With the abolishment of the ministerial statement of no-objection the Netherlands further strengthens its position as a jurisdiction of choice for the establishment of international holding and joint venture companies.
Until recently the incorporation of a BV (a privately held company) or an NV (a publicly held company), or the amendment of the articles of association of a BV or an NV, required a statement of no-objection from the Ministry of Security and Justice. Although this statement of no-objection can often be obtained in as little as 24 hours it does require the applicant to fill out various forms and go through an application procedure which is sometimes perceived as difficult and time-consuming.
With the implementation of new legislation on the supervision of legal entities (Wet controle op rechtspersonen), as per July 1, 2011, the requirement to obtain such a statement of no-objection prior to e.g. incorporating a BV or an NV have been abolished. The existing system of so-called preventive control has now been replaced in favour of a system which will screen legal entities on a continuous basis using information that is already readily available from various government controlled registers such as the trade register, the municipal personal records database, the land register and the registers that are kept by the Dutch tax authorities to name a few.
Netherlands as holding jurisdiction
The 'ease of incorporation' could therefore now be added to the list of advantages of opting for a Dutch holding and joint venture structure. Other generally recognised benefits of using the Netherlands for holding international investments both inbound (i.e. foreign investors investing into Brazil) and outbound (i.e. Brazilian investors investing abroad), include:
- reputable jurisdiction, stable political and economic climate, reliable corporate and tax laws and a highly skilled professional services industry;
- a favourable tax regime and an extensive tax treaty network;
- an extensive investment protection treaty network.
Dutch holding entities
The most typical Dutch legal entities used for holding and joint venture purposes are the (hereabove referred to) BV and NV (as well as the Co-operative (a form of an association, the use of which – provided it is structured properly – can be tax efficient)). The NV is typically used for stock exchange listing, where the BV (and the Co-operative) is generally used for privately held investments. Although the legal regimes applicable to a BV and an NV (if not listed) are very similar, it should be noted that the Dutch Parliament currently debates, inter alia, the Bill on Private Company Law Simplification and Flexibilisation (Wetsvoorstel vereenvoudiging en flexibilisering BV-recht). Said bill will, amongst other things, abolish the statutory requirement that the issued capital of a BV is at least EUR 18,000 and it will introduce shares without voting rights and/or shares that have no profit entitlement. Upon the implementation of this bill Dutch statutory law on BV's will be even more simplified and flexible. Said bill is exemplary for the Dutch government's endeavor to create a very favourable 'corporate climate'. We will further inform you in due course, when there is more certainty with respect to the implementation of this bill. For completeness sake we note that Dutch statutory law governing Co-operatives already provides for a lot of flexibility, e.g. does not require a minimum amount of capital and/or Justice Department involvement.
Tax regime: Brazilian inbound and outbound investments
When a Brazilian based company invests in a foreign company (subsidiary) and vice versa, the investor typically faces tax exposure regarding foreign withholding tax on dividends, interest and royalties and foreign tax on capital gains realised upon disposal of shares in this company. A Dutch holding and joint venture company could be used to mitigate such exposure, also as Dutch holding companies are not on the grey and blacklist in Brazil, which can – depending on the facts/circumstances and applicable treaties – potentially result in:
- 0% foreign withholding taxes on distributions by a subsidiary from within the European Union to the Dutch holding company and limited or 0% foreign withholding taxes on distributions by a subsidiary from outside the European Union to the Dutch holding company;
- no Dutch corporate income tax on capital gains realized on the shares held by the Dutch holding company in the subsidiary;
- no Dutch corporate income tax on dividends received by the Dutch holding company from the subsidiary;
- limited Dutch corporate income tax on intra-group interest and royalties received and paid by the Dutch holding company;
- 0% Dutch withholding taxes on dividends, interest and royalties from the Dutch holding entity to Brazilian based investors;
- potentially no Dutch corporate income tax on capital gains realized by Brazilian based investors upon disposal of the shares in the Dutch holding company;
- advance tax clearance from the Dutch tax authorities by obtaining a tax ruling.
Investment protection treaties
The Netherlands has – further to its uniquely extensive tax treaty network – a similar extensive network of Investment Protection Treaties. These treaties are bilateral agreements between states for the purpose of the protection of investors and investments (each treaty a 'BIT'). Under a BIT the contracting parties shall promote investments made by nationals of the other contracting party and shall e.g. ensure that these investments are treated fair and equitable. and guarantee the transfer of payments that are related to investments from nationals of the other contracting party including the recuperation of funds and the payment of dividends, interest, royalties and capital gain.
A BIT usually includes a dispute settlement provision under which the contracting parties agree to submit the dispute for settlement to an arbitral tribunal such as the International Centre for Dispute Settlement. An arbitral award could therefore be enforceable in over 150 different states, making this a highly effective instrument for dispute settlement.
In principle, the mere interposition of a Dutch entity, between the investing non-Dutch entity and the non-Dutch target established in a country with which the Netherlands has concluded an investment protection treaty, will already result in the possibility for the non-Dutch investor to avail himself of the protection afforded by the investment protection treaty.