Israel – Netherlands Tax Treaty

Business Activity the Netherlands

The Netherlands has one of the world’s leading economies, with one of the highest GDPs globally. Most of the country’s GDP is generated in the services sector, which accounts for approximately 69% of GDP, with industry contributing about 19.5% and agriculture about 1.5%. The Netherlands’ industry excels in maritime, machinery engineering, and agrifood sectors. The GDP per capita in the Netherlands is among the highest in the world. Tourism also plays a vital role in the Dutch economy, with most tourists coming from Germany, the United Kingdom, Belgium, and the United States.

The Netherlands’ main trade partners are Germany, Belgium, and the United Kingdom, countries geographically close to it. The country’s imports amount to about $840 billion annually, and exports reach around $930 billion per year, placing the Netherlands as one of the world’s leading exporting nations. This high export volume is made possible by the Port of Rotterdam, the largest port in Europe, and Schiphol Airport in Amsterdam, the fourth-largest freight airport in Europe.

The Netherlands boasts a stable legal system that supports business establishment. Its workforce is well-educated and multilingual, which can facilitate the international growth of businesses. The Dutch population ranks first worldwide in English proficiency. Additionally, the Netherlands has excellent logistical infrastructure and technology.

Bilateral agreements between the Netherlands and Israel

Several agreements were signed between Israel and the Netherlands:

1. A treaty to avoid double taxation.
2. Convention on social security

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and The Nethrlands regarding the avoidance of double taxation was signed in 1970 and entered into force on the 2^nd of July 1973.

To read the agreement in English click here.

Convention on social security

The conventions on Social Security is an accord intended to regulate the social rights of individuals moving between the countries that are party to the agreement. The convention on social security between Israel and the Netherlands was signed on April 25, 1984, and came into effect on September 1, 1985. This agreement covers various aspects, including insurance, collection, and different benefits, as well as defining the groups to whom the agreement applies.

You can read the full agreement to prevent double taxation between Israel and the Netherlands, here.

Applicability of the MLI

The Multilateral Agreement (MLI) is an automatic mechanism for modifying bilateral tax treaties. To apply it, both countries must sign the multilateral agreement and ratify its application in their domestic law. Both Israel and The Netherlands signed the MLI in 2017. The Netherlands ratified the agreement on July 1, 2019, while Israel ratified it on January 1, 2019. This means that the treaty between Israel and The Nethrlands automatically changed in accordance with the MLI, subject to the reservations set by both countries, effective from July 1, 2019.

Residency for tax purposes in The Netherlands

Residence of an individual

The Dutch law does not provide a definition of residency; each case is examined individually based on the relevant circumstances. The primary factors influencing residency status are an individual’s personal and economic ties.

Add this at the end of the section: To read about how an individual is considered a resident of Israel, click here.

Residency of a company

A company’s residency status in the Netherlands is determined by its place of incorporation. However, companies may be considered residents of the Netherlands if their effective management is located in the Netherlands, regardless of whether they are incorporated there or not. Generally, the main factor influencing a company’s residency status is the location of its effective management.

Add this at the end of the section: To learn about how a company is considered a resident of Israel, click here.

The tax system in the Netherlands

The Tax Authority in the Netherlands is called Belastingdienst.

Income taxation:36.97% – 49.5%

Taxation of companies and branches:19% – 25.8%

VAT: 21%

Capital gains tax: 24.5% – 33%

Withholding Tax

Inheritance tax and estate tax in the Netherlands

In the Netherlands, there is an inheritance and estate tax ranging from 10% to 40%, depending on the value of the inheritance and the degree of kinship between the heir and the deceased.

Relocation to the Netherlands

The Netherlands has one of the world’s leading economies, known for its economic innovation and competitiveness. Additionally, it offers a high quality of life, consistently reflected in its high ranking in the UN World Happiness Report. The Netherlands also scores highly in a wide range of categories in the OECD’s Better Life Index.

As one of the world’s top exporters and with its strategic location at the heart of Europe, the Netherlands is an attractive option for businesses looking to expand across Europe.

Taxation in the Netherlands is relatively favorable compared to other European countries, with incentives available for all types of companies, alongside tax programs aimed at fostering business growth, innovation, and sustainability. Highly skilled migrants in the Netherlands may also be eligible for additional tax benefits.

By 2025, investments and trade in the business sector are expected to increase, supported by relaxed financial conditions in the country.

The Netherlands is home to a big Jewish community that dates back to the late 15th century. The representative organization of the Jewish community in the Netherlands is called the Union of Jewish Congregations in the Netherlands. Under this organization, numerous Jewish communities operate throughout the country, with a mission to represent the interests of all the communities within it. Additionally, the Netherlands has a Jewish hospital and two Jewish retirement homes.

Real estate taxation in the Netherlands

In the Netherlands, the standard property transfer tax rate is 10.4%. However, for residential properties, the rate is reduced to 2%. Additionally, first-time homebuyers may be eligible for a full exemption from transfer tax in certain cases.

Municipal authorities may impose additional fees, which vary depending on the property’s location and its assessed value.

Transfer of funds from Israel to the Netherlands

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of business entities

The Netherlands offers a variety of legal entity types, including:

• Partnerships (three types):

1. General Partnership (vennootschap onder firma) – A general partnership consists of at least two individuals with unlimited liability. No initial capital is required to establish a general partnership, and In this partnership, each partner is liable for all debts, even if another partner caused them. This is the most common partnership type in the Netherlands.
2. Limited Partnership (commanditaire vennootschap) – A limited partnership includes at least one managing partner and one limited partner, with no required initial capital. The managing partner is responsible for managing the partnership and holds personal liability. In contrast, the limited partner is not involved in business activities and is only at risk of losing the funds invested.
3. Professional Partnership (maatschap) – A professional partnership is made up of at least two individuals with unlimited liability. Each partner is fully liable only for debts personally incurred. Partners are typically professionals in fields such as medicine and law.

• Sole Proprietorship (eenmanszaak) – Established by a single owner, who can employ multiple workers. The owner has unlimited liability for all company debts, with no distinction between business and personal assets. Sole proprietorships are the most common business entity in the Netherlands and can be set up online.
• Public Limited Company (naamloze vennootschap) – A public limited company is formed by at least one individual and requires a minimum initial capital of €45,000. The founders have no personal liability, and the company can be publicly traded on the Dutch stock exchange.
• Private Limited Company (besloten vennootschap) – A private limited company requires only one founder, with no minimum capital requirement. The founders bear no personal liability.
• Cooperative (coöperatie) – A cooperative must include at least two participants, who can be individuals, partnerships, or legal entities. The level of personal liability for participants is determined at the cooperative’s formation, with three possible arrangements: no personal liability, limited liability up to a specific amount, or full liability for all cooperative debts. Originally common in agriculture, cooperatives are increasingly used as holding companies. Cooperatives allow joint actions such as marketing and purchasing, and unlike partnerships, members can join or leave without risking the cooperative’s continuity.

Incentive laws in the Netherlands

In the Netherlands, there are several incentive laws, including:

• Tax benefits for companies and early-stage entrepreneurs: Companies within their first five years of establishment are eligible for a tax reduction. However, this benefit can only be applied for three out of these five initial years. Entrepreneurs, on the other hand, have a benefit allowing them to decide when and how to report depreciation, enabling them to leverage this for reduced tax payments.
• Tax benefits for small investments: The rate of this benefit varies based on the total investments made.
• Tax benefits for investments in energy-efficient and environmentally-friendly assets: Part of the investment is recognized as a deductible expense for income and corporate tax purposes.
• Tax benefits for research and development expenses in various fields, as part of the WBSO program. For example, entrepreneurs who have completed more than 500 hours in research and development within a year may be eligible for a reimbursement covering part of the R&D-related expenses.

The Netherlands Double Tax Treaties