Taxation of business assets
If a business property is donated by way of gift or acquired by way of inheritance or bequest, an exemption applies, the so-called business succession facility. This facility can also apply to the acquisition of shares that constitute directly or indirectly a 5% or more interest in an active* company.
* a company with only real estate, deposits or bank balances does not qualify as an active company.
- The deceased must have been a qualified entrepreneur during the entire year prior to his/her death. For gifts this period is five years.
- After the acquisition, the acquirer must continue the business and keep the shares, for at least five years.
Exemption business assets:
If all legal requirements are satisfied, the value of the total business up to € 1,119,845 is exempt conditionally. For any excess value, a conditional exemption of 83% applies. In addition, 5% of the value of the business assets that cannot be qualified as business assets is exempt. The tax assessment will be prepared for the non-exempt acquisition only. It’s possible to obtain a 10-year postponement of payment of the tax. During this postponement interest becomes due in regard to the tax payable in the future.
Other tax-exemptions or tax-reliefs (under circumstances)
- Acquisitions by a charity (acts for 90% or more in the public interest) or an entity that contributes to the social welfare of the community.
- Exemptions for classified country estate. A country estate qualifies as such if it is of such a general public interest that its preservation is considered to be of importance to the natural/scenic beauty of the countryside.
Assessment and valuation
The sum subjected to Inheritance Tax is the fair market value of the bequest or the inheritance at the time of death. For the home residence there is a special value, called the WOZ-value.
The (fictitious) value of the lifetime right of usufruct is calculated considering an actuarial interest rate of 6% and the age of the acquirer.
The concept of the trust not embedded in Dutch civil law. However, the Netherlands are a party to the 1985 Hague Treaty on the law applicable to trusts and their recognition. Upfront assurance regarding the fiscal treatment / qualification can be acquired.
Dutch civil law facilitates foundations, however the opportunities to use a Dutch foundation for family estate planning are limited. A Dutch foundation can be useful and customised for several purposes:
- Common entity to carry out activities in the field of charity (non-transparent)
- Common entity to ensure corporate governance by functioning as legal shareholder in structures where legal and economic ownership of shares are separated (the transparent 'Trust Foundation')
- Possible entity to serve in particular situations such as 'Private (family) Foundation Trust'
If the deceased, or the donor, was not Dutch resident (or deemed resident), the Netherlands will not seek to tax his/her worldwide estate, including Dutch Real Estate.
Avoidance of double taxation
The Netherlands has entered into double-taxation estate tax treaties with Austria, Finland, Israel, Sweden, Switzerland, the UK and the US. Furthermore, a tax arrangement applies between the Netherlands and the Caribbean Islands of Curacao, Aruba and St. Maarten.
Where no tax treaty applies, the Dutch unilateral decree for the relief of double taxation applies (the BvdB 2001). However, Dutch inheritance/gift tax is not always completely eliminated as the credit available is restricted to the foreign tax deducted from the relevant asset.
Who is liable regarding Dutch Inheritance Tax?
For the IHT, taxes are levied on all worldwide assets of a Dutch resident (or deemed resident) person at the time of his or her death.
Dutch residency status is based on an evaluation of all the facts and circumstances.
Dutch nationals are deemed to be a resident for IHT and Gift Tax purposes for 10 years after emigration. For those who are not Dutch nationals, for gift purposes, this period is reduced to one year and, for IHT purposes, there is no period after emigration as IHT is not chargeable to non-residents.
The person who acquires property by way of bequest or gift is liable to pay the taxes due.
For IHT, a tax return needs to be filed within eight months after the time of death of the deceased. For gift tax, a two-month period starting at the end of the calendar year in which the gift was made applies.
After the tax return has been filed, the tax authority will issue a tax assessment stating the tax due. Payment of the tax is due six weeks after the date of the assessment. If an executor is appointed, he or she is required to file the inheritance tax return.
Rules on succession
Normally, succession is regulated by way of a will. If a person dies without leaving a will, the decedent’s estate passes according to the rules of the Civil Code. The order of succession, under Civil Code, is based on four groups whereby the first group has full entitlement and succession will only pass to subsequent group where there are no members of the preceding group. The heirs are classified in the following order:
- The surviving spouse or registered partner, together with the deceased’s children and further descendants. (registered household or notarial agreement are not sufficient)
- The parents together with the deceased’s siblings and their descendants
- The grandparents of the deceased
The great-grandparents of the deceased