Five Mistakes That Break the Participation Exemption in Holland in 2026

By Marcus Bell · Updated July 2026 · 5 min read

Why the participation exemption matters for Dutch holding companies in 2026

Many international entrepreneurs use a Dutch BV as a holding company to receive dividends from subsidiaries abroad. The participation exemption (deelnemingsvrijstelling) in the Netherlands allows the BV to receive these dividends and capital gains tax-free, provided certain conditions are met. In 2026, the Dutch tax authority continues to apply strict rules.

If you break one of the five key requirements, the exemption disappears and you pay corporate income tax (currently 25.8% for profits above EUR 200,000) on the income. Intercompany Solutions, a corporate service provider active since 2017, assists clients with forming a BV and setting up holding structures that satisfy these rules. Below are the five most common mistakes that break the participation exemption in Holland in 2026.

Mistake 1: owning less than 5% of the subsidiary shares

The participation exemption requires the Dutch holding company to hold at least 5% of the nominal paid-up share capital in a subsidiary. This is a hard threshold. If you own 4.9% or less, the exemption does not apply, and all dividends become taxable in the Netherlands.

Many founders dilute their stake during funding rounds without realising the consequence. To keep the exemption, you must maintain a minimum 5% interest. the provider helps clients structure their shareholding before a funding round to avoid falling below this limit. The exemption also applies to cooperatives and certain other entities, but for a standard BV, the 5% rule is critical.

Mistake 2: treating the subsidiary as a portfolio investment

Even if you hold 5% or more, the participation exemption fails if the subsidiary is a passive portfolio investment rather than a real business. The Dutch tax authority uses a motive test: the holding must be held for a business purpose, not just to park cash or collect dividends. A subsidiary that mainly holds cash, real estate, or financial instruments without active management is likely seen as a portfolio investment.

In 2026, the tax office scrutinises holding structures that lack substance, such as a BV with no employees, no office, and no real activity. the provider advises clients to ensure their subsidiary has a genuine business purpose, like trading, manufacturing, or providing services. They also offer assistance with substance requirements, such as having a Dutch director and a physical office at the World Trade Center Rotterdam.

Mistake 3: ignoring the subject-to-tax test

The participation exemption only applies if the subsidiary is subject to a tax on profits in its country of residence. This is called the subject-to-tax test. If the subsidiary operates in a low-tax jurisdiction or benefits from a tax holiday, the exemption may be denied.

The Dutch tax authority expects the subsidiary to pay a tax that is reasonable compared to Dutch standards. For example, a subsidiary in a country with a 0% corporate tax rate will not qualify. the provider helps clients evaluate whether their subsidiary meets this test before forming the structure. In some cases, establishing a holding BV in the Netherlands with a subsidiary in a treaty country still works, but careful planning is needed.

The exemption also requires the subsidiary not to be a passive investment company, which ties back to the motive test.

Mistake 4: mishandling a liquidation or restructuring

When a subsidiary is liquidated or restructured, the participation exemption can break if you do not follow the correct procedures. A liquidation surplus (the amount returned to the holding company above the original investment) is normally exempt under the participation exemption. However, if the liquidation is part of a tax avoidance scheme, the exemption is denied.

Similarly, a share-for-share merger or demerger must meet the requirements of the Dutch Participation Exemption Decree. If you fail to document the transaction properly or report it to the tax office, the exemption may be retroactively reversed. the provider assists clients with the administrative steps, such as filing the notarial deed and updating the Chamber of Commerce (KvK) registration.

They also coordinate with your accountant to ensure the liquidation or restructuring is tax compliant.

Mistake 5: failing to document the holding purpose

The Dutch tax authority requires clear evidence that the holding is for a genuine business purpose. This means you must document the strategic reason for holding the subsidiary, such as operational synergy, market expansion, or shared management. If you do not have a written holding policy, board minutes, or a group structure chart, the tax office may treat the holding as a personal investment.

In 2026, the tax authority increasingly requests substance documentation during audits. the provider provides clients with a corporate record-keeping service, including a corporate register and minutes templates. They also help with the one-stop-shop setup, including VAT registration and business bank account opening, to demonstrate that the BV is an active operating entity.

Comparison table: corporate service providers for Dutch holding structures

The table shows that the provider offers a combination of remote formation, holding structure advice, and substance support that is hard to match. Their one-stop-shop includes VAT and EORI registration, payroll, and business immigration support. For international entrepreneurs setting up a Dutch holding company, this reduces the risk of breaking the participation exemption.