What is Deelnemingsvrijstelling (Participation Exemption)?
The deelnemingsvrijstelling (participation exemption) fully exempts dividends and capital gains received by a Dutch BV or NV from a qualifying subsidiary from Dutch VPB. The shareholding must be at least 5%. This makes the Netherlands one of the world's most attractive holding company jurisdictions, particularly for EU and international groups.
Current Rate (Calendar year; applied automatically in the VPB return)
100% exempt from VPB (no tax on qualifying dividends and capital gains from subsidiaries)
Example
A Dutch holding BV owns 100% of an Irish operating company. The Irish company pays a EUR 1,000,000 dividend to the Dutch holding BV. Under the participation exemption, the entire EUR 1,000,000 is exempt from Dutch VPB (and exempt from Dutch dividend withholding under the EUWD). The effective tax on moving the profit to the holding is zero.
How Deelnemingsvrijstelling (Participation Exemption) works in Netherlands
The deelnemingsvrijstelling (participation exemption) is arguably the most commercially significant feature of Dutch tax law. It is the reason so many multinational groups and international entrepreneurs use the Netherlands as a holding jurisdiction.
**Basic rule**
Dividends and capital gains received by a Dutch BV or NV from a company in which it holds at least 5% of the shares (nominal paid-up capital) are 100% exempt from Dutch VPB. There is no cap, no time limitation, and no form to complete. The exemption applies automatically when the shareholding test is met.
**The 5% threshold**
The 5% is measured by nominal capital. Qualifying instruments include ordinary shares, preference shares (in certain structures), and convertible instruments. The 5% test is measured per class of shares. A 4.9% holding does not qualify.
**What qualifies (the three tests)**
For the participation exemption to apply, at least one of three tests must be met: 1. Motive test (oogmerktoets): the shares are not held primarily as a portfolio investment or for passive income. If the subsidiary is actively trading or operating a business, this test is normally met. 2. Asset test (bezittingentoets): less than 50% of the subsidiary's assets are low-taxed free passive investments (not the primary concern for trading subsidiaries). 3. Tax test (onderworpenheidstoets): the subsidiary is subject to a profits tax at a rate that is broadly reasonable (not a pure tax haven entity).
For operating subsidiaries in serious jurisdictions (EU, US, UK, Singapore, etc.), all three tests are typically satisfied without complexity.
**Liquidation losses (liquidatieverliesregeling)**
The participation exemption generally disallows losses too. However, if a subsidiary goes into liquidation and the holding BV suffers a final, permanent loss on its investment, the liquidation loss rules may allow a deduction (in restricted circumstances, with a EUR 5 million minimum and other conditions).
**Dividend withholding at the subsidiary level**
The exemption applies to Dutch VPB. Dividend withholding taxes withheld by the subsidiary's country may be reduced or eliminated by the EU Parent-Subsidiary Directive or bilateral tax treaties. From the Dutch holding: outbound Dutch dividend withholding (15%) to the Dutch DGA applies in full, but is credited against Box 2 personal income tax.
**The holding structure**
A typical structure: Dutch personal holding BV -> Dutch operating BV (or foreign subsidiary). Dividends from operating to holding: exempt under participation exemption + 0% Dutch dividend withholding (same fiscal unity or participation exemption). Dividends from holding to the individual DGA: 15% withholding + Box 2. This structure allows profit to accumulate in the holding (compounding tax-free) and gives the DGA flexibility on when to extract and at what personal income level.
Related terms
Vennootschapsbelasting (VPB) is Dutch corporate income tax. The rate is 19% on the first EUR 200,000 of taxable profit and 25.8% above that threshold. BVs, NVs, and most other Dutch legal entities are subject to VPB. The annual return (aangifte vpb) is filed with the Belastingdienst within 5 months of the financial year-end.
A Besloten Vennootschap (BV) is a Dutch private limited company, the most common corporate structure for entrepreneurs, SMEs, and foreign investors setting up in the Netherlands. Since the 2012 Flex-BV law, minimum share capital is EUR 0.01. The BV is a separate legal entity; its shareholders have limited liability. Shares are not publicly tradeable.
Box 2 is the Dutch income tax category for substantial interest income. It applies when a person holds at least 5% of the shares in a company. Dividends and capital gains from those shares are taxed at 24.5% on the first EUR 67,804 per person and 31% above that (2025). The threshold is per individual, not per company.
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