The Netherlands as a financial center
The Netherlands is known for its high-quality financial and business services sector, and the country is home to some of the world’s largest pension funds. Globally, the Dutch financial sector is one of the best in the fields of retirement management and financial logistics and as a trading venue. The Netherlands has developed substantial knowledge on climate and (financial) sustainability, and holds a prominent position in international rankings.
The Dutch economy has experienced a period of economic boom in the last three years, with GDP growth equalling 2.5% – 3% on average. The Dutch banking sector plays an important role in the economic functioning of the Netherlands and has a relatively large size when compared to the GDP. Its assets accounted for 314% of GDP in 2020, down from 530% of GDP in 2007. The decline in balance size, combined with developments such as digitisation and cost reduction programmes, logically have led to a net decline in employment within the banking sector. In 2019, about 70,000 people were employed in the Dutch banking sector (based on NVB’s members). The larger Dutch banks are internationally active to serve the open and export-oriented Dutch economy. The five largest Dutch banks account for about 85% of the total assets of the sector. However, with the European Banking Union phased in step by step, the European market gradually becomes the relevant market. The ownership structure of the three major banks is diverse. The largest bank is publicly listed, the second largest is a cooperative institution and the third largest is partly state-owned. Capitalisation of Dutch banks is above eurozone average. Cost reduction and digitalisation drive profitability. The market is dynamic, new entrants have entered, for example, the Dutch market for mortgages in the last years. Nowadays, roughly 50% of new mortgage loans are issued by non-banks.
The insurance sector is an important contributor to the financial sector. In terms of assets, the insurance sector accounts for about 17 percent of the sector’s assets, with assets just over 140 percent of GDP. About 50 percent of those assets are related to international activities . Notwithstanding a constant decline in the number of insurers in the past two decades, from 450 insurers in 1998, a large number of insurers remain active in the market with just under 200 insurers domiciled in the Netherlands.18 Of those, 117 are writing non-life business (down from 172 in 2011 through mergers and acquisitions) and 39 are life insurers
The Netherlands is one of the largest recipients of FDI in the world and has recently overtaken the UK as the first destination for FDI in Europe. However, according to UNCTAD’s 2020 World Investment Report, FDI flows to the Netherlands decreased to USD 84 billion last year, down from USD 114 billion in 2018 (-26.3%). This was mainly due to a large transaction – the USD 36 billion IPO of a foreign affiliate of Nasper (South Africa), registered as a divestment. Total FDI stocks stood at USD 1.75 trillion in 2019, edging down from USD 1.86 trillion a year earlier. Despite the drop in inbound investment, the number of greenfield projects has been rising since 2016: data from InvestmentMonitor shows that the country attracted 334 greenfield projects in 2019, compared to 309 one year earlier. The main investing countries are the United States, Luxembourg, the United Kingdom and Switzerland. The vast majority of investments are allocated in the financial and insurance services, followed by manufacturing, wholesale and retail trade. According to data by OECD, the Netherlands recorded a sharply negative inflow of FDI in the first half of 2020, with a disinvestment estimated at USD 86.6 billion, mostly due to the COVID-19-driven global economic crisis (which prompted a drop of 50% in FDI inflows at world level, compared to the second half of 2019).
Principal business forms
Most foreign companies establish a legal entity upon or after starting operations in the Netherlands.The most common form of such entities is a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid – BV) or a limited liability company (naamloze vennootschap – NV). Another common legal entity in the Netherlands, which is growing more popular, is the cooperative (coöperatie).
Other common forms of business are:
• sole proprietorship (eenmanszaak);
• general partnership (vennootschap onder firma – VOF);
• private partnership (maatschap);
• limited partnership (commanditaire vennootschap – CV).
Real Estate –
The real estate sector has been one area to benefit from this robust landscape, with a significantly noticeable uptick in activity in recent years. And this is playing out in two key areas – direct investment in Dutch real estate, and the use of Dutch structures and fund administration businesses for the holding and management of global property portfolios.
Indeed, capital flows from international investors into the domestic real estate market accounted for more than half of total investment flows across all asset classes into the country over the past five years. After a record year in 2017, the Dutch real estate market saw investment volumes drop slightly in 2018 to €20.7bn, but historically this is still very high. Transaction levels were strong across all sectors, with investors interested in office buildings and residential real estate, logistics/storage, hospitality and specialty asset types such as senior housing, education and healthcare.
Dutch pension system
The Dutch pension system consists of three pillars: the AOW, the supplementary occupational pensions and the individual pension products. The AOW is the only statutory pension scheme in the Netherlands. This pension layer is financed on a pay-as-you-go basis by the government and provides basic old age income to all citizens. The flat-rate pension benefit in principle guarantees 70 percent of the statutory minimum wage. About 3.4 million people received €35.7 billion in 2015. The second pillar is provided through occupational pensions that are primarily financed by means of contributions paid by employer and employees. It is a fully funded system and, for most employees, participation in a pension plan is automatically linked to their contract of employment, resulting in 90 percent coverage of the working population. The third pillar consists of private savings for retirement. These products are offered by insurers and banks and are usually incentivized by favorable tax treatment. This TN covers in detail the second pillar. The first pillar is discussed briefly as it mainly has fiscal implications, and the third pillar is covered as part of the insurance sector.
Dutch Stock Market
Euronext Amsterdam (EURONEXTAMS), formerly known as the Amsterdam Stock Exchange, is the sole stock exchange in the Netherlands. It merged in the year 2000 with the Brussels Stock Exchange and Paris Bourse to form the pan-European exchange Euronext, which is currently the largest exchange in continental Europe. EURONEXTAMS is supervised by the Netherlands Authority for the Financial Markets (AFM) and is subject to both E.U. and Dutch regulations. All transactions are processed through a trading system called the Universal Trading Platform (UTP), which will be replaced by a new multi-market platform called Optiq. It lists 169 companies with a total market cap of €937 billion and also houses bonds and ETFs.
Among the listings are well-known and actively traded companies such as AkzoNobel, ING group, Philips, Royal Dutch Shell and Unilever. The main stock index is the AEX index, a capitalization-weighted index composed of the 25 largest listed companies, which is widely recognized as the benchmark index for the Dutch stock market. Related indices are the AMX index, which tracks the performance of 25 mid-cap stocks and the AEX GR, a gross total return index that tracks the capital gains of the AEX companies over time.