A Dutch foundation is popular and is not only for domestic use. The ease of its formation, flexibility, and tax regime are some of the reasons for this type of foundation’s popularity. It can also be suitable in international situations. For example, it can be used for asset protection reasons, real estate planning, and financial structuring. It’s also commonly used by charities.
There are not many regulations applicable to a Dutch foundation. It is not required that a Dutch charitable foundation serve a purpose of general interest, but its official object cannot include making payments to anybody, except for charitable causes.
Here follow some frequent asked questions at Dutch foundation formation.
Does a Dutch foundation have to file a corporate income tax return?
A foundation only has to file a corporate income tax return under certain conditions. This is called limited tax liability. Your foundation must file a corporate income tax return:
- if it participates in an organization applying capital and labour and makes a profit or strives for profit (it runs an enterprise) and there is no exemption applicable; or
- if it engages in an activity in which it competes with entrepreneurs and where there is no exemption applicable; or
- if it receives an invitation from the inspector to file a tax return.
Whether your organization runs a business depends on the facts and circumstances. The criteria are further elaborated in case law.
Can a Dutch foundation make use of any specific corporate income tax deductibles?
Does your foundation have to file a corporate income tax return? Then your foundation might qualify for:
- deduction of fictitious personnel costs;
- deduction of fund-raising activities.
Is a Dutch foundation exempted from corporate income tax?
There can be a requirement to file a corporate income tax return while your foundation is exempted from corporate income tax. Foundations that run a business are exempt from corporation tax:
- if the taxable profit in a year does not exceed € 15,000; or
- if the taxable profit in one year is higher than € 15,000, but together with the taxable profits in the preceding 4 years is not higher than € 75,000.
If the foundation meets the conditions for exemption, the tax authorities will apply it. You don’t have to do anything for that.
Is a Dutch foundation exempted from value added tax?
To assess whether your foundation will be an entrepreneur for VAT purposes, you have to pay attention to the following:
- Does the foundation practice a business or profession independently? If the foundation will act independently and it will have income, then it will usually be an entrepreneur for VAT purposes.
- Will the foundation have regular income? An entity must have regular income from its business or profession. It does not matter whether the foundation will intend or make a profit. It may even suffer a loss at the start of its business. Even then it will have to pay VAT on its sales.
- Will the foundation exploit an asset or a right? If it exploits an asset or a right, for example because its rents out a property or receive a fee for a patent right, then it is usually an entrepreneur for VAT.
The VAT status does not need to be a negative thing. It will also mean that you can reclaim VAT paid on the foundation’s invoices.
What tax benefits does an ANBI status have for a Dutch foundation?
An ANBI (Public Benefit Organisation) status brings tax benefits such as:
- An ANBI does not pay inheritance tax or gift tax for inheritances and gifts that the institution uses for the public interest.
- If an ANBI makes donations in the general interest, the recipient does not have to pay a gift tax.
- An ANBI is eligible for an energy tax refund.
- Volunteers working for an ANBI therefore donate to an ANBI under certain conditions.
- Donors of an ANBI may deduct their donations from income or corporation tax.
- To be eligible for the deduction of periodic donations, the donor and the ANBI must record the donation in an agreement.
- For donors of cultural ANBIs, an extra gift deduction applies.
What conditions apply to an ANBI status?
To be designated as an ANBI, your foundation must meet all of the following conditions:
- Your foundation must serve the public interest with almost all of its activities. This is the 90% requirement.
- Your foundation has no profit motive for all of its activities that serve the public interest.
- Your foundation and the people directly involved with your institution meet the integrity requirements.
- No natural or legal person may dispose of the assets of the institution as if it were his own assets. Directors and policymakers must not have a majority in the power of the foundation.
- Your foundation may not hold more capital than is reasonably necessary for the foundation’s work. Therefore, equity must remain limited.
- The remuneration for policymakers is limited to an expense allowance or minimum vacancy allowances.
- Your foundation has an up-to-date policy plan.
- Your foundation has a reasonable ratio between management costs and spending.
- Any money that remains after canceling your foundation is spent on an ANBI with a similar purpose.
- Your foundation meets the administrative obligations.
- Your foundation publishes specific data on its own or shared website.
Does a Dutch foundation require a Dutch resident director and address?
A foundation will need at least one director under Dutch law. It is advised that there will be at least 50% Dutch resident directors and registered address. Then you ensure that Dutch tax law will apply on the foundation.
It is important that your foundation is set up properly. For example, the use of ANBI benefits without meeting the above criteria can result to a correction by the tax authorities in retrospect up to the moment of first use. Guidance of your foundation by a Dutch tax advisor is highly recommended.