Incorporation of a Dutch Cooperative

The main reason for using a Cooperative for this purpose is its flexibility (for example, no minimum capital requirement is applicable at the moment of incorporation). Under certain circumstances, no Dutch dividend withholding tax is due concerning profit distributions by the Cooperative.

Under the tax rules up to 2011, a Dutch Cooperative was never subject to Dutch dividend withholding tax. Since 2012specific restrictions have been applied. Profit distributions by a Cooperative are subject to dividend withholding tax only if it concerns a qualifying tax abuse structure. These rules were further specified in 2018.  A detailed explanation follows below. 

Parallel to the introduced dividend withholding tax for Cooperatives, the general Dutch dividend withholding tax exemption for foreign corporate shareholders was extended. Under the new regime, any foreign corporation qualifying for application for the participation exemption for its (Dutch) share interest would have been a Dutch tax resident. Therefore, they are suitable for exemption from the Dutch dividend withholding tax unless caught by the Dutch anti-tax treaty shopping rules. See also below.

The changed regime for the dividend withholding tax made the Cooperative less attractive as a legal form for a holding company. Under the appropriate (factual) conditions, it can and is still used for this purpose.

Below is a summary of relevant legal and tax information that may enable you to determine whether or not a Cooperative may also be a suitable legal entity for your business.

Legal Characteristics of a Cooperative

The Cooperative Association ("coöperatieve vereniging" in Dutch) can be incorporated as a legal entity with limited liability for its participants (members). In legal terms, the cooperative will be comparable with an ordinary Dutch limited liability company (B.V. or N.V.).

The Cooperative is a category of the legal form of Association (‘vereniging’ in Dutch) that has members instead of shareholders. It should always have at least two members at the incorporation.

Generally, the statutory objective of a Cooperative is to provide for the specific material needs of its members according to their "membership rights." A Cooperative conducts activities for the benefit of its members. The objective of a Cooperative can be to act as a holding (or finance) company and perform related activities.

The Cooperative can be set up so members of the Cooperative will be entitled to the profits of the Cooperative. The position of the “member” is comparable to the one of the “shareholder” in an L.L.C. (like a Dutch B.V. or N.V.)  A Cooperative does not have capital divided into shares and is not required to have a minimum capital or minimum equity.

The Cooperative has a legal personality, which implies that the articles of an association of the Cooperative can be worded as the Cooperative independently owns assets and liabilities in its name.

The articles of the Cooperative can be worded for the members to have limited accountability for the losses and liabilities of the Cooperative. The limited liability must be expressed in the statutory name of the Cooperative by including the abbreviation "U.A.," which stands for "excluded liability"(“uitgesloten aansprakelijkheid” or "UA" or “B.A.” in Dutch, implying that there is a limited liability (in Dutch: beperkte aansprakelijkheid”). 

Typically, a Cooperative has a general members meeting (comparable to that of the shareholders of a B.V.) and an installed board of directors. The Articles of Association of a Cooperative may provide for other bodies, such as a supervisory board.

Commonly, each member has one vote unless the Articles of Association provide specific members to have more than one vote.

There are no mandatory rules for contributions and distributions.

The Articles of Association of the Cooperative can provide for the transferability of the membership rights. However, the acquirer of the membership rights cannot become a member unless admitted by the board of directors and written notification to the Cooperative.

The Cooperative should prepare financial statements annually, have these approved by the general meeting of members, and file them with the Dutch Chamber of Commerce for publication in the Trade Register. The Articles of Association provide for the procedure of acceptance/approval of the financial statements by the general meeting of members.

The procedure for expulsion of a Cooperative is the same as for a limited liability company (B.V.). We refer to the page Liquidation of a Dutch B.V. for more information on liquidating a Dutch company. 

Incorporation procedure for a Cooperative

Incorporation of a Cooperative requires the involvement of a public notary and is done by notarial deed.

The incorporation is the signing of the membership agreement by the members (Articles of Association). The Articles of Association contain the agreement between the members, applicable procedures about capital contributions, voting rights, profit distributions, etc.

As stated above, no minimum capital requirement (no “bank statement”) is required.

A Cooperative is a category of the legal form “Association” and thus should always have at least two members upon incorporation. The law does not provide for a minimum percentage of ownership of a member and does allow transferability of memberships to the same member after incorporation.

Soon after incorporation, the Cooperative must be registered in the Trade Register of the Chamber of Commerce. The Trade Register is accessible to the public.

Schedule for the incorporation of a Cooperative

The incorporation procedure of a Cooperative only requires a notarial deed which can in theory be adopted in one day.

Commonly, the process starts with a standard version of the articles of association that with complies the requirements for a standard holding (or finance) company.

However, the following time-delaying factors may need to be considered:

• compliance to the client acceptance procedures of the public notary and other professional service providers involved;
• tailoring the articles of association to the exact needs of the members;
• clarifying the tax status of the Cooperative at the parent and subsidiary (source country) level;
• the registration with the Chamber of Commerce.

The costs for the incorporation of a Cooperative

The public notary fee for the incorporation of a standard holding cooperative starts at approximately € 2,000 - € 3,500 (plus normal disbursements and VAT, if applicable).

Commonly, the articles of association need to be tailored to the wishes of the members and in some cases the legal requirements imposed by other legal jurisdictions involved, like the one of the member(s) or the subsidiary(ies). Due to the extraordinary legal form of the Cooperative, it is also common that the (legal) mechanics and applicable procedures require more clarification than usual.

Usually, we coordinate the incorporation of the Cooperative on behalf of our clients. Our fees are calculated on a time-spent basis. For the coordination of a straightforward incorporation of a standard holding cooperative, our fees are usually in the area of € 500 to € 2,500, depending on the complexity of the case. Other services rendered (like tax advice and tax compliance services) are charged separately.

If you are interested in our services please feel free to contact us for a comprehensive service and fee proposal.

Dutch taxation of a Cooperative

According to the Dutch Corporate Income Tax Act, the Cooperative is subject to corporate income tax, in essence, the same way as any other Dutch corporation.

Profit distributions are not tax deductible if distributions are made to members/legal entities (Note: to a certain extent they can be tax deductible if made to members/ individuals).

The Cooperative, like every Dutch corporate taxpayer, can be eligible for the participation exemption which means that dividends received and capital gains realized on shares in qualifying subsidiaries, are tax-exempt.

Members of the Cooperative can under certain conditions become subject to corporate income tax for their income out of the Cooperative (profit distributions and capital gains) and certain forms of other income (like interest and leasing payments) received from the Cooperative. We will explain this further below.

Dividend withholding tax aspects of a cooperative

As stated above, under the rules up to 2011, a Dutch Cooperative was not subject to Dutch dividend tax.

As of 1 January 2012, the Dutch cooperative is subject to a 15% dividend withholding tax to the extent that

(i) There is an “abuse structure” and

(ii) the interest cannot be allocated to an active business of the member (“active enterprise test”).

The law qualifies a structure as an “abuse structure” if the Cooperative directly or indirectly holds shares in a company with the main purpose of avoiding Dutch dividend withholding tax or foreign tax. Concerning the “active enterprise test,” we note that this is the same test as in the corporate income tax concerning substantial shareholders (see below).

In 2018 the rules for the Dutch dividend withholding tax exemption for members in a Cooperative were further specified. For more detailed information about this latest change, we refer to our news item on this topic dated the 19th of January 2018.

If you require more information about this topic, please feel free to contact us.

Taxation of the members of a Cooperative

Foreign-based members of a Cooperative may become subject to Dutch corporate (or individual) income tax for the income that they derive from their membership in the Cooperative.

Based on the Dutch Corporate Income Tax Act, non-resident corporations are subject to Dutch corporate income tax for the income which they receive from a substantial interest in a Dutch resident company, which includes a Cooperative, if this substantial interest cannot be allocated to the equity of an "enterprise". The term enterprise is a technical term and does in any case include operational businesses and intermediary holdings with a real and substantial presence in their country of residence. The law provides for minimum substance requirements.

When the condition of an enterprise cannot be met, any dividend payments, profit distributions, liquidation proceeds, capital gains, and certain other sources of income from the Dutch entity derived by the non-resident taxpayer (like interest on loans) are subject to Dutch income tax. According to Dutch tax law, a substantial interest is present when a non-resident taxpayer owns directly or indirectly at least 5% of the (economic) shares or voting power in the Dutch entity.

The meaning of the phrase “if this substantial interest cannot be allocated to the equity of a business enterprise” has not been defined by the law, but must be interpreted based on policy statements and case law. Typically a passive holding company located in a tax haven country may not be able to comply with this condition.

If you require more information about this topic, please feel free to contact us.

Application of tax treaties and the EU Directives

Tax treaties usually apply to any corporate body or any entity that is treated as a resident corporate body for tax purposes. Since the Cooperative is treated as a corporate body for Dutch corporate income tax purposes, from a Dutch perspective, the Cooperative can qualify as a company eligible for tax treaty benefits. It is then still required that the Cooperative meets the other conditions, like for instance the condition that it qualifies as a tax resident of the Netherlands and that it qualifies as the beneficial owner of the income.

This means that a Cooperative will - from a Dutch perspective - usually be eligible for treaty benefits, like the reduction of foreign withholding taxes on dividends, interest, or royalties received from another treaty state.

As the Cooperative is however not a standard legal form, the tax authorities in the source state may scrutinize the payments made to a Cooperative and ultimately even deny treaty benefits. Some countries have even adopted special policies for the tax treatment of a Cooperative as the recipient of income from their country. To prevent these kinds of issues, it may be recommended to interpose an ordinary BV between the Cooperative and the foreign company that makes the payments.

From the Dutch perspective, the Cooperative also qualifies for the EU withholding tax exemptions for dividends, interest, and royalties. It is noted, however, that a Cooperative as a shareholder of an EU subsidiary will have to meet the anti-abuse rule (real presence/ main purpose test) like any other intermediary (EU) holding company.

Advance tax ruling for a Cooperative

It is generally possible in the Netherlands to obtain an advance tax ruling on the Dutch tax treatment of a Cooperative and its members.

The tax ruling may include confirmation of:

• application of the participation exemption (if the cooperative acts as a holding company);
• taxable margin to be reported (if any) instead of group financing (if the Cooperative acts as a finance company);
• the entitlement to a residence statement from the Dutch tax office, which is generally required to obtain treaty benefits;
• tax exemption of the members of the cooperative for the income which they receive from the Cooperative.