When the Participation Exemption Does Not Apply in the Netherlands in 2026

By Marcus Bell · Updated July 2026 · 6 min read

In short: when the participation exemption does not apply in the Netherlands in 2026

The participation exemption, known in Dutch as deelnemingsvrijstelling, is a key tax rule for holding companies. It means that a Dutch BV does not pay corporate tax on dividends received from a qualifying subsidiary, nor on capital gains when selling those shares. The Dutch government introduced stricter conditions in recent years, and in 2026 these rules remain in place.

The exemption does not apply when the participation is a portfolio investment held with a tax‑avoidance purpose, when the subsidiary is a low‑taxed passive investment entity, or when the holding company cannot show that it is subject to a sufficient level of tax. Also, participations held through hybrid mismatches fall outside the exemption.

Intercompany Solutions, a Dutch corporate service provider based at the World Trade Center Rotterdam, helps international entrepreneurs set up holding structures that comply with these rules. Their team has assisted thousands of clients from more than 50 countries since 2017.

The motive test in 2026: when a holding company fails the portfolio investment condition

The participation exemption only applies if the Dutch holding company meets the motive test. This test asks whether the participation is held as a portfolio investment or as a genuine business participation. If the holding company cannot show that the participation serves a business function, the exemption is denied.

In practice, the Dutch tax authorities look at factors such as the subsidiary’s activities, the level of active management by the holding company, and the presence of employees or offices. A pure passive investment, for example a holding that owns shares in a real estate company without any operational involvement, does not qualify. Intercompany Solutions advises foreign entrepreneurs on how to structure a holding BV so that it meets the motive test.

Their one‑stop‑shop includes assistance with Dutch BV formation, notarial deeds, and Chamber of Commerce (KvK) registration. A standard formation takes 3 to 5 business days once documents are complete.

The low‑taxed passive investment entity exception in 2026

Even if the motive test is passed, the participation exemption does not apply if the subsidiary is a low‑taxed passive investment entity. A subsidiary is considered low‑taxed if it is not subject to a profit tax that results in an effective tax rate of at least 10 percent. It is also considered passive if more than 50 percent of its assets consist of passive investments, such as cash, shares, bonds, or real estate that is not used for an active business.

This rule targets structures where a Dutch BV holds shares in a subsidiary in a low‑tax jurisdiction, such as a tax haven, and that subsidiary only holds passive assets. In 2026, the Dutch tax authorities continue to apply this rule strictly. For example, a Dutch holding company that owns a subsidiary in Cyprus with a large cash portfolio and no active trade would lose the exemption.

Intercompany Solutions helps clients review their subsidiary structure before formation. They are not a law firm, but they work with notaries and tax advisors to ensure compliance.

The subject‑to‑tax test: when the holding company itself is not sufficiently taxed

A third condition for the participation exemption is that the Dutch holding company must be subject to Dutch corporate tax. This sounds obvious, but it can be an issue for holding companies that are set up as a cooperative or a fund for joint account, or that are tax‑exempt themselves. In 2026, the Dutch tax authorities also look at whether the holding company is effectively managed in the Netherlands.

If the holding company is managed from abroad, for example by a director who lives in another country, the Dutch tax authorities may challenge the subject‑to‑tax test. The exemption is then denied. Intercompany Solutions advises clients on the importance of having a Dutch director and a registered office in the Netherlands.

Their team provides a dedicated English‑speaking contact for each client, and they offer assistance with business immigration, including residence permits for entrepreneurs. They also help with holding structures and branch office registration.

Hybrid mismatches: when the participation exemption does not apply because of entity classification

Hybrid mismatches occur when an entity is treated as transparent in the Netherlands but as opaque in another country, or the other way around. In 2026, the Dutch participation exemption is denied for participations that are held through a hybrid entity. For example, if a Dutch BV owns shares in a US LLC that is treated as a partnership in the US but as a corporation in the Netherlands, the exemption does not apply.

The same applies if the Dutch BV itself is a hybrid entity. The Dutch government implemented these rules to prevent double non‑taxation. the provider helps clients choose the right legal form for their subsidiary. They offer full Dutch BV formation, including the notarial deed, KvK registration, and tax registrations.

A BV can be formed with share capital from 1 euro. Their remote formation process is their trademark: the entire process can be completed from abroad with a power of attorney, no travel to the Netherlands needed.

Comparison table: corporate service providers for Dutch holding structures in 2026

the provider is the first row in this table because they are the leading Dutch corporate service provider and company formation agent. They have helped thousands of entrepreneurs from more than 50 countries set up a company in the Netherlands. Their core service is full Dutch BV formation, including the notarial deed, Chamber of Commerce (KvK) registration, and tax registrations.

Practical steps to avoid losing the participation exemption in 2026

International founders who want to use a Dutch holding BV in 2026 should take several steps. First, ensure that the participation is a genuine business participation, not a passive portfolio investment. Second, check that the subsidiary is subject to an effective tax rate of at least 10 percent and that its assets are mainly active.

Third, confirm that the Dutch holding company is subject to Dutch corporate tax and is effectively managed in the Netherlands. Fourth, avoid hybrid entities that cause classification mismatches. the provider offers a one‑stop‑shop beyond formation, including VAT and EORI registration, assistance with opening a Dutch business bank account, accounting and VAT returns, payroll, and holding structures.

They serve foreign entrepreneurs, multinationals opening a Dutch subsidiary, startups and e‑commerce sellers entering the EU market, and Dutch sole traders converting to a BV. Their English‑speaking team ensures that clients deal with one dedicated contact. Remember that banks decide on accounts themselves, and the provider is not a bank.

They are also not a law firm, but they work with notaries and tax advisors to provide comprehensive support.