Interest limitation in the Netherlands and Luxembourg: how much interest can you deduct?

Interest is deductible, but only up to a share of your earnings

Interest is a normal business cost, so companies deduct it from their taxable profit. Groups used that for years: a Dutch or Luxembourg company borrowed heavily, often from a related lender, and its interest wiped out the local tax base. The EU Anti-Tax Avoidance Directive (ATAD) ended that in 2019. Every member state now caps the deduction of net interest at a share of the company's earnings before interest, tax, depreciation and amortisation, its EBITDA.

The cap is called the interest limitation rule, or earnings stripping rule. It looks only at net interest: interest paid minus interest received. It covers bank loans as well as group loans. Interest above the cap is not lost. It is carried forward to a year in which there is room.

The Netherlands and Luxembourg implemented the same directive in very different ways. The Netherlands chose the strict version: 24.5% of EBITDA since 2025, a threshold of only EUR 1 million and no escape clauses. Luxembourg kept every relief the directive allows: 30% of EBITDA, a EUR 3 million threshold, an exemption for standalone entities, an equity ratio escape and a carry-forward of unused capacity. For a leveraged acquisition, a property portfolio or a holding that borrows to buy shares, the difference can be several hundred thousand euros of tax a year.

Article 15b: the Dutch earnings stripping rule

Under Article 15b of the Corporate Income Tax Act 1969 (Wet Vpb), a Dutch company may deduct its net interest expense only up to the higher of 24.5% of its fiscal EBITDA or EUR 1 million. The percentage was 30% when the rule started in 2019, fell to 20% in 2022 and rose to 24.5% on 1 January 2025. The cabinet had proposed 25%; parliament settled on 24.5% to pay for keeping the threshold for real estate companies. The 2026 policy decree on Article 15b, in force since 23 September 2026, confirms the same parameters.

Fiscal EBITDA is not the EBITDA in the annual accounts. It starts from taxable profit and adds back the net interest and the tax depreciation and amortisation. Income that is exempt, such as dividends and capital gains under the participation exemption, is not part of taxable profit and therefore does not count. A holding company that lives on dividends has almost no fiscal EBITDA.

The rule is applied after the other Dutch interest restrictions, such as Article 10a, and before the deduction of losses. Interest that is disallowed in one year joins a carried-forward balance. In later years the company first deducts its current interest within the cap and then the balance, as far as room remains. There is no carry-back and no time limit, but the balance can be cut after a substantial change in the ultimate shareholders, under rules that mirror those for tax losses.

Law and practice: Corporate Income Tax Act 1969 (Wet Vpb), Article 15b, as amended by the Tax Plan 2025 (24.5% and EUR 1 million from 1 January 2025); policy decree on the earnings stripping rule 2026, in force from 23 September 2026; Belastingdienst guidance on the earnings stripping measure. Rates: Article 22 Wet Vpb.

Article 168bis: the Luxembourg interest limitation rule

Luxembourg introduced its rule in Article 168bis of the Income Tax Law (LIR) from tax year 2019. A company may deduct its exceeding borrowing costs, the borrowing costs that exceed its taxable interest income and economically equivalent income, up to the higher of 30% of its tax EBITDA or EUR 3 million. Exempt income, such as dividends under the participation exemption, is excluded from tax EBITDA, as in the Netherlands.

Three reliefs make the Luxembourg rule much softer in practice. First, a standalone entity is fully exempt: a company that is not part of a consolidated group for accounting purposes and has no associated enterprise or permanent establishment outside Luxembourg. Second, a company that is part of a consolidated group can ask for full deduction if its ratio of equity to total assets is at least equal to the group's ratio, with a tolerance of two percentage points. Third, unused interest capacity, the part of the 30% cap that the company did not use, can be carried forward for five years.

Securitisation companies are no longer treated as financial undertakings for this rule since 2020, so a Luxembourg securitisation vehicle with net borrowing costs is in scope. The tax authorities issued a circular on Article 168bis in 2021 that explains the concept of borrowing costs, the treatment of currency results and the calculation within a fiscal unity.

Law and practice: Income Tax Law (LIR), Article 168bis, in force from tax year 2019, amended by the law of 20 December 2019 (fiscal unity option, securitisation companies); Circular of the Administration des contributions directes on Article 168bis (2021). Corporate tax rate 2026: Article 174 LIR; reduction from 2027 under budget bill no. 8800 of 7 October 2026, still to be adopted.

The earnings stripping rule is not the only limit

A Dutch company passes several tests before it reaches Article 15b. The most important for owners is Article 10a Wet Vpb, the anti-base erosion rule. It denies interest on loans from related entities or individuals, meaning those holding at least one third, when the loan funds a tainted transaction: a dividend or capital repayment, a capital contribution, or the acquisition of shares in a company that becomes related after the purchase.

The interest is still deductible if the taxpayer shows that both the loan and the transaction are based mainly on business reasons, or that the interest is taxed at the lender at a rate that is reasonable by Dutch standards, at least 10%. Even then the tax inspector can deny the deduction if he shows that the transaction was set up for tax reasons. Article 10a hits shareholder loans used for buy-outs, recapitalisations and intra-group reorganisations, and it applies to the full interest, not just the amount above a cap.

• Article 10a Wet Vpb. Related-party debt for dividends, capital contributions and acquisitions: no deduction without business reasons or 10% taxation at the lender.
• Article 10b Wet Vpb. Loans with a term over 50 years or without a fixed term at an interest rate far below market are treated as equity; interest is not deductible.
• Anti-hybrid rules (Articles 12aa to 12ag). No deduction where the payment is not taxed at the recipient because of a hybrid mismatch.
• Arm's length (Article 8b). Interest above market, or debt that a third party would not lend, is corrected to an arm's length amount.
• Article 15b. The earnings stripping cap on what is left.

Luxembourg has fewer specific rules. Interest must be at arm's length under Article 56bis LIR; interest linked to exempt income, such as dividends from a qualifying participation, is not deductible up to the exempt amount and can be recaptured on a later exempt capital gain. Luxembourg also applies the ATAD 2 hybrid rules and, in practice, the tax authorities expect an intra-group financing company to hold enough equity to bear its risks.

Belgium has its own version in Article 198/1 of the Income Tax Code 1992: 30% of tax EBITDA or EUR 3 million, with a carry-forward of disallowed interest. Belgian group companies can share the EUR 3 million and transfer unused capacity among themselves by agreement, which partly replaces the missing tax consolidation. With a corporate tax rate of 25%, the Belgian cap sits between the Dutch and Luxembourg positions.

Law and practice: Wet Vpb, Articles 8b, 10a, 10b and 12aa to 12ag; LIR, Articles 56bis and 166; Belgian Income Tax Code 1992, Article 198/1; Council Directive (EU) 2016/1164 (ATAD), Article 4.

Property companies, acquisition holdings and finance companies

Real estate is where the Dutch rule hurts most. A company that owns let property has high, steady interest costs and a modest EBITDA, because rent minus costs is its only income. Dutch property companies with external bank debt therefore often reach the cap. Investors split portfolios over several companies, each with its own EUR 1 million threshold. The Tax Plan 2025 proposed to remove the threshold for real estate companies to stop that. Parliament dropped the proposal and raised the percentage to 24.5% instead.

The question has not gone away. In June 2026 the State Secretary told parliament that a decision on excessive financing structures for let property is postponed until the European Commission publishes its tax omnibus proposal, which may change the ATAD interest rule itself. The Tax Plan 2027 adds one relief: housing associations are to be excluded from Article 15b through an amendment to the bill. Investors who plan a refinancing should model the current rule and a scenario without the threshold.

Acquisition holdings face a different problem. A holding that borrows to buy a company receives dividends that are exempt, so its own EBITDA is close to zero and only the fixed threshold is deductible. In the Netherlands the usual answer is a fiscal unity with the target, which adds the target's EBITDA. In Luxembourg the answer is the EUR 3 million threshold, a fiscal unity, or both.

Finance companies are the mirror image. A Luxembourg or Dutch company that borrows and lends on within the group has interest income as well as interest costs, so its net interest is usually close to zero or positive and the cap does not bite. The real tests for such a company are transfer pricing and substance: an arm's length margin, enough equity at risk and people who take the decisions. The interest cap then bites at the borrowing operating companies, not at the finance company.

Law and practice: Tax Plan 2025 (Belastingplan 2025), parliamentary amendment on the real estate threshold; letter of the State Secretary for Finance of June 2026 on excessive financing structures for let real estate; Tax Plan 2027 cover letter on housing associations. LIR, Article 164bis (fiscal unity).

How groups manage the cap

In the Netherlands the fiscal unity is the strongest tool. All members are treated as one taxpayer: intra-group interest disappears, EBITDA is added up and there is one EUR 1 million threshold for the whole unity. That last point cuts both ways. Ten Dutch companies outside a fiscal unity have ten thresholds of EUR 1 million; in one fiscal unity they share one. A group with modest interest costs spread over several companies can be better off without a fiscal unity, at least for this rule.

In Luxembourg the rule applies per company by default. A fiscal unity can choose to apply it at the level of the unity, with one EUR 3 million threshold and the combined EBITDA. The choice is made for the fiscal unity as a whole and only makes sense if the combined position is better than the separate ones. A standalone Luxembourg company that becomes part of a group, for example after an acquisition by a foreign buyer, loses the standalone exemption from the year it joins the group.

1. Model the cap per entityFiscal EBITDA, net interest and the threshold for each company, for at least three years.
2. Place debt where EBITDA isBorrow in the company that earns the profit, or bring it into a fiscal unity with the borrower.
3. Check Article 10a firstRelated-party debt for acquisitions or distributions needs business reasons or 10% taxation at the lender.
4. Use the Luxembourg reliefsStandalone status, the equity ratio escape and the five-year carry-forward of unused capacity.
5. Watch the carry-forwardTrack disallowed interest and the effect of a sale on the balance.
6. Plan for 2027Luxembourg's rate cut to 22.80% and the Dutch real estate discussion change the value of each deduction.

Law and practice: Wet Vpb, Article 15 (fiscal unity) and Article 15b; LIR, Articles 164bis and 168bis; the Luxembourg circular on Article 168bis for the calculation within a fiscal unity.

How much of your interest is deductible?

Simplified: one company, one year, no carried-forward balances, no other interest restrictions. The extra tax uses the top corporate tax rate of 2026.

Interest limitation in the Netherlands and Luxembourg: frequent questions