The jurisdiction offers many advantages to potential investors and business owners. The Netherlands combines first-class infrastructure with a strategic location in continental Europe, which makes it more attractive to European, Asian and American companies that are looking to expand their presence.
The government actively supports technological innovations, in particular, cryptocurrencies. This approach gives cryptocurrency companies the support they need to expand and encourages innovation in the region. On the other hand, there are some disadvantages, to count some:
- high corporate rates;
- a confusing tax system;
- a peculiar corporate culture.
There are currently no regulations in the Netherlands that explicitly prohibit the use and trading of cryptocurrencies. Cryptocurrency is regulated as part of the national implementation of European Union law. The main supervisory authority for cryptocurrency regulation in the Netherlands is the Dutch Central Bank (hereinafter: – “DNB”). The DNB’s goal with regard to cryptocurrencies is focused on overseeing the compliance of virtual assets service providers with anti-money laundering and the financing of criminal or terrorist activities. This means that the DNB focuses on preventing the use of bitcoins and other cryptocurrencies for illegal purposes.
In 2020, the Dutch government implemented new EU rules to regulate cryptocurrencies. The current Dutch anti-money laundering law (hereinafter: – “Wwft”) has been amended to implement the respective EU directive. According to the Wwft, a virtual currency is a digital representation of value that is not issued and guaranteed by a central bank or government, which is not necessarily linked to fiat currency and has no legal status as currency or money, but which is owned by a person or entity accepted as a medium of exchange and can be transmitted, stored and traded electronically. The Dutch government does not want to ban virtual currencies as such, but is keen to regulate them. The current approach to regulating cryptocurrencies is founded on 4 unbreakable principles that officials have outlined for themselves:
- the integrity of the financial system must be guaranteed at all times. One example of this would be to mitigate the risks associated with money laundering;
- the technology behind digital currencies must be preserved and improved. The user should not suffer any damage due to technical errors;
- There is a need to regulate on an international level due cross-border nature of cryptocurrencies;
- gaps in consumer and investor protection should be addressed. These measures must be proportionate to the risks to consumers and investors.
ICO. The only institutional mention of ICOs was made by the Netherlands Authority for Financial Markets (hereinafter: – “AFM”). Back in 2017, the AFM issued a warning about the serious risks associated with initial coin offerings. These risks mean that there is a high probability that investors will lose their entire investment. In the current circumstances, the AFM is advising consumers to avoid investing in ICOs.
Licensing. There is no licence requirement for virtual asset service providers in the Netherlands, however, firms offering exchange services between virtual and conventional currencies and providers of custodial wallets for virtual currencies must obtain a registration/permit to operate from the DNB. Once the DNB has received all necessary information about the company, the assessment team will review the contents of your registration request to determine whether the company, as a virtual asset service provider, meets the legal requirements. Once the corporate information has been assessed, the company will be notified of the decision confirming whether or not they are eligible for registration. The registration process, from setting up a company to obtaining authorisation, can take up to 4-5 months in total.
Cryptocurrency service providers are subject to the requirements of the Wwft regulations. The law specifies which specific entities are subject to the regulatory oversight, including companies professionally engaged in or offer services in:
- virtual currency and fiat currency exchange services; and/or
- secure cryptographic private keys, custodial wallets, on behalf of their customers to store, deposit and transmit virtual currencies (custodial wallets).
Wwft sets a number of requirements for companies such as: conducting customer due diligence (KYC), verification and reporting of suspicious transactions (for occasional transactions over €15,000), the need to appoint a Compliance Officer in an institution with 2 or more employees, etc.
In most cases, the tax authorities treat cryptocurrency as invested capital, which means that it is treated as savings and other investments. If income from the cryptocurrency is received as a regular trading activity or from mining, making it a person’s main source of income, or if the salary is paid in cryptocurrency, then this income shall be taxable under professional activity.
Personal income tax. Income from assets in the Netherlands is subject to wealth tax. For 2021, the non-taxable amount is set at €50,000, meaning that the total value of the total capital invested is less than this threshold, then this income is not taxable. If you have a partner/husband/wife, the non-taxable portion is set at €100,000. The flat rate of wealth tax is 31%.
Corporate income tax
In general, a Dutch resident company is subject to CIT on its worldwide income. The corporate income tax rate depends on the taxable amount. The taxable amount is the taxable profit in a year reduced by deductible losses.
- If the taxable amount is € 395,000 or less, the corporate income tax rate is 15%.
- If the taxable amount is more than € 395,000, the corporate income tax rate is € 59,250 plus 25,8% for the taxable amount exceeding € 395,000.
A reduced rate of 9% applies to activities covered by the innovation box. The innovation box provides tax relief to encourage innovative research. All profits earned from innovative activities are taxed at this special rate.
Should we expect more regulation in the future?
The regulator does not intend to change the national system for regulating virtual assets. The European Parliament is reported to be drafting a legislation (Markets in Crypto-assets) that will establish a single advanced regulation of digital assets across the European Union. Officials say the directive will not come into force until 2024 at the earliest.
The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.