The ruling came in the case of Dutch trader Frans van Anraat, who was given a 15-year sentence for selling chemicals to Saddam Hussein's regime used for deadly gas attacks on Kurdish villages.
Van Anraat, was found guilty of complicity in war crimes over a 1988 chemical attack that killed more than 5,000 people, but was acquitted of genocide charges.
The court said it could not be proven that he knew of the Iraqi regime's genocidal intentions.
"The attacks caused the deaths of many people and caused much suffering among the survivors," the court said in its ruling.
"The crimes are of such a grave nature that even the maximum sentence cannot do them justice," the judges said before sentencing the Dutchman to the maximum of 15 years in prison.
Under international law, genocide carries a special burden of proof, namely that a suspect had a specific intent or knew of a specific intent to commit genocide, in order to reach a conviction.
For war crimes the burden of proof is less, which explains why Van Anraat was convicted on war crimes charges based on the same evidence.
Implications for Saddam
The Dutch ruling marks the first time a court has ruled that Saddam committed genocide in Iraq with the 1988 massacre of Kurds in the town of Halabja.
The attack, which killed more than 5,000 people in a single day, also features among the preliminary charges against the former Iraqi ruler who is currently on trial in Baghdad.
The Dutch court said Iraq carried out a "genocidal campaign" against the Kurds from 1984 to 1988.
"The court believes that it is a well known fact that Saddam Hussein wielded absolute power in Iraq in that period and as such was directly involved in the attacks and the campaign against the Kurdish population," the judges said.
The court said Van Anraat, 63, who acted as a middleman buying chemicals on the world market and selling them to Iraq despite export bans in the 1980s, acted "out of the love of profit".
The court said it was legally established that the businessman supplied chemical ingredients for mustard and nerve gas to Iraq between 1985 and 1988.
Iraq then used the ingredients Van Anraat sold to make nerve gas used in deadly attacks on Kurdish villages in Iraq and Iran.
The judges said Van Anraat "must have known" that the chemicals he provided could be used to make poison gas.
During the court case, the businessman admitted selling the chemical components to Iraq, but always maintained he was not aware of their eventual purpose.
Van Anraat, who is in detention, did not appear in court for the verdict but his lawyers told ANP news agency that they would appeal the ruling.
The former chemicals trader was first arrested in Italy in 1989 on a United States warrant but later fled to Iraq where he lived for 14 years. He remained in Iraq until US-led forces invaded the country in 2003 and then returned to the Netherlands where he was arrested in December 2004.