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High-tax
Country Resident Planning to go Offshore
Netherlands
If you
are resident in the Netherlands (which will be the normal
situation for a native-born Dutch individual) then you
are taxable on your world-wide income and capital gains
from 'substantial participations'). The wealth tax applies,
as do inheritance and gift taxes.
There is
no precise statement of what constitutes residence,
but the criteria include the length of time spent in
Holland during a tax year, ownership of real property,
family or other personal connections. If an individual
is registered in a municipal register then there is
a presumption of residence.
Establishing
non-residence for a Dutch tax resident usually amounts
to demonstrating that residence has been established
elsewhere, and that the normal tests for Dutch residence
are not fulfilled.
If a Dutch
resident becomes non-resident, then his 'substantial
participations' in foreign Dutch entities are subject
to a 'preservative assessment' of capital gains tax,
which is not collected as long as the shares are not
alienated within 10 years of departure.
If a Dutch
non-resident transfers a Dutch 'substantial participation'
(= a holding of greater than 5% in a corporate entity)
out of the jurisdiction then there is a deemed disposal,
and gains will be taxed.
It will
be seen that a Dutch resident planning to move offshore
needs to avoid the creation of 'substantial participations'
inside Holland in the period before leaving. On the
other hand, there are plenty of asset types that do
not fall under the 'substantial participation' rules.
In order to avoid income taxation while residence continues,
some type of capital appreciation asset would be preferable,
and it should be outside Holland, to minimise difficulties
with terminating residence.
Dutch estate
(inheritance) tax applies to the world-wide assets of
a Dutch resident for up to 10 years after residence
has ceased; after that it applies only to his Dutch
assets. Dutch tax law does now recognise trusts, and
it is possible that they can be used to shelter some
types of asset, although the transfer of 'substantial
participations' into offshore trust may give rise to
a disposal. If rapid capital appreciation within the
participation is expected, and if departure is a firm
intention, then it may pay to make the transfer early
on. Assets outside the capital gains tax rules which
are vulnerable to estate tax may be prime candidates
for transfer into trust.
Once a
definite decision to move offshore has been made, careful
thought should be given to existing Dutch capital assets,
including pension assets. Will it be possible to move
them offshore without incurring capital gains or income
tax? Is it desirable to move them early and pay the
tax anyway? These are complex questions, and the answer
will depend on individual circumstances, but for many
individuals there will be interesting tax planning possibilities.
Once Dutch
residence has been terminated, and if non-residence
is expected to be permanent, then an ex-Dutch resident
is free to invest offshore in order to obtain the best
possible returns, although the 10-year reach of estate
tax after departure must always be remembered.
www.lowtax.net
contains extensive information on the investment, tax
and legal regimes in 35 of the main offshore jurisdictions,
including the Netherlands Antilles and Aruba, which
offer especially suitable offshore regimes for Dutch
citizens. Further information is available in our Investment
Information Providers Section, and the four main
types of offshore investment are described in the Guide
to Offshore Investment on this site.
Individuals
who have significant Dutch business income need to take
the residence rules into account. They may be able to
make use of offshore corporate tax structures, but anyway
need to take expert advice on how to structure this
income once emigration has taken place, to ensure that
they do not fall within the residence rules.
www.lowtax.net
contains details of the corporate and partnership legal
structures available in the 35 most prominent offshore
jurisdictions, including the Netherlands Antilles and
Aruba, which offer especially suitable regimes for Dutch
companies. www.lowtax.net has descriptions of the most
important business sectors in each jurisdiction, local
tax regimes, and the international treaties entered
into by each jurisdiction.
NB: The
suggestions given above do not constitute investment
advice. They are intended only to assist individuals
in finding appropriate professional advice, which is
essential for anyone planning offshore investment.
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