As from 2007, the Dutch participation exemption applies to share interests of at least 5%, that do not qualify as a “low-taxed portfolio” participation.
A participation is treated as “low- taxed portfolio” if:
| i) | 50% or more of its assets consist of “free passive” portfolio assets, and: |
| ii) | it is subject to a tax rate of less than 10%, calculated according to Dutch corporate income tax rules. |
“Free passive” portfolio assets, as referred to above, are defined as assets, which are not used within the business enterprise of the participation, and have a portfolio character, such as excess cash (excluding funds held for acquisitions), loans receivable, and securities.
As a result, assets that are held and used within the business enterprise of the participation, are not considered “free passive” portfolio assets.
For this test, the assets of indirect participations should also be taken into account in a consolidated manner. In this regard participations of less than 5% are always deemed to be “free passive” portfolio assets.
For participations in a qualifying real estate company an important exception applies. Companies the assets of which consist, on a consolidated basis, for 90% or more of real estate, are excluded from the definition of “low-taxed portfolio” participations. As a result, the participation exemption always applies to participations in real estate companies.
The participation exemption may also apply to income from hybrid loans.
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