Netherlands: Unique tax regime for not-for-profit and charitable activities

01 November 2014

The Netherlands provides for a favourable regime that matches the demands of Dutch and international individuals, businesses and organisations, seeking to structure their funds, assets or activities for international not-for-profit and charitable purposes. For many international organisations, the Netherlands is the jurisdiction of choice following a unique tax framework designed for not-for-profit and charitable activities.

Minimal legal form

Not-for-profit and charitable activities are often conducted through a foundation ('Stichting') and to a lesser extent through an association ('Vereniging'). Both are legal  bodies that are flexible and relatively easy to establish through a notarial deed. Key characteristics of the foundation include that it has no shareholders or members, its objectives are stated in its articles and it is governed and represented by a Board. An association does have members (at least two) and may be established should governance by a broader interest group be required.

Designed tax regime

Foundations and associations that qualify as an 'institution for public benefit' ("algemeen nut beogende instelling" or 'ANBI') may apply for the so-called ANBI regime. Particular benefits apply to ANBI's focusing exclusively or almost exclusively on culture.

Public benefit is broadly defined and includes, among others, the support of culture, education, science, research, animal welfare, religion and healthcare. It excludes any personal or corporate benefit. More than 60,000 ANBI's are registered with the Dutch tax authorities. Their objectives range from the more traditional charities to modern support of the public benefit through not-for-profit activities relating to technology and healthcare research.

ANBI's are usually tax resident of the Netherlands, such as a newly formed Dutch Foundation. However organisations resident within the EU and other designated countries could also apply for the regime as if they were  resident of the Netherlands.

One of the key requirements of the regime is that the objectives and activities of the organisation should be for 90% or more aimed at and pursued for serving the public benefit (statutory and actually). An ANBI may have no profit motive and is not allowed to 'hoard up' equity, which means that the equity of the ANBI should not excessively exceed the amount of equity reasonably necessary for the ANBI to ensure the continuation of its activities.  Furthermore an ANBI's capital may not be available to board members or policymakers as if it is their own capital. This effectively means that no person or entity may have a controlling vote or interest in the ANBI. Commercial activities may be allowed if these activities are subordinate and of an auxiliary nature, and provided also that earnings from such commercial activities are fully used for public benefit purposes.

Attractive tax features
For the organisation

Qualification as an ANBI comes with a vast amount of tax benefits. For Dutch gift tax purposes (tax rates varying from 30% to 40%), qualifying as an ANBI ensures that an organization is fully exempt from Dutch gift tax on donations or inheritances received, provided such funds are used for the public benefit activities. Grants made by an ANBI are also exempt from Dutch gift tax. This feature makes a Dutch Foundation with the ANBI status very suitable for international not-for-profit and charitable activities.

For Dutch corporate income tax purposes, ANBI's are only subject to taxation to the extent that a business is being conducted. Should however an ANBI be subject to Dutch corporate income tax, it can benefit from an exemption from taxation in a year as long as their annual result is below Euro 15,000 (or Euro 75,000 for the year under review and four previous years, not considering loss years). ANBI's exempt from taxation can normally enjoy a refund of foreign withholding tax on e.g. dividends received, following EU legislation or on the basis of one of the many double tax treaties as concluded by the Netherlands. An ANBI can furthermore request for a refund of Dutch energy tax.

For its Donors

Dutch individuals subject to Individual income tax can deduct a gift to an ANBI if it is above a minimal threshold, with a maximum of 10% of the annual taxable income (before deduction of the gift). For gifts to a cultural institution this amount may be multiplied with 25% with a maximum of Euro 1,250. Periodical gifts consisting of fixed annuity payments for a fixed term (minimum 5 years) can be fully deductible.

Dutch businesses subject to corporate income tax can deduct a gift to an ANBI with a maximum of 50% of its annual profit or Euro 100,000. For gifts to a cultural institution this amount may be multiplied  by 50%  to a maximum of Euro 2,500.

An additional benefit of the ANBI-regime is the official recognition of the organization as an ANBI and the corresponding registration as such on a list that is published online by the Dutch tax authorities and available to everybody seeking to support the organisation.

Advance certainty on application of the regime

A foundation or association compliant with the aforementioned requirements can apply for the ANBI regime  by  submitting  a formal application letter with the Dutch tax authorities. The ANBI status should be formally confirmed by  notice from the tax authorities. An existing foundation or association that registers in the course of the year may be granted the ANBI regime benefits with retroactive effect till January 1 of that year. A newly formed ANBI may have the status as from the date it was established. The ANBI team of the Dutch tax authorities may be requested to provide certainty in advance on whether the regime applies to an organisation.

Conclusion

The Netherlands has an attractive tax regime specially designed for not-for-profit activities. In combination with the flexible legal form available, the regime attracts many international individuals, businesses and organisations who wish to set up their organisation in a tax efficient manner and for the maximum public benefit.

Bird & Bird's team in The Hague has advised many clients in this matter and has an excellent relationship with the Dutch tax authorities, assisting in tax audits and in obtaining tax rulings.

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