Author: Ergün KAYA — Sworn-in Certified Public Accountant (YMM) & Independent Auditor
Introduction
For growth-oriented companies, organizing not only within national borders but also on an international scale has become essential. Establishing companies abroad serves as a strategic tool to strengthen capital structure, diversify investments, and operate more effectively in global markets.
In this context, the Netherlands stands out with its tax regime, financial markets, and robust network of international agreements. This article examines the advantages that establishing a holding company in the Netherlands offers to Turkish companies.
The Dutch Participation Exemption Regime
The cornerstone of the Dutch tax system for holding companies is the Participation Exemption, designed to prevent economic double taxation. Under this regime, dividends received by a Dutch holding from its subsidiaries and capital gains from the disposal of shareholdings are exempt from Dutch corporate income tax, provided certain conditions are met.
Key application conditions include:
- The parent holds at least 5% of the subsidiary’s shares and the activities are of a commercial nature.
- The subsidiary is principally engaged in active business operations or commercial investments; entities generating predominantly passive income (e.g., interest) are excluded.
- The subsidiary is subject to a “reasonable” level of taxation in its jurisdiction, generally around 10–15% or higher.
This framework enables groups to centralize international investments and redeploy profits without incremental Dutch tax. For instance, dividends received from subsidiaries in different countries are not taxed in the Netherlands, allowing free reinvestment or intra-group financing.
EU Directive and Double Tax Treaties
As an EU member state, the Netherlands benefits from the EU Parent–Subsidiary Directive, under which profit distributions from EU subsidiaries to a Dutch parent are, in most cases, free from withholding tax. This facilitates tax-efficient consolidation of European earnings within a Dutch holding structure.
In addition, the Netherlands has concluded a broad network of double tax treaties. Under these treaties, withholding tax on dividends is commonly reduced to between 0% and 5%. Under the Turkey–Netherlands treaty, dividends may be taxed in the state of residence of the recipient, while the source state’s withholding is limited—typically up to 10% if the payer is Turkish and up to 5% if the payer is Dutch (per protocol limits).
Illustrative Examples (Netherlands)
- A Dutch holding receives €5 million in dividends from its German subsidiary. Under the participation exemption, this dividend is exempt from Dutch corporate income tax.
- The Dutch holding sells its French subsidiary for €20 million, realizing an €8 million gain. This capital gain is exempt in the Netherlands under the participation exemption, assuming the conditions are satisfied.
Turkey’s Corporate Tax Exemptions for Foreign Subsidiary Income
In Turkey, the Corporate Income Tax Law (Kurumlar Vergisi Kanunu, “KVK”) provides exemptions for income from foreign subsidiaries in Article 5/1-b, and for gains from the disposal of foreign participations in Article 5/1-c.
Article 5/1-b — Exemption for Dividends from Foreign Subsidiaries
Conditions include:
- The foreign entity is a joint-stock (anonim) or limited liability (limited) company.
- The foreign entity does not have its legal or business headquarters in Turkey.
- The Turkish company holds at least 10% of the paid-in capital of the foreign subsidiary.
- At the date the dividend is derived, the participation has been held continuously for at least one year.
- The subsidiary’s profits (including taxes paid on profits from which the dividend is distributed) bear an aggregate income/corporate tax burden of at least 15% in its country; if its principal business is financing, insurance, or securities investment, the burden must be at least the Turkish corporate tax rate.
- The dividend is transferred to Turkey by the corporate tax return filing deadline for the fiscal year in which it is earned.
If the Turkish parent holds at least 50% of the paid-in capital of the foreign subsidiary and repatriates the income by the return due date, a 50% exemption rate applies without requiring the other conditions, provided the basic requirements are met.
Article 5/1-c — Exemption for Gains on Disposal of Foreign Participations
Corporate income of fully liable (resident) Turkish joint-stock companies from the disposal of foreign participation shares is exempt if, at the date of the gain:
- For at least one uninterrupted year, 75% or more of total assets (excluding cash equivalents) consists of participation shares in non-resident joint-stock or limited companies, each with at least 10% ownership; and
- The foreign participation shares disposed of have been held on the balance sheet for at least two full years (730 days).
Flow-Through Example (Turkey ⇄ Netherlands)
Suppose ABC A.Ş. (Turkey) owns 100% of A Holding B.V. (Netherlands). A Holding B.V. holds 50% of Company X (Germany), 75% of Company Y (Italy), and 100% of Company Z (France). Dividends paid by these EU subsidiaries to A Holding B.V. can generally be received free of Dutch tax and often free of intra-EU withholding under the Directive.
When A Holding B.V. distributes dividends to ABC A.Ş., provided the Article 5/1-b conditions are met, the amounts can be received in Turkey without corporate income tax.
Conclusion
Establishing a Dutch holding can be a strategic choice for Turkish multinationals to avoid double taxation, optimize cash management, and enhance investment diversification. Nevertheless, both Dutch and Turkish exemption conditions must be observed carefully, and emerging international rules—such as the OECD’s BEPS initiatives and the global minimum tax—should be closely monitored.
With its long-standing participation exemption, extensive treaty network, and EU-aligned legal framework, the Netherlands has become an attractive global hub for holding companies. From Turkey’s perspective, Articles 5/1-b and 5/1-c of the Corporate Income Tax Law seek to prevent double taxation of foreign subsidiary income and gains, albeit subject to participation thresholds, holding periods, and repatriation requirements. A Netherlands-centered holding structure can boost competitiveness—while Turkish rules enable tax-efficient repatriation—minimizing the overall tax burden when structured and documented properly.