Comparable Profits Method (CPM) — the US domestic equivalent of TNMM, commonly applied in IRS examinations. It tests the operating profit of the US entity against a range of comparable companies.
- Resale Price Method (RPM) — starts from the resale price to the end customer and deducts an appropriate gross margin for the distributor. Useful when the distributor does not add significant value to the product.
- Cost Plus Method — determines the transfer price by adding an appropriate markup to the costs incurred by the supplier. More commonly used for intercompany services than for goods distribution.
Documentation requirements
The IRS requires that transfer pricing documentation be contemporaneous, meaning it must be prepared by the time the tax return is filed, not after an audit begins. Adequate documentation includes:
- A functional analysis describing the functions performed, assets used, and risks assumed by each entity
- An economic analysis with a benchmarking study identifying comparable independent companies
- Intercompany agreements signed in advance (not retroactively)
- A clear explanation of the transfer pricing method selected and why it is the most appropriate
Proper documentation is the primary defense against transfer pricing penalties under IRC Section 6662(e), which imposes a 20% penalty on any underpayment resulting from a transfer pricing adjustment, or a 40% penalty in cases of gross valuation misstatement.
6. Substance requirements and the DEMPE framework
A transfer pricing structure is only as strong as the economic substance behind it. Both the OECD Transfer Pricing Guidelines and the IRS emphasize that the allocation of profits must align with where value is actually created, not merely where contracts are signed or entities are incorporated.
What is DEMPE?
The OECD framework uses the acronym DEMPE to describe the key functions related to intangible assets:
- Development — creating and developing the intangible (e.g., product design, brand building)
- Enhancement — improving and updating the intangible over time
- Maintenance — preserving and protecting the value of the intangible
- Protection — legal and practical protection (trademarks, patents, trade secrets)
- Exploitation — commercializing the intangible to generate revenue
The entity that performs the important DEMPE functions, controls the associated risks, and has the financial capacity to bear those risks is entitled to the residual profit, the return above the routine compensation paid to entities performing limited functions.
An entity that merely provides funding or holds legal ownership of intangibles without performing DEMPE functions is entitled only to a risk-adjusted funding return, not the residual profit. This principle is critical: simply registering a trademark in Hong Kong does not entitle the Hong Kong entity to the residual profits if all brand-building, marketing, and strategic decisions are made elsewhere.
What this means in practice
For the transfer pricing structure to be defensible, the foreign parent must genuinely perform the key value-creating functions. This typically means:
- Product development, design, and sourcing decisions are made by the foreign parent
- Marketing strategy and brand direction are controlled by the foreign parent
- The foreign parent has qualified employees (or engaged principals) who exercise decision-making authority
- Contracts with suppliers, manufacturers, and key service providers are entered into by the foreign parent
- The foreign parent bears the inventory risk, market risk, and credit risk
The US entity, in contrast, should perform only the functions consistent with its characterization as a limited-risk distributor: order fulfillment, local customer service, payment collection, and regulatory compliance.
7. The operational case: payment processing and credit advantages
Beyond the tax considerations, there are compelling commercial reasons to establish a US entity for e-commerce operations targeting the American market. These advantages are often overlooked in purely tax-driven structuring discussions, but they can have a material impact on profitability at scale.
Lower payment processing fees
Payment processors charge different rates depending on whether a transaction is classified as domestic or cross-border. For a business selling primarily to US customers:
- US-based merchant (Stripe): 2.9% + USD 0.30 per transaction
- Hong Kong-based merchant (Stripe): 3.4% + HKD 2.35 per transaction, plus an additional 0.5% for international cards and potential currency conversion fees
On Shopify's Advanced plan, the difference is even more pronounced: US merchants pay 2.4% versus 3.3% for Hong Kong merchants. On USD 1,000,000 in annual revenue, this translates to a saving of USD 5,000 to USD 9,000 per year in processing fees alone.
Higher credit card approval rates
US-domiciled merchants generally achieve significantly higher authorization rates on US-issued credit cards because the transaction is classified as domestic. Cross-border transactions from Hong Kong are subject to additional fraud screening by card issuers, resulting in decline rates that are 15% to 25% higher than domestic transactions.
For a business processing USD 1,000,000 in US card transactions, the difference in approval rates could mean an additional USD 50,000 to USD 100,000 in recovered revenue that would otherwise be lost to declined transactions.
Business credit card cashback
US entities have access to business credit cards offering substantial cashback rewards that are largely unavailable to Hong Kong or UAE-based companies. Programs such as Capital One Spark Cash offer unlimited 2% cashback on all purchases, while category-specific cards can yield 3% to 4% on advertising spend, software subscriptions, and shipping costs.
For a business spending USD 200,000 annually on advertising and operational costs through a US entity, this represents USD 4,000 to USD 8,000 in annual cashback, effectively a direct reduction in operating costs.
Platform and provider compatibility
US entities benefit from easier onboarding and wider acceptance by American payment providers, advertising platforms, and marketplace services. Amazon Seller Central, Meta Ads, and Google Ads all operate more smoothly with US-based entities, US bank accounts, and US employer identification numbers (EINs).
8. IRS enforcement: what happens if you get it wrong
E-commerce sellers who rely on non-compliant structures should not assume they will remain undetected. The IRS has multiple mechanisms to identify foreign sellers operating in the US market.
Platform reporting
Amazon, Shopify, Stripe, and PayPal all file Form 1099-K with the IRS, reporting the gross dollar amount of transactions processed for each seller. The 1099-K includes the seller's EIN, and the IRS actively matches these forms against filed tax returns. If no return is filed, the IRS computer system will generate automatic notices.
FATCA and international information exchange
The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions in partner jurisdictions, including Hong Kong and the UAE, to report information about accounts held by US taxpayers and US-owned entities. The US has FATCA agreements with over 115 jurisdictions, giving the IRS visibility into offshore bank accounts connected to US business operations.
Enforcement timeline
The typical enforcement process escalates over a period of three to four years:
- Year 1: IRS issues CP2000 correction notices when 1099-K amounts do not match a filed return
- Year 2: Notices continue with escalating penalties
- Year 2.5: IRS issues a formal assessment and notice of intent to levy
- Year 3-4: IRS may issue a jeopardy assessment, garnish bank accounts, and file tax liens
After a tax lien is filed, the IRS has a legal claim against the taxpayer's property, both real and personal, within the United States. This includes bank accounts, inventory, and receivables from platforms and payment processors.
Penalties
- Failure to file Form 5472: USD 25,000 per form, per year
- Failure to file Form 1120-F: loss of the right to claim deductions and credits
- Transfer pricing penalties: 20% on underpayments resulting from pricing adjustments; 40% for gross valuation misstatements
9. Common e-commerce structures and their tax implications
In practice, we see several recurring structures among cross-border e-commerce entrepreneurs. Each carries its own set of tax consequences, compliance obligations, and operational trade-offs.
UAE holding with US LLC
A UAE free zone entity owns a US single-member LLC. The entrepreneur is typically a tax resident of the UAE (often Dubai), benefiting from 0% personal income tax. The UAE entity may qualify for 0% corporate tax as a Qualifying Free Zone Person, though the standard UAE corporate tax rate is 9% on taxable income exceeding AED 375,000 for non-qualifying income.
The key risk lies on the US side. As a disregarded entity, the LLC's income flows through to the UAE owner. If the LLC conducts a US trade or business, which is almost always the case for e-commerce sellers with US inventory, US fulfillment, and US customers, the income is treated as ECI and subject to US income tax. The US-UAE tax treaty may reduce the branch profits tax rate, but proper compliance (including timely filing of Form 1120-F) is essential to preserve deductions and treaty benefits.
Electing C-Corporation status for the LLC eliminates the branch profits tax and enables transfer pricing to limit the US taxable base. The residual profit can flow to the UAE entity, where it may benefit from the free zone exemption, provided genuine economic substance is maintained in the UAE.
Hong Kong holding with US LLC
A Hong Kong company owns a US single-member LLC. This structure is popular because Hong Kong's territorial tax system can exempt offshore-sourced profits, there is no withholding tax on dividends, and no capital gains tax.
However, the absence of a US-Hong Kong tax treaty creates a significant disadvantage: if the LLC remains a disregarded entity, the full 30% branch profits tax applies on top of the regular US income tax, resulting in a combined effective rate of approximately 45%. This makes the C-Corporation election particularly important for Hong Kong-based structures.
With a C-Corp election and proper transfer pricing, the US entity pays 21% corporate tax only on its routine profit margin. No branch profits tax applies because the C-Corp is a US domestic entity. The residual profit flowing to Hong Kong may qualify as offshore-sourced income under Hong Kong's territorial principle, though compliance with the FSIE regime and adequate substance in Hong Kong are essential.
Individual (natural person) with US LLC only
Some entrepreneurs operate through a US LLC without any foreign holding structure, the LLC is owned directly by the individual. If the individual is a non-US tax resident and the LLC is a single-member entity, the LLC is a disregarded entity and the individual is treated as directly conducting business in the United States.
The individual's ECI is subject to US federal income tax at graduated rates up to 37%, plus applicable state income taxes. Unlike the corporate scenario, there is no branch profits tax on individuals, but the higher marginal rates and the lack of a transfer pricing mechanism to shift profits make this structure generally less efficient at scale.
For individuals seeking to optimize, the path typically involves incorporating a foreign holding company that owns the US LLC (or electing C-Corp status for the LLC directly). This creates the corporate layer needed for transfer pricing and may enable more favorable treatment of the residual profits in the individual's jurisdiction of tax residence.
Choosing the right structure
The optimal structure depends on a combination of factors that are unique to each situation:
- Personal tax residency of the entrepreneur, which determines how dividends, capital gains, and worldwide income are taxed at the individual level
- Applicable tax treaties between the US and the holding jurisdiction, affecting BPT rates, withholding rates, and access to dispute resolution mechanisms
- Economic substance in the holding jurisdiction, with genuine operations, employees, and decision-making to support the transfer pricing position
- Scale and growth trajectory of the business, as the operational advantages of a US entity become increasingly material as revenue grows
- Compliance infrastructure per jurisdiction, since each jurisdiction adds filing obligations, documentation requirements, and ongoing costs
10. What should you do next?
If you are operating a cross-border e-commerce business with US sales, the structuring decision is one of the most consequential tax and commercial choices you will make. The key takeaways are:
- A US single-member LLC owned by a foreign entity is not tax-free — the income is taxable to the owner, and the consequences of non-compliance are severe
- Electing C-Corporation status for the US entity eliminates the branch profits tax and creates a clean foundation for transfer pricing
- Transfer pricing, when properly implemented and documented, can legitimately reduce the US taxable base to a routine profit margin of 1% to 5% of revenue
- The foreign parent must have genuine economic substance — real employees, real decision-making, and real functions — to justify retaining the residual profits
- Beyond tax, a US entity offers meaningful commercial advantages: lower payment processing fees, higher approval rates, access to cashback programs, and better platform compatibility
Every situation is different. The right structure depends on your specific facts, including where you live, where your team operates, what products you sell, and how your supply chain is organized. Transfer pricing arrangements must reflect genuine economic reality and be supported by contemporaneous documentation.
At Taxboutiq, we specialize in international tax structuring, transfer pricing, and cross-border advisory for entrepreneurs and e-commerce businesses. We combine deep technical expertise with practical, hands-on guidance, working as part of your team to implement structures that are both compliant and commercially effective.
Get in touch with our specialists
DGA salary: understanding the customary wage regulation
What is the DGA customary wage regulation?
If you are a director and major shareholder (DGA) of a Dutch private limited company (BV), you are required by law to pay yourself a salary. This is known as the gebruikelijk loonregeling, or customary wage regulation. The purpose of this rule is to prevent DGAs from minimising their salary in order to receive higher (lower-taxed) dividends instead.
Many BV owners understandably want to keep their salary as low as possible, but the Dutch Tax Authority sets clear boundaries. Understanding these boundaries is essential to avoid unexpected assessments.
How is the customary wage determined?
The customary wage is based on the highest of three reference points. First, there is the statutory minimum norm amount. Second, the salary must reflect what someone in a comparable position within the company would earn. Third, the DGA's salary should not be lower than the salary of the highest-earning employee within the company.
The DGA may deviate from these reference points only if there is a demonstrable and justifiable reason. In practice, the burden of proof lies with the DGA, which means it is important to document your reasoning carefully.
Why does this matter for BV owners?
The customary wage regulation has a direct impact on your overall tax burden. A higher salary means more income tax and social security contributions, while a lower salary allows for more dividend distribution — but only within the limits of what the Tax Authority considers reasonable.
Getting this balance right is especially important for entrepreneurs in the early stages of their BV, or for those whose company has a fluctuating income. In certain cases, a lower salary may be justified, for example when the BV is making losses or when the DGA can demonstrate that comparable positions command a lower wage.
Common pitfalls
One frequent mistake is simply maintaining the same salary year after year without reviewing whether it still meets the criteria. The norm amount is adjusted annually, and changes in your company's structure or staffing can also affect your obligations.
Another common issue is failing to consider the salary of the highest-paid employee. If you hire a senior manager or specialist who earns more than your own DGA salary, you may need to adjust your compensation accordingly.
Practical tips for DGAs
Review your DGA salary at the start of each fiscal year to ensure it meets the current norm amount. If your BV is in a start-up phase or experiencing financial difficulties, discuss the possibility of a lower salary with your tax advisor. Keep documentation of comparable positions and salaries in your industry, as this can be crucial if the Tax Authority questions your wage level.
It is also worth considering the interplay between salary and dividend. While dividends are taxed in Box 2, the combined tax burden of salary (Box 1) and dividend should be evaluated together with your advisor to find the most tax-efficient approach for your personal situation.
Seek professional advice
The customary wage regulation may seem straightforward, but its application often involves nuances that require professional guidance. Every DGA's situation is different, and the optimal salary depends on factors such as company profitability, industry benchmarks, and personal financial planning.
At Taxboutiq, we help DGAs and BV owners navigate these complexities. Whether you are setting up a new BV or reviewing your current salary structure, our team is ready to assist you with tailored advice.
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Tax Plan 2026: What Changes for SME Entrepreneurs
The Dutch government's Tax Plan 2026 introduces a number of significant changes that directly affect SME entrepreneurs, freelancers, and growing businesses. Whether you operate as a sole proprietor, run a BV, or manage a group of companies, these developments deserve your attention.
Self-Employed Deduction Drops Significantly
The self-employed deduction (zelfstandigenaftrek) continues its downward trajectory, reaching its lowest level yet in 2026. For sole proprietors and freelancers who rely on this deduction, the reduced benefit may prompt a reassessment of whether a BV structure would be more tax-efficient. The tipping point depends on your specific profit level and personal circumstances.
Adjusted Income Tax Rates
The income tax brackets have been recalibrated for 2026. The rate in the first bracket has decreased slightly, while the second bracket rate has increased. For entrepreneurs in the IB sphere, these changes affect how much tax you pay on business profits. It is worth reviewing your expected income to understand how these adjustments impact your overall tax burden.
Box 3: Higher Deemed Return on Investments
For entrepreneurs and business owners with private investment portfolios, Box 3 taxation has changed again. The deemed return percentages have been updated, and the tax-free threshold has been adjusted. If you hold significant savings, investments, or real estate outside of your business, the effective tax rate on these assets may be higher than in previous years.
Company Car Taxation
A new pseudo end-of-year levy on fossil fuel company cars has been announced, set to take effect in 2027. Businesses that currently provide company cars with CO2 emissions should start planning for the additional cost. For companies considering fleet renewal, this may accelerate the transition to electric or hybrid vehicles.
Transfer Tax for Non-Primary Residences
The transfer tax rate for properties that do not qualify as a primary residence has been adjusted. This is particularly relevant for entrepreneurs who invest in commercial or residential real estate, or who are considering purchasing a second property. The revised rate affects the acquisition cost and should be factored into any investment analysis.
Employment Tax Credits Increased
The employment tax credit (arbeidskorting) has been raised, which benefits both employees and entrepreneurs who draw a salary from their BV. For DGA's (director-major shareholders), optimising the split between salary and dividend remains an important planning point, and the increased credit may influence the ideal salary level.
Simplified Reporting Obligations
The government has relaxed certain reporting requirements for businesses. The work-related commuting reporting obligation (WPM-rapportage) now applies only to companies with 250 or more employees, reduced from the previous threshold of 100. This is a welcome simplification for mid-sized businesses.
What Should You Do?
Tax planning is most effective when done proactively. We recommend reviewing your current structure in light of these changes, particularly if you are a sole proprietor approaching the BV tipping point, a DGA optimising salary and dividend, or a business owner with significant private investments. A timely review can help you take advantage of available opportunities and avoid unexpected tax exposure.
If you would like to discuss how these changes affect your specific situation, our team is happy to assist.