Netherlands

Country Name Netherlands
Country Region Western Europe

Economic and Political Environment

The Netherlands economy is noted for stable industrial relations, moderate unemployment and inflation, a sizable current account surplus, and an important role as a European transportation hub. Industrial activity is predominantly in food processing, chemicals, petroleum refining, and electrical machinery.

A highly mechanized agricultural sector employs only 2% of the labor force but provides large surpluses for the food-processing industry and for exports. The Netherlands, along with 11 of its EU partners, began circulating the euro currency on 1 January 2002. The country has been one of the leading European nations for attracting foreign direct investment and is one of the four largest investors in the US.

After 26 years of uninterrupted economic growth, the Netherlands' economy - which is highly open and dependent on foreign trade and financial services - was hard-hit by global economic crisis. Dutch GDP contracted 3.9% in 2009, while exports declined nearly 25% due to a sharp contraction in world demand. The Dutch financial sector has also suffered, due in part to the high exposure of some Dutch banks to U.S. mortgage-backed securities. 

In response to turmoil in financial markets, the government nationalized two banks and injected billions of dollars into a third, to prevent further systemic risk. The government also sought to boost the domestic economy by accelerating infrastructure programs, offering corporate tax breaks for employers to retain workers, and expanding export credit facilities. The stimulus programs and bank bailouts, however, resulted in a government budget deficit of nearly 4.6% of GDP in 2009 and 5.6% in 2010 that contrasts sharply with a surplus of 0.7% of GDP in 2008. 

With unemployment weighing on private-sector consumption, the government of Prime Minister Mark RUTTE is likely to come under increased pressure to keep the budget deficit in check while promoting economic recovery.

Key economic indicators:

• Population: 16,847,007 (July 2011 est.)
• GDP (purchasing power parity): $680.4 billion (2010 est.)
• Per capita GDP: $40,500 (2010 est.)
• Real GDP growth: 1.7% (2010 est.)
• Unemployment: 5.5% (2010 est.)
• External debt: 64.6% of GDP (2010 est.)

Currency:

Euro

The Banking Environment

Since the end of the 1980s several bank mergers and the formation of financial conglomerates of banks and insurance groups have led to a reduction in the number of companies participating in the financial market.

Transaction banking in the Netherlands is highly automated; cheques are hardly used and cash is withdrawn primarily from ATMs, not over bank counters. Transaction fees tend to be low, and there are no lifting fees. Even the higher cross-border payment fees are moderated by the EU Regulation if the payment is in EUR within the EU and the sender supplies the bank with the beneficiary’s IBAN and BIC. Given that so much trade from the Netherlands is within the EU, this reduction in fees is significant.

Current accounts are in wide use for working capital purposes; they can do overdrawn and also attract credit interest.

Foreign currency accounts are available in a large number of currencies including USD, GBP, JPY etc., and they can also go overdrawn and earn credit interest.

There is no distinction in the way accounts are run if the holder is a resident or non-resident.

All kinds of investment and borrowing instruments are available for longer-term engagements: savings accounts, short and long term deposits, treasury bills etc.

Cash Management Features

The Netherlands is a very open banking environment where transaction fees are low and payments are highly automated.

Customers will usually need an account at the Postbank as well as one in a commercial bank, since the Postbank functions as parallel ACH system to Interpay.

Electronic banking tools are readily available to support the customer in interacting with the Interpay and Postbank systems.

There are few Netherlands-imposed restrictions around the Liquidity Management structures that can be put in place, and the Netherlands has a wide network of favourable double tax treaties.

Tax Considerations

The Netherlands does not levy withholding tax on interest, rental income or royalties.

Withholding tax on dividends is 25% - whether paid to a resident or to a non-resident - but is reduced to 15% under most tax treaties for dividends to individuals. A further reduction is often possible if the shareholder is a legal entity, which owns at least 25% of the shares of the payer. In EU parent-subsidiary situations, in general no dividend withholding tax is levied where both the parent and the subsidiary are normally taxable resident companies of different EU Member States and the parent owns at least 25% of the shares of the subsidiary for a period of at least one year. Some additional requirements should also be met.

There is a split rate of Corporation Tax: 29% on the first EUR22,689 of profits and 34.5% thereafter.

There is an annual real estate tax of between 0.1% and 0.9% (depending on the municipality) of the assessed value of the use of the property (i.e. of  the equivalent of the rental)

The standard VAT rate is 19% but there are also bands at 6% and 0%, and a range of exempt goods.

The arm’s-length transfer pricing principles apply, as laid down in OECD guidelines.

There are no thin capitalisation rules.

Social security taxes are heavy; for employees earning up to EUR38,500 the premia total 17% for the employer, and this rises when the salary goes beyond that level.

Central Bank Reporting

Reporting is limited to around 3,000 companies with a high volume of cross-border transactions. The companies that have to report qualifying transactions do so direct to the Central bank using an online system called e-line BoP.

Only transactions above EUR50,000 have to be reported anyway, so the scope is essentially limited to capital flows.

Foreign Exchange Controls

There are no foreign exchange controls.

Payments and Collections

 Payment Instruments

The main instrument is the credit transfer, which includes the giro transfer through the Postbank system. Usage of direct debits and cards are growing at similar percentage rates, but the average direct debit for an amount four times as large as each debit card transaction. Cheques are scarcely used.

Credit and giro transfers – if not initiated electronically – are initiated on machine-readable forms that are converted by the customer at terminals in the bank.

The Interpay system is the ACH and carries all low-value transaction types; the parallel Postbank system carries a subset of these transaction types but is widely used because so many citizens have a postal account. For this reason corporations who interact with the public prefer to send their credit transfers and direct debits through the Postbank system rather than Interpay.

In general banks in the Netherlands will apply one day value to both debit and credit domestic transfer entries less than NLG 500.000,00. Amounts equal to or more than NLG 500.000,00 have same day value. The so called "clearing day" at the Dutch Central Bank will serve as basis for the value dating.

Cheques

Due to an increase in electronic payments, the use of Eurocheques and girocheques dropped sharply. Since the guarantee scheme for Eurocheques ceased throughout Europe on 31 December 2001, in the Netherlands cheques are hardly used for business purposes.

Lockboxes are not common in the Netherlands due to the lack of cheque use

Electronic Payments

Electronic payments are 98% of all non-cash payments. In the Netherlands there are three clearing systems.

TOP SYSTEM

TOP is the Netherlands’ RTGS system for processing large-value payments, mainly between banks. TOP is run by the Central bank. The  8007 sub-system forms part of TOP and serves to process payments involving non-residents whose accounts are held with different banks in the Netherlands.

The TOP system is the Netherlands’ link into TARGET. It has around 80 participants.

There is no minimum or maximum threshold amount.

Opening hours are the standard 07:00-17:00 CET for customer payments and an extra hour for interbank.

ACH - INTERPAY 

Interpay Nederland is owned by all the Dutch banks. It is an interbank system for low-value retail and commercial transactions. Any paper items are converted into electronic records prior to being presented in the clearing.

In 2000, Interpay processed a total of more than 2.3 billion interbank payment transactions. That works out at an average of 10 million payment transactions per working day

Interpay comprises two sub-systems:

Clearing & Settlement System (CSS) for regular operations
Urgent Payments Circuit for Telegiro payments and for the settlement payments at the end-of-day
The CSS has same-day processing as long as cartridges/tapes are delivered by 08:00 and data transmission by 12:00. Items delivered later are held and processed for value the following day.

CSS is continuously processing items through the day but they are only finally settled at end-of-day, when banks cover their positions in Interpay from their accounts in TOP.

ACH Credits

Credit transfer – initiated by hand written payment authorisations (an “Acceptgiro”) and electronic banking.

Express payments - for Express payments the banks have a special arrangement called 'Telegiro', whereby transfers are done and advised on the same day if presented before certain time limits, depending on the way of delivery, e.g. by telephone, fax or electronic banking.

Bulk payments, incl .salary - Bulk payments (e.g. creditors, salary payments) are business payments, which are directly sent by the customer to Interpay or Postbank. Initiation takes place using data communication and physical information carriers (diskettes, tapes, cartridges).

ACH Debits

Direct debits ('Incasso') are very frequently used in Holland by companies with a lot of private customers, e.g. for collecting insurance premiums, rentals, subscriptions, electricity bill, taxes, etc. A contract to use direct debits at all has to be signed by the user company, their bank and the clearing institute (Interpay). In case a Postgiro account is used a contract has to be signed by the company and Postbank.

Furthermore the company must have authorization from each customer to debit their account (once or periodically). After completion of the contract and having authorization of the customers to debit their account (once or periodically), the company can deliver the direct debits to the bank in batches by tape, diskette, cartridge or electronic banking system of the bank. The direct debits will be credited to the account of the company in one amount. Refused collections will be debited separately, mentioning the reason of refusal. Information of refused collecions will be given on paper (daily statements) and/or electronically. The private customer is allowed to reclaim the direct debit within 30 calendar days from the date of debiting their account, the business customer only 9 working days.

POSTBANK

Postbank is a company now within the ING Group, although previously it belonged to the government. It operates a separate system for more than 7 million private and business Giro accounts; dealing with about 5 million transactions per day.

Due to the fact that 50% of the people in the Netherlands has a giro account also 50% of the payments are giro payments.

Direct debits can also be presented through the Postbank system.

Cards

There are over 6,700 ATMs in the Netherlands and they are interoperable. There are over 25 million debit cards in circulation and 4 million credit cards. Eurocard/Mastercard is the leading credit card brand. Debit cards are normally equipped with an electronic purse function (see below).

Over 80% of cash withdrawals are made at ATMs. The average withdrawal is large.

Despite the existence of 150,000 EFTPOS terminals and so many cards, only 2% of cashless payments are made using EFTPOS. Where a customer in the UK might use EFTPOS and get cashback as well as pay for the purchase, the habit in the Netherlands is draw cash from a bank ATM and use to pay for purchases.

There are two major pre-paid card schemes:

“Chipper”, a joint-venture of KPN and Postbank (7 million issued)
“Chipknip”, issued by other banks (14 million issued)
Both sets of cards now work on the Chipknip technology.

Debit cards are equipped, as stated above, with ability to load credit, at ATMs or public pay phones. The credit can be used at any EFTPOS and 20,000 KPN public phones, so the user can “pay now” (=debit my account”) or “pay purse” (“debit the purse”).

Despite all this, the use of the cards is extremely low and they have not replaced cash for small purchases. Likewise the rise in mobile phone usage has undermined their attraction as a way of phoning from one the move.

Netherlands Payment Volumes

Liquidity Management

The Netherlands is a very friendly environment for Liquidity Management, due to lack of distinction between residents and non-residents, lack of withholding tax, the wide network of double tax treaties, and the absence of lifting fees.

All systems ZBA, Notional Pooling and Interest Enhancement are allowed, but Notional Pooling is mostly used in the Netherlands followed by Zero Balancing or a mixture of both systems.

Above mentioned systems are offered to both resident or non-residents account on the understanding that the necessary documentation is signed. In case of a notional pool with balance compensation the companies involved have to sign a so called joint and several guarantee as security.

Electronic Banking

Electronic payments are very common and increasingly used in the Netherlands.

All banks use their own standard, so there is no single standard, but through additional software multibank solutions are possible.

All kinds of companies make use of EB-systems, nearly all SME companies, mid-corporates and large corporates.

There is an Internet solutions called SET, which is set up through Interpay. Interpay's  Internet payment infrastructure is based on the international safety protocol SETTM (Secure Electronic Transaction) and enables safe payment on the Internet when customers use either Maestro cards with SET built in or Eurocard/MasterCard with SET built-in.

It is possible to make both national and international purchases. Payments can be charged directly to a bank account via Maestro, or on credit with a Eurocard/MasterCard credit card.