What is the Dutch participation exemption?
The government's business portal puts it in one line: "You can transfer the operating company’s profits to the holding company tax-free under the participation exemption" (business.gov.nl, The holding company). In the statute, art. 13(1) of the Wet op de vennootschapsbelasting 1969 (Wet Vpb, the corporate income tax act) leaves the benefits from a participation (deelneming) out of profit, together with the costs of acquiring or disposing of it (Wet Vpb, art. 13). It is the first rule to test when setting up a holding company in the Netherlands.
What it saves is corporate income tax: in 2026, 19 percent on profit up to EUR 200,000, and EUR 38,000 plus 25.8 percent on the excess, the same two rates as from 2023 to 2025 (art. 22 Wet Vpb).
What is exempt: dividends and capital gains
Benefits from a participation cover both kinds of return: the dividends the subsidiary pays and the capital gain when the holding sells the shares stay out of the holding's profit (art. 13(1)). The exemption works at the level of the company that holds the shares. A gain made by the person who owns the holding, when they sell the holding itself, is outside this rule; the capital gains tax guide covers that side.
What the holding gives up: costs and losses
The costs of buying or selling the participation are left out of profit with the benefits, so they are not deductible, and losses on the participation are not deductible either (Belastingdienst, Deelnemingsvrijstelling). The one exception is the liquidation loss of art. 13d, below.
Who can claim the participation exemption?
A Dutch corporate taxpayer that is not an investment institution
The exemption is claimed by a body subject to Dutch corporate income tax, in its own return. One kind of taxpayer is excluded outright: a body treated as an investment institution (fiscale beleggingsinstelling, FBI) has no participation exemption at all (art. 13(8) Wet Vpb).
Why Dutch incorporation alone is not enough
Dutch corporate tax law normally deems a body incorporated under Dutch law to be established in the Netherlands, wherever it is run. This incorporation fiction is art. 2(5) Wet Vpb in the 2026 text, and it has listed exceptions: it does not apply for arts. 13 to 13d, and among the other excluded articles is art. 15 on fiscal unity, the subject of the fiscal unity page.
The consequence is direct. For the participation exemption and the liquidation loss, actual establishment in the Netherlands is a question of fact, and a BV that is managed from abroad cannot rely on its Dutch incorporation alone to claim either.
Substance Requirements in the Netherlands What actual establishment in the Netherlands requires of a holding, and how the board, records and decisions are planned to carry it.
What counts as a participation?
For the Netherlands participation exemption, the first requirement is a participation, and art. 13(2) to (5) Wet Vpb give six routes into one. The main route is a holding of at least 5 percent of the subsidiary's nominaal gestort kapitaal (nominal paid-up capital): the base is the nominal capital paid up, not market value and not votes (art. 13(2)(a) Wet Vpb). Membership of a coöperatie (cooperative) counts with no percentage at all, the route behind our Dutch cooperative service. Art. 13 sets no condition on the subsidiary's country, so a foreign subsidiary qualifies on the same terms as a Dutch one; the limits are the investment tests and the anti-hybrid rule below.
The six routes to a participation under art. 13(2) to (5) Wet Vpb, as in force on 1 January 2026. Every route remains subject to the investment tests.
| Route | Condition | Article (Wet Vpb, 2026) |
|---|---|---|
| Shares | At least 5 percent of the nominal paid-up capital of a company with share capital | art. 13(2)(a) |
| Fund units | At least 5 percent of the units in issue of a fund for joint account | art. 13(2)(b) |
| Cooperative | Membership of a cooperative or an association on a cooperative basis, no percentage | art. 13(2)(c) |
| Votes (EU treaty case) | At least 5 percent of the voting rights, where the treaty with that EU state reduces dividend tax by reference to voting rights | art. 13(3) |
| Pulled in | Profit certificates (winstbewijzen) of the participation and hybrid loans to it within art. 10(1)(d) | art. 13(4) |
| Affiliate | A holding below 5 percent where an affiliated body holds a qualifying participation in the same company | art. 13(5) |
Is there a minimum holding period?
No. Art. 13(2) Wet Vpb sets no time condition: the 5 percent test is met, or not, at the moment the dividend or gain arises (Wet Vpb, art. 13).
The three-year grace after dilution
The only time rule in the exemption works the other way, in the holding's favour. A holding of at least 5 percent kept for more than one year that later falls below 5 percent, for example through dilution, keeps the exemption for three years from the moment it drops below the line (art. 13(16); Belastingdienst, Deelnemingen).
An illustration on the statutory rule: a 10 percent stake held for 18 months and diluted to 3 percent keeps the exemption on its dividends and gains for three years from the dilution. The same stake diluted after 9 months has no grace period.
Holding periods in tax treaties are a separate matter. They concern treaty rate reductions on dividends paid out of the Netherlands where the domestic exemption does not apply, and this guide does not state them.
In what order is a subsidiary tested?
The tests in art. 13 Wet Vpb run in a fixed order. Five questions, each with its paragraph, decide whether a subsidiary's dividends and gains are exempt:
Is there a participation?
At least 5 percent of nominal paid-up capital, or another route of art. 13(2) to (5): fund units, cooperative membership, votes, pulled-in instruments or an affiliate's stake. No participation, no exemption.
Is it held as an investment?
Art. 13(9) denies the exemption for a participation held as an investment (beleggingsdeelneming). This wording is what practitioners call the motive test.
Is it deemed an investment?
The two fictions of art. 13(10) treat a subsidiary as an investment where its assets are largely passive small holdings, or its function is largely group finance.
Does an escape apply?
Passing the subject-to-tax test or the asset test of art. 13(11) restores the exemption, whatever the motive, in the Belastingdienst's practice.
Every test failed?
The benefits are taxed with the participation credit (art. 13aa and 23c), and a 25 percent or larger passive, low-taxed holding is also revalued every year (art. 13a).
- Participation? 5 percent of nominal paid-up capital, or fund units, cooperative membership, votes, pulled-in instruments, an affiliate's stake (art. 13(2) to (5))Go to the investment testTaxable, no exemption
- Held as an investment, or deemed so? (art. 13(9), 13(10))Go to the escapesExempt
- Subject-to-tax test or asset test met? Real levy, normally 10 percent in practice (art. 13(11)(a)); or less than half low-taxed free investments (art. 13(11)(b))ExemptParticipation credit: gross-up 100/95, credit at most 5 percent, EU actual-tax option (art. 13aa, 23c). A 25 percent or larger passive, low-taxed holding is also revalued yearly (art. 13a)
No minimum holding period; three-year grace after dilution (art. 13(16)). Wet Vpb as in force on 1 January 2026.
What is the motive test, and how does a subsidiary pass it anyway?
The motive test has its statutory words, two fictions and two escapes.
Held as an investment: the statutory wording
Art. 13(9) Wet Vpb switches the exemption off for a participation held as an investment (beleggingsdeelneming) (Wet Vpb, art. 13). Practitioners call this wording the motive test.
The two deeming fictions: passive holdings and group finance
Art. 13(10) deems two kinds of subsidiary to be held as an investment. The first: its assets, viewed on a consolidated basis, usually consist largely (grotendeels) of small holdings within art. 13(14). The second: its function, together with the bodies in which it holds at least 5 percent, consists largely of financing the taxpayer or affiliated bodies, directly or indirectly, or of making assets available to them. The statute gives "largely" no percentage.
First escape: the subject-to-tax test
An investment participation keeps the exemption if it passes either test of art. 13(11). The first is the onderworpenheidstoets (subject-to-tax test): the subsidiary is subject to a profits tax that results in a real levy by Dutch standards (reële heffing). In the Belastingdienst's practice, a 10 percent rate normally counts as a real levy, with the foreign tax base compared against Dutch profit rules: a reading by the tax authority, not a figure in the act. From 2026 a qualifying domestic top-up tax counts as a profits tax for these tests (art. 13(20)).
Second escape: the asset test
The bezittingentoets (asset test) is met when the subsidiary's assets, directly or indirectly, usually consist for less than half of laagbelaste vrije beleggingen (low-taxed free investments) (art. 13(11)(b)). Free investments are those not reasonably necessary for the subsidiary's business (art. 13(12)(a)); they are low-taxed when their returns are not brought into a profits tax with a real levy (art. 13(13)). In the Belastingdienst's practice, group-finance assets historically financed at least 90 percent with third-party loans are left out of the asset test.
Testing a subsidiary in a planned structure? Send the ownership chain and the subsidiary's balance sheet, and talk the facts through with us before the first dividend.
What happens when a subsidiary fails the tests?
A failed test brings a credit in place of the exemption and, for the most passive holdings, a yearly revaluation.
The participation credit: gross-up and the 5 percent ceiling
For a non-qualifying investment participation, the exemption gives way to the deelnemingsverrekening (participation credit). The benefits are taxed, but grossed up first: multiplied by the factor 100/95 (art. 13aa(1) and (2) Wet Vpb). The holding then takes a credit equal to the lower of 5 percent of the grossed-up benefits and the proportional share of its tax (art. 23c(2)).
The EU actual-tax option
For a distribution from a subsidiary in the EU, or in a designated EEA state, that is subject to a profits tax listed in the Parent-Subsidiary Directive (Directive 2011/96/EU), the holding may ask for the credit to rest on the profits tax the subsidiary actually bore, in place of the 5 percent (art. 23c(3)).
Yearly revaluation of a low-taxed passive holding
A stake of 25 percent or more, kept as an investment in a body without a real levy whose assets consist (nearly) exclusively of low-taxed free investments, is valued at its fair market value each year (art. 13a(1)).
Worked example B, amounts in EUR: illustrative arithmetic on the 2026 statutory figures, not a fact of law. It assumes the holding's other profit already exceeds the EUR 200,000 bracket and the proportional cap of art. 23c(2)(b) does not bind.
| Step (non-qualifying investment participation) | Amount |
|---|---|
| Cash dividend received | 1,000,000 |
| Grossed up x 100/95 (art. 13aa(2)) | 1,052,631.58 |
| Corporate income tax at 25.8 percent (art. 22) | 271,578.95 |
| Credit: 5 percent of the grossed-up amount (art. 23c(2)) | 52,631.58 |
| Net Dutch tax | 218,947.37 |
| Net tax as a share of the cash dividend | about 21.9 percent |
Can the holding deduct a loss on a subsidiary?
Usually not, and the route out of a failed subsidiary decides the answer.
Sale or write-down: no deduction
If a subsidiary fails and the holding sells it below cost or writes the shares down, the loss falls inside the exemption: it is not deductible, and neither are the costs of the sale (art. 13(1) Wet Vpb; Belastingdienst, Deelnemingsvrijstelling).
Liquidation: the one deductible loss
A loss on a participation that shows after the subsidiary has been dissolved, the liquidatieverlies (liquidation loss), is outside the exemption and therefore deductible (art. 13d(1) Wet Vpb). It is measured as the amount paid for the participation minus the total of the liquidation distributions (art. 13d(5)).
The cap, the five-year control rule and the completion deadline
The deduction is capped at EUR 5,000,000 (art. 13d(2)). The cap falls away where the taxpayer, alone or with a body in which it has a qualifying interest, held a qualifying interest in a body established in the Netherlands, the EU, the EEA or a designated state, continuously for the five years before the liquidation is completed. A qualifying interest is influence such that the body's activities can be determined: in plain terms, control (art. 13d(4)).
Timing is the third condition. The loss is taken only when the liquidation is completed, and only if it is completed by the end of the third calendar year after the year the business ceased, or the decision to cease it was taken, unless the delay is shown not to aim at avoiding or deferring tax. The business must also have ceased, or be continued only by a non-affiliate (art. 13d(14)).
Worked example C, amounts in EUR: illustrative arithmetic on art. 13 and 13d Wet Vpb (2026), not a fact of law. A liquidation counts only if completed by the end of the third calendar year after the business ceased.
| Sold for 1,000,000 | Liquidated, five years' control of an EU/EEA subsidiary | Liquidated, without that control | |
|---|---|---|---|
| Amount paid for the participation | 8,000,000 | 8,000,000 | 8,000,000 |
| Sale proceeds or liquidation distributions | 1,000,000 | 1,000,000 | 1,000,000 |
| Loss | 7,000,000 | 7,000,000 | 7,000,000 |
| Deductible | 0 | 7,000,000 | 5,000,000 |
Whether to sell or liquidate a loss-making subsidiary is a decision for the group and its adviser, on its own facts.
Which limits apply to the exemption?
The exemption is broad, including for dividends from abroad, and four rules of the act mark its edges.
Hybrid payments
No exemption for payments by the subsidiary that are, in law or in fact, directly or indirectly deductible against the base of a profits tax (art. 13(17)(a) Wet Vpb). A payment the subsidiary deducts does not reach the holding exempt.
CFC income
Where a controlled body's income has already been included in the holding's profit under art. 13ab, the exemption does apply to benefits from that investment participation to the extent they relate directly to that income (art. 13(19)).
Investment institutions
A taxpayer treated as an investment institution (FBI) has no exemption, whatever it holds (art. 13(8)). The exclusion is about the holding, not the subsidiary.
The top-up tax from 2026
A qualifying domestic top-up tax within art. 1.2 of the Wet minimumbelasting 2024 counts as a profits tax for the investment tests (art. 13(20)). This guide states no other Pillar Two rule.
How are earn-outs and currency hedges treated?
An earn-out, where part of the price depends on the subsidiary's later results, stays inside the exemption on both sides of the deal. Changes in the value of the earn-out right for the seller, and of the matching obligation for the buyer, are benefits from the participation (art. 13(6) Wet Vpb).
Currency hedges are treated differently today. A transaction that hedges the currency risk on a participation falls inside the exemption only where the inspecteur (tax inspector) has decided in advance, by a decision open to objection, that it serves that purpose (art. 13(7)).
A change is proposed. Under a draft consulted from 2 to 30 March 2026, for financial years starting on or after 1 January 2027 only the currency result of a hedge that is not priced in would stay inside the exemption, and the measure is intended for the Belastingplan 2027 package (internetconsultatie.nl, consultation on the priced-in currency result). As at the date of this guide it is a proposal, not law.
How does the money reach a foreign parent?
Two withholding taxes decide what the money carries when it leaves the holding.
Dividend tax and the two withholding exemptions
A Dutch company that pays a dividend withholds dividendbelasting (dividend tax) of 15 percent of the proceeds (art. 5 Wet DB 1965). Two exemptions in art. 4 bring the participation exemption's own test into this tax. Inside the Netherlands, nothing is withheld where the recipient is a Dutch corporate shareholder to which the participation exemption or credit applies and the shares belong to its Dutch business (art. 4(1)(a)). Out to a parent in the EU, the EEA or a treaty state, nothing is withheld where the parent's stake would qualify under art. 13 or 13aa Wet Vpb if the parent were established in the Netherlands (art. 4(2)(b)).
Worked example A, illustrative arithmetic: an operating subsidiary pays 1,000,000 up to the Dutch holding, with no Dutch corporate income tax on it. Paid on to a qualifying EU parent, the dividend tax is nil if art. 4(2) to (4) Wet DB are met; otherwise it is 15 percent, 150,000. Where neither exemption applies, a tax treaty may reduce the rate; for a US parent, the US-Netherlands tax treaty guide covers the treaty.
Anti-abuse, beneficial ownership and the one-month declaration
The outbound exemption is denied where the stake is held with a main purpose of avoiding tax for another person, in an artificial arrangement (art. 4(3)(c) Wet DB). Only the beneficial owner of the dividend can rely on it (art. 4(4)). And the paying company declares the exempt dividend to the inspector within one month (art. 4(11)), filed as the opgaaf dividendbelasting through Mijn Belastingdienst Zakelijk or tax software (Belastingdienst, participation dividend to a shareholder outside the Netherlands).
The conditional withholding tax on dividends
Since 1 January 2024 the Wet bronbelasting 2021 also reaches dividends paid to an affiliated recipient in a low-tax jurisdiction, meaning a state with no profits tax or a statutory rate below 9 percent, or a state on the EU list of non-cooperative jurisdictions, and dividends in abusive and hybrid cases (Wet bronbelasting 2021, art. 1.2 and 2.1; Stb. 2021, 543, art. II). Its rate is the highest rate of art. 22 Wet Vpb (art. 4.1): 25.8 percent in 2024, 2025 and 2026 (Belastingdienst, withholding tax on interest, royalties and dividends).
What a Dutch holding withholds on an onward dividend under the Wet DB 1965 and the Wet bronbelasting 2021, as in force in 2026.
| Recipient | Withholding | Condition and article |
|---|---|---|
| Dutch corporate shareholder with the participation exemption or credit | None | Shares belong to its Dutch business; art. 4(1)(a) Wet DB |
| EU, EEA or treaty-state parent whose stake would qualify under art. 13 Wet Vpb | None | Art. 4(2)(b) Wet DB, subject to art. 4(3)(c), 4(4) and the declaration of art. 4(11) |
| Any other recipient | 15 percent dividend tax | Art. 5 Wet DB |
| Affiliated recipient in a low-tax jurisdiction, or an abusive or hybrid case | Conditional withholding tax, 25.8 percent (2024 to 2026) | Wet bronbelasting 2021, art. 2.1 and 4.1 |
Conditional Withholding Tax in the Netherlands How the 2021 withholding tax works, and when, since 2024, it reaches dividends paid to low-tax and abusive destinations.
Do you need to apply for the participation exemption?
No. There is no application and no form: the participation exemption applies by law (art. 13(1) Wet Vpb), and the holding takes it in its corporate income tax return.
Certainty in advance is a different matter. A holding can request an advance tax ruling (ATR), and the Belastingdienst names the participation exemption as its own example of a question a ruling can settle (Belastingdienst, Ruling). A currency hedge needs its own advance decision under art. 13(7), described above. A ruling request sets out the facts and the questions the inspector is asked to confirm, and a Dutch tax advisor can prepare it; the decision stays with the Belastingdienst, and no outcome is certain before it is given.
What changed in 2026, and what is proposed for 2027
As at 7 October 2026, four dated points affect how a Dutch holding reads the participation exemption and the taxes around it:
- From 2026: a qualifying domestic top-up tax counts as a profits tax for the investment tests (art. 13(20) Wet Vpb).
- 2023 to 2026: the corporate income tax rates stay at 19 and 25.8 percent (art. 22 Wet Vpb).
- Since 1 January 2024: dividends fall within the conditional withholding tax (Stb. 2021, 543, art. II).
- Proposed for financial years from 1 January 2027: only the non-priced-in currency result of a hedge would stay exempt (consulted March 2026).
From our practice: testing a subsidiary before the first dividend
Sanne Kuipers, Group structuring and tax lead, Amsterdam. Ten years on Dutch holding and group files; Tilburg University, tax economics faculty (2014). Dutch, English, Spanish.
From our practice: the ownership chain is mapped from the top parent down before a holding is placed in it. The nominal paid-up capital of each subsidiary is taken from its articles and share register, because that figure is the base of the 5 percent test. Each subsidiary's consolidated balance sheet is read for the two fictions and the asset test, and its tax position against the real-levy practice. Every onward dividend gets its one-month filing date in the holding's calendar. The statute sets the conditions; which structure suits a group is a conversation, not a page.
Sources
- Wet op de vennootschapsbelasting 1969 (Wet Vpb), arts. 2(5), 13, 13a, 13aa, 13d, 22 and 23c, wetten.overheid.nl, text in force on 1 January 2026, read on 29 September 2026.
- Deelnemingsvrijstelling, Belastingdienst, read on 3 October 2026.
- Deelnemingen, Belastingdienst, read on 3 October 2026.
- Kwalificerende beleggingsdeelneming, Belastingdienst, read on 6 October 2026.
- Consultation on the tax treatment of the priced-in currency result under the participation exemption, internetconsultatie.nl, consulted 2 to 30 March 2026, read on 6 October 2026.
- Wet op de dividendbelasting 1965 (Wet DB), arts. 4 and 5, wetten.overheid.nl, read on 29 September 2026.
- Deelnemingsdividend uitkeren aan een aandeelhouder buiten Nederland, Belastingdienst, read on 4 October 2026.
- Wet bronbelasting 2021, arts. 1.2, 2.1 and 4.1, wetten.overheid.nl, text in force on 1 January 2026, read on 29 September 2026.
- Staatsblad 2021, 543, art. II, officielebekendmakingen.nl, read on 29 September 2026.
- Bronbelasting op renten, royalty's en dividenden, Belastingdienst, read on 4 October 2026.
- Ruling, Belastingdienst, read on 29 September 2026.
- The holding company, business.gov.nl, read on 29 September 2026.
Dutch Holding Structure Tax Planning Designing a group around the exemption is a service of its own: structuring a group through a Dutch holding, from the ownership chain to the dividend route. Enquiries go through the service page.
The Dutch CV/BV Structure The structuring guide on combining a Dutch limited partnership (CV) with a BV in one group.